Analysts beef up C-band auction forecast to $26B - $35.2B range

Analysts at Morgan Stanley Research raised their C-band mid-point auction forecasts from $23.5 billion in proceeds to about $26 billion, with their high-end estimates at $35.2 billion.

The firm cited a relatively low turnout in the Citizens Broadband Radio Service (CBRS) 3.5 GHz auction as a catalyst, as well as improved macro environment and supportive credit markets. The lower-than-expected turnout by big carriers in the CBRS auction indicates they’re likely saving their gun powder for the big C-band auction, which offers more unencumbered mid-band spectrum for 5G.

Morgan Stanley’s latest mid-point forecast translates into 30 cents/MHz-PoP compared to their previous forecast of 27 cents/MHz-PoP. Their figures do not include some $3 billion to $5 billion of relocation costs, although they do encompass incentive payments to satellite operators of close to $10 billion.

Like many on the U.S. spectrum watch, they continue to expect Verizon to come out the biggest spender in the C-band auction. Verizon has the lowest low- and mid-band spectrum holdings of the Big 3 and Verizon is likely looking to acquire 100 MHz or more in major markets – with a focus on the initial 100 MHz Phase 1 spectrum.

The analysts think AT&T is motivated but hindered by financial constraints. “Wireless is AT&T’s largest business, and while they have a national 5G network, performance is limited by the lack of mid-band spectrum,” wrote analyst Simon Flannery in a report on Friday. “Their major constraint is their Balance Sheet, although they have been able to term out debt, and the Phase 2 success based payments will not come due until 2023, proving some cash flow benefits.”

In all, the FCC will offer 5,684 licenses across 14 unpaired 20 MHz blocks for a total of 280 MHz in the C-band auction. An additional 20 MHz guard band also will be cleared. Morgan Stanley’s report notes that under Phase 1, spectrum in 46 of the top 50 markets will be cleared first under the accelerated relocation plan with a target date of December 5, 2021. The Phase 2 markets are due to be available by December 2023.

As for those companies outside of the Big 3 wireless carriers, the analysts expect they will spend about 15% of the total, or $4 billion, versus their previous estimate of 10%. They’re also increasing their expectations for what AT&T and T-Mobile will spend by $500 million each while keeping their Verizon estimates unchanged. Their estimate for Verizon’s spend is $12.1 billion in the mid-range and $16 billion at the high end.

T-Mobile expected to make appearance

While T-Mobile is in an enviable position with its sub-6 GHz spectrum – more than AT&T and Verizon combined – it’s still expected to be an active participant in the C-band auction. “They may be more interested in Phase 2 spectrum available in late 2023, although from a strategic point of view, they may want to make sure that their competitors don’t get a bargain on the Phase 1 spectrum,” Flannery wrote. “Note that T-Mobile just increased the size of their revolver by $1.5Bn to $5.5Bn, giving them additional firepower if needed, while also recently pricing a $4bn notes offering.”

RELATED: T-Mobile CEO on C-band: We’re interested, but ‘disciplined’

Dish Network exited the CBRS auction in second place, buying a near nationwide CBRS footprint for $913 million. “While Dish’s spectrum appetite is clear, we had thought that they would conserve their financial capacity to help with their 5G network build,” Flannery said. “The company believes it needs $10B to fund the network buildout, but participation in the C-band auction to a limited extent is certainly possible.”

Along with T-Mobile, the cable companies could be the biggest swing factor in the C-band auction, according to Morgan Stanley. Charter Communications and Comcast showed up to the CBRS auction with intentions to augment their MVNO agreements with facilities-based buildouts, and the same is expected in the C-band auction. However, because the license areas in the C-band are based on the larger Partial Economic Areas (PEAs) instead of counties, it may be less appealing to the cable companies.  

Great expectations  

Predicting how much a spectrum auction will attract in gross bids is not exactly a slam dunk. Some analysts expected the CBRS auction could fetch $8 billion to $10 billion; it ended up raising $4.58 billion after 76 rounds. A filing (PDF) by the now-defunct C-Band Alliance earlier this year cited two separate reports from two economic firms that estimated the value of 280 MHz of C-band spectrum at $43 billion to $77 billion.

RELATED: Senators introduce C-band legislation to prevent windfall for satellite companies

New Street Research analysts created a scenario where they believe a total of $55 billion will be spent on both CBRS and C-Band, with their latest estimates putting the C-band at $51 billion. They have more confidence that Dish will show up to the C-band since the spectrum is more valuable to Dish than CBRS. If Dish was willing to spend close to $1 billion in the CBRS auction, “we are more confident that they will be a big player in C-Band,” wrote New Street’s Jonathan Chaplin in a note earlier this month.

At last check, MoffettNathanson Research expected Verizon to spend $16.25 billion on C-band in 2021, but that was before the CBRS auction ended. 

Analyst Craig Moffett also said that AT&A has no less need for C-band spectrum than Verizon, but it has less money to keep pace with T-Mobile. “The pressures on AT&T’s balance sheet make an outlay the size of what we have modeled for Verizon highly problematic; it’s simply not likely that they could spend that much given their current leverage ratio and the pressures they are experiencing in their media-related business,” Moffett wrote.

The C-band auction is scheduled to start December 8; the quiet period began September 22.