A study from analysts at MoffettNathanson Research (MNR) looks at whether satellite operators and their clients are facing a shortage of spectrum (which EchoStar’s Charlie Ergen seems to believe) or a glut, in particular across the US. But Ergen’s DISH Network share price has crashed 58 per cent since December 31st 2016.
“As recently as a year ago, there was a broad consensus, at least within the investment community, that we were facing a critical shortage of mid-band spectrum. Today, it appears far more likely that we are facing a spectrum glut,” argues MNR.
“Last week, the FCC announced a 90-day freeze on new satellite license applications in the 3.7-4.2 GHz band, paving the way for an FCC order to bring that spectrum to market. In the FCC’s view, that spectrum, which is currently used by commercial satellite operators to deliver cable network signals to cable head-ends and satellite uplink facilities, would be better used for wireless data. The FCC is considering two possible scenarios: one would allow Intelsat to privately reach a commercial agreement to make available at least some of their 500 MHz of C-band spectrum for terrestrial use (perhaps to Verizon), while the other would reclaim and repack the spectrum. Either way, it will soon be one more piece of supply… and at least one less needy buyer.”
But MNR reminds the industry that it isn’t just the C-band capacity that’s in question. “That’s only one of a host of potential new bands coming to market. The FCC has already scheduled an auction of millimeter wave spectrum (28 GHz, followed immediately by 24 GHz) for November, and they are busily working to bring the military’s CBRS 3.55 GHz to 3.7 GHz range to market, perhaps as early as 2019 or 2020. [It is true that 28 GHz licenses are already largely spoken for across Verizon and T-Mobile, with only about 74M POPs worth of licenses available, but the 24 GHz is available near-nationally, and there are plenty more high frequency bands that can come into play beyond 24 GHz that the FCC is currently considering.] Oh, and Ligado is still waiting in the wings for clearance to use its spectrum for wireless data; with the requisite approvals in hand, their spectrum would almost certainly be viewed as being “for sale.”
MNR suggests that against this growing supply of potentially available spectrum, there is a very short list of potential buyers, especially should T-Mobile and Sprint merge. “There’s Verizon, of course. And then there’s… Verizon. And, well, did we mention Verizon?”
“Sure, there are other dark horse buyers. Comcast, perhaps, or Charter. Google is sometimes named (although rarely with much enthusiasm any more). But more often than not, Verizon is trotted out as every spectrum-seller’s preferred, or even only, exit strategy. Never mind that Verizon itself has made a good case that they increasingly see alternative means to capacity enhancement – especially network densification – as more attractive than buying more spectrum, at least at current valuations.
“All this new, and potentially new, supply has had a predictably profound impact on spectrum values… and it hasn’t been good. The closest publicly traded, primary proxy for spectrum, Dish Network, has dropped nearly sixty percent over the past twelve months.”
There are some satellite ‘winners’ in this scenario, says MNR. “Intelsat’s stock has soared of late on the idea that they might be allowed to sell spectrum (that they don’t actually own), mostly likely to… who else but Verizon. Intelsat’s proposal to the FCC, which has been joined by Intel and by peer C-band operator SES, is to create a consortium of satellite operators who would privately reach a commercial agreement to make available at least some of their 500 MHz of spectrum for terrestrial use, arguing that a government auction would simply take too long – see here and here. [Oh, and don’t worry too much about that bit about selling spectrum they don’t actually own. After all, the broadcasters just sold a bunch of spectrum they didn’t own, either.] The FCC’s announcement of their 90-day freeze is to evaluate Intelsat’s proposal against the obvious alternative, which is for the FCC to repack and put the band up for auction.”
Total Available (or near-Available) spectrum holdings*
*Data: MoffettNathanson Research analysis from Company Reports