Wireless likely to consolidate following incentive auction, but the Trump question looms

colin gibbs

Analysts have speculated for months that the wireless industry is likely to consolidate following the conclusion of the ongoing incentive auction of 600 MHz airwaves. And that speculation has heated up with the election of Donald Trump.

The FCC’s auction is in the midst of a third stage after Stage 2 ended abruptly last month, generating a mere $21.5 billion in bids in a single round. The event is likely to drag into next year as TV broadcasters and bidders negotiate to find a price for spectrum that strikes a balance between supply and demand.

While AT&T recently dropped a bombshell with its proposed acquisition of Time Warner for $85 billion, M&A activity in wireless has been muted during the auction. Once the auction finally ends, though, analysts generally expect to see a much more active landscape.

Much of that activity could center on Dish Network, which continues to sit on a trove of airwaves but has yet to launch wireless services. Dish could be a target for an existing carrier looking to expand its existing spectrum portfolio, or for an outsider – particularly a cable company – to elbow its way into the mobile market. Dish may look to sell its spectrum outright, or could partner up to take on Verizon and AT&T.

“We often hear investor concerns over timing of the auction end, and the reference is clearly to the lack of ability for carrier M&A during the auction,” Jefferies analysts wrote in a research note in August. “While we believe industry consolidation in some form is a necessity, we never expected a Dish transaction in calendar year 2016. We remain convinced that Dish will play a vital role in industry consolidation, but there is plenty of time for optionality to shake our irrespective of when the auction closes.”

Sprint has become a target for acquisition in recent months given both its subscriber gains and the increasing interest in tie-ups between wireless carriers and content providers. “I would say that our strategic value to many has significantly grown, as we’ve had a lot of bankers placing more calls than usual over the weekend, which is definitely quite interesting because of what is going on in our industry,” Sprint CEO Marcelo Claure said during a recent earnings call, according to a Seeking Alpha transcript.  “Now, I think the (AT&T/Time Warner transaction) validates the point of content providers and wireless carriers can go hand in hand. It’s happening in other parts of the world.”

An even bigger question mark is T-Mobile, which continues to gain momentum in a competitive market where growth has nearly stalled. The nation’s third-largest operator is “very interested” in exploring strategic opportunities, COO Mike Sievert told Reuters this week. Deutsche Telekom has long looked to offload its U.S. carrier but earlier this year shelved those efforts to focus on the incentive auction.

SoftBank spent more than $20 billion to acquire controlling interest in Sprint in 2012, and the company had initially hoped to acquire T-Mobile as well and merge the carriers to take on Verizon and AT&T, SoftBank CEO Masayoshi Son noted again this week. That effort was dropped when U.S. regulators indicated they were opposed to a merger, however.

The wild card in any scenario, of course, is the incoming Trump administration. Trump has had little to say about potential consolidation in the wireless industry, and there’s little evidence to suggest how his administration might view any such proposal. As a Republican, Trump may be inclined to take a laissez faire approach to a major domestic acquisition, but he’s already voiced opposition to AT&T’s proposed takeover of Time Warner.

“(I)f Time/Time Warner is dead, other big deals will be viewed skeptically,” Tim Farrar of TMF Associates tweeted this week. “And have to bet no chance of a Sprint/T-Mo merger.” - Colin | @colin_gibbs