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FCC’s latest Spectrum auction termed Auction-97 started on Nov-13.Till today (Nov-26-2014) the bidding has crossed $37 billion. This is more than double the expected value and shows the pent-up demand for this scarce resource for Telecom companies. Dish Network seemed to be the biggest gainer , because the latest auction signaled higher value for its Spectrum. Its stock price since Nov-13 has jumped from $64 / share to $78 / share. With 460 million shares outstanding its market value jumped from $29.4 billions to $35.88 billions , increase in $6.4 billion in less than 2 weeks. Following article analyzes the economics of owning Spectrum license and its impact on Dish’s valuation.
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Following are the main points impacting Spectrum’s value.
1. What is Spectrum? : Spectrum refers to a specific range of Radio frequency for a specific place. Its owned by FCC which further licenses it to the highest bidder through Auctions for commercial use. 2. FCC started auctioning Spectrum in 1994 and till date had 96 Auctions. Auction-97 is currently in progress. 3. Business use of Spectrum : As mentioned above , Spectrum refers to a range of radio frequency. Thus each range is suitable for a certain use. Wireless communications for cell phones use a set of ranges, but these differ based on the type of Wireless network. Thus practically not all Spectrum have same in value. In other words if one owned a license for a certain range of Spectrum which had a very limited commercial use then its value would be very less , value is also dependent on the area which the specific license covers, for instance a license for a place in the middle of Idaho might be far less valuable than that of New York city. Its because the value of the license is directly proportional to the population it covers. 4. Dishnet’s Spectrum : I queried FCC’s Spectrum database to get details of Dishnet’s Spectrum. As per the data , Dish owns 3,086 licenses. All are 700 Mhz channel block ‘E’. Altogether these licenses cover 240 million people. This I calculated by adding populations of all areas covered by 3,086 licenses. 5. Commercial use of 700 Mhz Spectrum : Now the most important factor determining value of Dish’s Spectrum is the commercial application of 700 Mhz Spectrum. 700 Mhz was once used by Analog TV broadcasting. In the year 2009 , analog TV broadcasting was stopped and all broadcasting was converted to digital. This freed up the 700 Mhz frequency that the FCC auctioned. 700 Mhz C Block Spectrum is already used by Verizon in its 4G LTE network. Verizon also sold to At&T 700 Mhz B Band for $1.9 billion , the licenses covered 42 million people (reference 2013 AT&T 10-K report). 6. As per the Wall Street Journal article on Nov-24-2014 (Heard on Street section) New Street research values Dish’s Spectrum at $41 billion. This is based on the high bids received on the latest FCC Auction (Auction 97). CONCLUSION : Considering the fact that Dish’s 700 Mhz Spectrum covers 240 million people (75% of USA population) and the recent pent-up demand for Spectrum through the FCC auction, thus $41billion value of Dish’s Spectrum seems reasonable.
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