If spectrum is real estate, does spectrum value vary as housing and real estate prices do? Recent spectrum auctions in India raised prodigious amounts of money.
The cost of acquiring spectrum in the recent Indian mobile spectrum auction were high enough that Bharti Airtel, Idea Cellular and Reliance Communications may take a sharp hit to earnings in 2016 and 2017, driven by interest charges on borrowed money spent to acquire spectrum.
And most observers say retail end user costs are certain to rise, as the capital investment has to be recovered.
Bharti Airtel’s net profit could drop eight percent, starting in April 2016, US brokerage Morgan Stanley estimated. that would be mild, compared to what could happen at Idea Cellular and Reliance Communications.
Idea Cellular could see earnings before interest and depreciation drop 27 percent, while Reliance sees a plunge of 26 percent
To put the auction spending in perspective, the sums expended are equal to more than 90 percent of its annual revenue. Presumably, the higher debt loads and compressed earnings will make network investments tougher.
Ultimately, customers pay for everything, so effective retail prices are going to climb. That arguably is unhelpful for those aiming to rapidly expand mobile Internet services.
So do spectrum prices always rise. It often seems as though they do. But not always.
Spectrum “is not a simple commodity,” said Craig Moffett, MoffettNathanson senior analyst.
Moffett said spectrum prices actually have fluctuated over the past decade in the U.S. market, for example, making it difficult to forecast what spectrum licenses will sell for in the future.
In some cases, prices for the same spectrum licenses have declined. During the FCC’s Auction 35 for the 1900 MHz PCS C and F Blocks in 2001, prices per MHz-POP hit $4.35, said Moffet.
In 2005, when there was a re-auction of that same spectrum, prices only reached $2.65 per MHz-POP.
PCS C and F Block prices reached $0.88 per MHz-POP during the FCC’s Auction 58 in 2005, and then they fell to $0.58 in 2010 when those licenses were subsequently sold.
“There are no discernable patterns” in prices over time, Moffett noted.
Moffett explained that the price paid for spectrum licenses often depends on who is buying. Dish Network’s bidding in the recent AWS-3 auction helped increase overall prices.
Cox Communications and Comcast participated in the AWS-1 spectrum auction in 2006, helping to increase prices during that auction.
That observation about the presence or absence of bidders, and the incentives potential bidders might have at various times, might be especially relevant for the now-postponed auctions of 600-MHz broadcast TV spectrum
That complicated auction will require two auction processes, possible spectrum set-asides, and possible boycotts by one or two of the biggest potential bidders. All those relatively unusual potential factors could lead to unpredictable impact on prices.