• AT&T seen as top bidder at $10.6 billion: analyst survey
  • Big debt, tight credit markets limit spending on spectrum

A federal auction of TV airwaves that are crucial to help U.S. wireless carriers improve coverage may yield a lot less than anticipated. Blame the price wars and slow growth that have left some potential bidders cash-constrained.

In the Federal Communications Commission’s auction, expected to begin in late spring, TV stations will voluntarily give up airwaves in return for cash. The sale has been hailed as a once-in-a-lifetime windfall for both broadcasters and the government. Yet bids will total just $33 billion, according to an average of eight analysts surveyed by Bloomberg. That’s well below the $45 billion the FCC may expect and the $84.9 billion estimated by one broadcasting industry group.

Over the next few weeks, companies like Verizon Communications Inc., AT&T Inc., T-Mobile US Inc. will firm up their strategies as they prepare for the auction, while Sprint Corp. sits on the sidelines.

“I’d say $33 billion is a relatively small number, but if you look at the balance sheets, they can’t go much beyond that,” said Jennifer Fritzsche, an analyst with Wells Fargo Securities LLC. “The only way it gets bigger is if there’s some dark horse bidder like a private investor."

While wireless carriers want to acquire the kind of airwaves that are ideal for delivering video streams through walls and windows, they simply don’t have the war chests to bid up for them. Less than a year ago, bidders pledged $44.9 billion in the so-called AWS-3 auction. Aggressive price competition is now pinching profits and affecting capital spending. Other potential bidders like tech companies, cable operators and satellite-TV providers are also showing caution about participating, further depressing results.

Bidders

  • Verizon Communications Inc. Having spent $10.4 billion on airwaves in the AWS-3 auction, the nation’s largest carrier has been coy about its bidding plans. Chief Financial Officer Fran Shammo said last month that the broadcasters’ spectrum is “good spectrum, but I mean there are places I could use it, but there is a lot of places I can’t.” With the most subscribers and the smallest amount of airwaves per user, Verizon faces the challenge of balancing $108 billion in net debt with the need for more network capacity.

  • AT&T Inc. The No. 2 carrier, which spent $18.2 billion in the AWS-3 auction, has been bulking up on airwaves as it begins a mobile video strategy that combines the programming of its DirecTV unit.

  • T-Mobile US Inc. “The upcoming spectrum auction is really going to be a game changer for us,” Chief Financial Officer Braxton Carter told investors earlier this month. The new airwaves will help the No. 3 carrier boost service quality in cities and in buildings, he said. T-Mobile said it won’t sell stock to raise cash but might go to the credit markets for funding.
     
  • Sprint Corp. The fourth-biggest carrier was the first to officially indicate it won’t participate in the auction. The company is struggling to conserve its dwindling cash supply and has planned to cut as much as $2.5 billion in costs.

  • Dish Network Corp. Charlie Ergen’s satellite-TV company hasn’t said if it will participate. Dish has amassed $50 billion in airwaves yet hasn’t put them to use in a wireless service to rival AT&T and Verizon. Dish, with the help of two separate entities, bid $13.3 billion in the AWS-3 auction but was forced to relinquish $3.3 billion worth of licenses after the FCC denied them a small-business discount.

‘Dark Horses’

  • Comcast Corp. The Philadelphia-based cable operator has invoked a deal with Verizon to become a mobile virtual network operator -- or MVNO, a concept in which a company leases capacity on a wireless carrier’s network and resells that service under its own brand. Chief Executive Officer Brian Roberts has said the company is also exploring a similar relationship with Sprint and others. Craig Moffett, an analyst at MoffettNathanson LLC, has said the company will probably opt to participate in the auction, and “it probably also raises the odds that Comcast would eventually try to acquire a mobile operator, presumably T-Mobile.”

  • Charter Communications Inc. The cable operator, which is seeking regulatory approval to merge with Time Warner Cable Inc., said in October that it was considering participation, depending on financing.

  • America Movil SAB. Mexican billionaire Carlos Slim has been looking to expand outside of Mexico, where he’s struggling to maintain growth. He already controls the largest prepaid mobile-phone service provider in the U.S., Tracfone.

On the broadcaster side, CBS and Comcast’s NBCUniversal unit each said they had filed with the FCC to participate in the auction, as did Gray Television Inc. and Spanish Broadcasting System Inc.

Wireless carriers and others can file applications to bid from Jan. 26 to Feb. 9.

FCC spokesman Charles Meisch declined to comment about revenue expectations.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE