Perhaps it is not yet clear whether licensed spectrum prices will fall as we near the 5G era and huge blocks of new millimeter wave spectrum, and new allocations of unlicensed and shared spectrum also are made.
On the other hand, it is fair to conclude that Indian regulators vastly overestimated demand for spectrum in the recently-concluded mobile spectrum auction, at the prices set for purchase of that spectrum, including a whopping 2355 MHz worth of assets. By the end of the auction, more than 60 percent of the available spectrum remained unsold, suggesting the reserve (minimum) prices were set far too high to clear all the inventory. Spectrum in the 700 MHz band, for example, failed to attract any bids at all.
Beyond those tactical issues, one might still ask whether the price of licensed spectrum will increase, decline or remain flat as huge new amounts of spectrum are released for commercial use, including significant amounts of unlicensed and shared spectrum.
At the same time, we are growing ever more sophisticated about bonding licensed and unlicensed spectrum, using better radios and small cell architectures to wring more performance out of any available spectrum.. As the Indian auction illustrates, potential licensees, markets and regulators can disagree significantly about the value of spectrum, for example.
Consider just a few examples from the U.S. market. Some have estimated the total value of 2.5-GHz spectrum held by Sprint at $115 billion or so. Others might argue that all of Sprint’s spectrum is worth around $60 billion. It is worth noting both those figures exceed Sprint’s total market valuation of about $28 billion, in the third week of October 2016. Somebody is wrong, by quite a lot.
“We estimate that Sprint is valuing principally 2.5 GHz spectrum at $1.85/MHz/POP, which is more than six times the $0.30/MHz/POP it effectively paid for this spectrum when it acquired Clearwire in 2013,” says BTIG equity analyst Walter Piecyk.
How much is Dish Network spectrum worth? Observers continue to argue about the matter. Analysts at Kerrisdale Capital have argued that demand for Dish Network’s spectrum is wildly optimistic, and that spectrum prices are headed dramatically lower.
Others have argued that the spectrum represents most of the equity value of Dish Network as a whole. Some have pegged the mobile spectrum licenses as 80 percent of Dish equity value, based on a valuation of $35 billion to $50 billion for the spectrum licenses. By some estimates, facilities-based U.S. mobile operators, plus Dish Network, own about $368 billion worth of spectrum licenses.
AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman, while the value of Verizon’s spectrum is $79.4 billion. In all, AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman. He also estimates the value of Verizon’s spectrum at $79.4 billion. The current equity value of all AT&T stock is $176.5 billion, implying that spectrum alone represents 51.6 percent of AT&T’s total equity value.
Verizon’s market value is $207.9 billion, implying that Verizon’s spectrum represents 38 percent of total valuation.
Bloomberg Intelligence has estimated the total value of Sprint’s 2.5-GHz spectrum alone at $115.1, about 2.4 times Sprint’s enterprise value of $48 billion.
In fact, some have argued that T-Mobile US spectrum accounts for more than 100 percent of its total market value.
Sprint apparently values 14 percent of its spectrum holdings at $16.4 billion as part of a recent sale-leaseback of spectrum. That implies a total valuation of spectrum at about $117 billion, or about four times Sprint’s present market capitalization. Clearly there is a huge variance; some might say a disconnect.
Either Sprint’s spectrum is not worth as much as it claims, or the market is seriously undervaluing Sprint as an asset.
Dish Network has a huge interest in spectrum valuation , as it holds a significant block of mobile spectrum that must either be put to use, or sold, or returned to the government.
“If we valued Dish’s core business at five times the consensus 2016 EBITDA estimate and $1.85 per MHz per POP it would imply a value of $106 per share for Dish and $85 per share if we taxed the gains from a sale of spectrum at that level at 35 percent,” Piecyk argues.
In the third week of October 2016, Dish Network’s equity is selling for about $57 a share. Again, there is a disconnect between implicit spectrum value and equity value of the whole business using–or potentially using–that spectrum.
So it is reasonable to ask whether spectrum prices should start to fall, despite ever-growing demand, as supply changes dramatically.
