Dish Appears Likely to Emerge as Dominant Player in H-Block Auction, Observers Say

Dish committed in December to bid nearly $1.6 billion for H-block licenses (CD Dec 23 p1). Dish was the only company that qualified with the FCC to make a nationwide bid for the spectrum.

"Dish appears to be playing ‘Whac-a-Mole,’ trying to smack down other bidders where they surface,” Stifel said. Bids so far “are consistent with an auction in which DISH faces targeted competition from 22 other bidders, but none of the four national wireless carriers, nor other industry heavyweights (best we can tell).” Stifel guessed that small carrier nTelos, Puerto Rico Telephone Company, owned by Carlos Slim’s America Movil, and Lynch 3G Communications, backed by investor Mario Gabelli, are among the early bidders.

A wireless lawyer who is following the auction closely said Stifel’s theory appears to be on target. “Any speculation has to be begin with the caveat that by design we cannot really know who’s winning due to the nature of anonymous bidding,” the lawyer said. “But with that limitation in mind, you can just run down the qualified bidder list and take a pretty good guess that Dish is liable to win big. They are the biggest player in the auction. Knowing that minimum aggregate reserve price, it seems an entirely safe assumption that Dish is likely to be the high bidder across many, if not all, markets of any consequence in the auction. It'd be fair to consider anything else an upset."

"I would think that any bidder would want to buy the most spectrum that they can for the least amount of money but ultimately, Dish will make sure the auction clears the minimum amount that it has committed,” said BTIG analyst Walter Piecyk. “If the FCC wanted a more competitive auction they might have ... conducted the auction later in the year as we recommend.” He cited a blog post he wrote last year (http://bit.ly/1dJfN9B), in which he said a January auction “threatens to restrict the efficient use of spectrum, reduce the money payable to the government and hamper the ability to attract broadcasters to the subsequent incentive auction."

"While it’s inherently tricky in anonymous bidding to decipher gaming strategies of participants and project outcomes, there’s every reason to believe Dish will emerge the big winner in the H-block auction,” said Jeff Silva, analyst at Medley Global Advisors. “When one considers its $1.56 billion bid commitment and strong strategic interest in leveraging adjacent S band spectrum, Dish has a powerful incentive and the financial wherewithal within the context of a modestly competitive bidding field to capture as much H block spectrum as it can without spending a penny more than the minimum in aggregate bids. It’s important to remember that it’s a package deal for Dish: spectrum and regulatory relief.”

Summit Ridge Group said in a report that bidding in the H-block is consistent with other signs that the spectrum crisis cited by the FCC in the 2010 National Broadband Plan isn’t going to happen in the time frame the plan described. “As we approach 2015, it’s become obvious the spectrum crunch is not as severe as once projected,” Summit Ridge said (http://bit.ly/1fhTXyK). “Large swaths of mobile spectrum remain undeveloped -- including prime sub-1 GHz spectrum in the 700 MHz band auctioned over six years ago.” The report notes that Wi-Fi offloading is up sharply, from 15 percent of carrier traffic in 2009 to more than 40 percent today. The report also points out that carriers are phasing out unlimited data plans. “Spectrum prices in the secondary market appear to have stabilized,” Summit Ridge said. “And no major wireless operator is even participating the H-block auctions underway or bidding for the LightSquared assets in the current bankruptcy auction. This further suggests the need for additional spectrum is not approaching the crisis levels forecast in 2010.”