Everyone wins who doesn't own spectrum.sold auction180 Beneath all the rhetoric, spectrum prices should be coming down around the world. Wireless technology is moving so fast that there just isn't much need for more spectrum. The spectrum price fall in the U.S. and the low bids in India suggest a general trend worldwide, but predicting auctions is very tricky. I've been writing "An Age of Wireless Abundance" for the last two months, but didn't call the auction. Tim Farrar had perspective last fall and a prescient call a month ago.  

John Hodulik's and Craig Moffett's notes this morning showed why they are the best on Wall Street. John wrote, "This brings the broadcaster ask well below our prior expectations for forward auction proceeds." Kudos also to Brett Feldman of Goldman for, "We estimate that the auction will end with just under $18bn of bids, implying a valuation of $0.86/MHz/POP, which is half of our generic ‘low-band’ spectrum value estimate of $1.69." Few in the public eye are frank about mistakes like this, but we all make them. Honest admissions earn respect.

Moffett looked at the implications in the U.S. of prices he expects, "radically lower than recent benchmarks." He concluded, "At $1.00 per MHz-POP, Dish’s shares would be worth about just over a third of their recent trading range." I saw the same thing last night. I'm amazed the price of DISH didn't go down yet as I write this.

Craig went on to discuss what clearly now is a buyer's market for spectrum.

He notes that Verizon has "balance sheet constraints." AT&T's "balance sheet is stretched to the breaking point." Craig has been pointing out how hard they've had to work just to cover their dividends. They continue to raise dividends every year to inflate the stock price, but earnings have been flat to down. Both should be cutting dividends but fear the stock price - and CEO options - would collapse. Both will remain among the most profitable companies in the world for years, but the stock price needs to come down to connect to reality. They are masters of creative accounting, but common sense suggests they should be taking large writeoffs soon on spectrum value. If they don't, they have been undervaluing spectrum for years. The accounting rules are so imprecise they probably haven't broken the law. Telco balance sheets, at least in the U.S., should be considered fiction. The same is true of the absolute level of capex. Steve Levy back in the days of Lehman Brothers compared the reported capex to the visible actual investment costs. About half was unexplained, implying that the telcos were burying operating expenses in capex, raising measures of earnings. For a decade, the top analysts have been tracking company cash flow, because reported earnings are so easy to manipulate.

Also hanging over DISH are "build-out requirements that it simply can’t realistically meet on its own." Some come due in two months. Farrar thinks the $hundreds of million settlement with Straight Path sets a precedent for how to treat DISH. They could, and should, lose spectrum they value in the $billions.  

If the new FCC chair has any courage, they can create a fifth U.S. competitor simply by forcing Charlie Ergen to live up to the terms of his license agreements. I believe making sure we have plenty of competition (and good information) should be the first priority for anyone who believes in "markets." Just getting government out of the way rarely works in capital heavy businesses like telecom. The public actions of likely FCC candidates like Jeff Eisenach and Ajit Pai suggest they disagree. Both are very smart and I believe dedicated to the public interest. If they take strong actions against market power, they will surprise their critics.

 

 

 

 

dave askOn Oct 1, Verizon will turn on the first $20B 5G mmWave network, soon offering a gigabit or close to 30M homes. The estimates you hear about 5G costs are wildly exaggerated. Verizon is building the most advanced wireless network while keeping capex at around 15%.

The Koreans, Chinese, and almost all Europeans are not doing mmWave in favor of mid-band "5G," with 4G-like performance. Massive MIMO in either 4G or "5G" can increase capacity 4X to 10X, including putting 2.3 GHz to 4.2 GHz to use. Cisco & others see traffic growth slowing to 30%/year or less. Verizon sees cost/bit dropping 40% per year. I infer overcapacity almost everywhere.  

The predicted massive small cell builds are a pipe dream for vendors for at least five years. Verizon expects to reach a quarter of the U.S. without adding additional small cells. 

In the works: Enrique Blanco and Telefonica's possible mmWave disruption of Germany; Believe it or don't: 5G is cheap because 65% of most cities can be covered by upgrading existing cells; Verizon is ripping out and replacing 200,000 pieces of gear expecting to save half. 

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 5G Why Verizon thinks differently and what to do about it is a new report I wrote for STL Partners and their clients.

STL Partners, a British consulting outfit I respect, commissioned me to ask why. That report is now out. If you're a client, download it here. If not, and corporate priced research is interesting to you, ask me to introduce you to one of the principals.

It was fascinating work because the answers aren't obvious. Lowell McAdam's company is spending $20B to cover 30M+ homes in the first stage. The progress in low & mid-band, both "4G" and "5G," has been remarkable. In most territories, millimeter wave will not be necessary to meet expected demand.

McAdam sees a little further. mmWave has 3-4X the capacity of low and mid-band. He sees an enormous marketing advantage: unlimited services, even less congestion, reputation as the best network. Verizon testing found mmWave rate/reach was twice what had been estimated. All prior cost estimates need revision.

My take: even if mmWave doesn't fit in your current budget, telcos should expand trials and training to be ready as things change. The new cost estimates may be low enough to change your mind.