Analysts Say GOP Win Would Invite Wireless Deal; $20 Billion Projected for Auction
A Republican presidential victory would likely usher in new wireless consolidation and head off any broadband pricing regulation, said Bank of America Merrill Lynch analysts in a note to investors Wednesday. They also expect the upcoming incentive auction to attract…
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no more than $20 billion, and called over-the-top monetization a big opportunity. The 2016 election looks to be "the most consequential" for the telecom industry in recent memory, said the analysts, noting the Democratic-run FCC's resistance to wireless carrier consolidation and its approval of broadband reclassification under Title II of the Communications Act. “Over-simplifying, a Republican presidential win is much more likely to see a potential 4 to 3 wireless industry consolidating transaction and light touch, or no-touch, broadband pricing regulation which we believe would be taken very positively for the sector,” they said. The analysts expect a Q2 court ruling that “supports the FCC’s position on regulating wireline as a Title II service, but casts some doubt" on its wireless authority. An appeal would extend uncertainty unless broadband legislation is enacted or a GOP president appoints an FCC chair that doesn’t enforce Title II, they said. The analysts were skeptical of aggressive bidding in the auction “given a) Sprint will not participate, b) AT&T and Verizon face strict balance sheet limits without facing debt downgrades, and c) DISH is most likely chastened by its AWS-3 experience and already has more spectrum than it knows what to do with now.” T-Mobile could bid up to $10 billion, but the analysts assume overall maximum bids of $20 billion, below other estimates of up to $60 billion. To reach higher levels, they said, nontraditional bidders will be needed: cable (e.g., Comcast) and tech companies (e.g., Google, Apple) "could participate but we remain highly skeptical of the rationale for them to put billions to work parking spectrum or, even more improbably, building out national wireless capacity.” The analysts expect creative new wireless efforts to monetize video data consumption, including through sponsored data. They called AT&T a top pick as it integrates DirecTV, generating $2.5 billion in synergies by year three under a "very conservative" estimate. American Tower and Frontier Communications are among their other top picks. The wireline sector is “more stable than you think” and tower companies offer a “pure play on data consumption,” they said.