US Telecom: Verizon Shells Out $3 Billion for Spectrum as SpaceX Treads Lightly

Verizon VZ was the big bidder in Auction 113, spending $3.2 billion on 82 spectrum licenses. T-Mobile TMUS picked up more than 100 licenses, nearly all in small markets, for only $277 million. AT&T T added 13 licenses for $133 million. SpaceX SPCX did not bid aggressively, landing two licenses for $8 million.

Why it matters: Our suspicion that EchoStar ECHO drove up prices despite shuttering its wireless network was confirmed, which limits the insight these auction results provide. The licenses in this auction were previously sold to EchoStar but withheld in a dispute with the Federal Communications Commission.

• EchoStar had $1.7 billion in bids outstanding when the total auction proceeds crossed $3 billion, ensuring it wouldn’t have to pay a fee to the FCC. It ended up winning only two licenses for $1 million.
• The price of the New York City license, which sold for $924 million, increased threefold in bidding solely between EchoStar and Verizon, after AT&T and T-Mobile dropped out.

The bottom line: We are surprised that Verizon bid so aggressively, especially in New York, where it isn’t particularly spectrum-constrained. Perhaps the firm believes it can now negotiate aggressively for the remainder of EchoStar’s AWS-3 licenses.

• Our fair value estimate and moat ratings are unchanged for the major wireless carriers. This was a small auction that doesn’t affect the relative position of these firms
• SpaceX bid on the three available J block licenses, which makes sense because they are adjacent to the licenses it is buying from EchoStar. But it didn’t win any of these, bowing out at a third of the ultimate winning bids.

Between the lines: We expect a lack of spectrum, among other upfront costs, to prevent SpaceX from entering the traditional terrestrial wireless market. The firm acquired a license covering the US Gulf, where satellite service makes perfect sense.