Is Spectrum Value Growing, Flat or Declining?

Is the value of spectrum in the U.S. market flat, increasing or declining? It’s a hard question to answer in the abstract.

It all depends on which frequencies we are looking at, the specific value to potential owners who might buy spectrum, and other issues such as the amount of spectrum, the contiguity of the spectrum and the other alternatives which might be available to provide desired spectrum assets.

It might be fair to say there are big disconnects, in some cases.

Some have estimated the total value of 2.5-GHz spectrum held by Sprint at $115 billion or so. Others might argue that all of Sprint’s spectrum is worth around $60 billion.

It is worth noting both those figures exceed Sprint’s total market valuation of about $28 billion, in the third week of October 2016. Somebody is wrong, by quite a lot.

“We estimate that Sprint is valuing principally 2.5 GHz spectrum at $1.85/MHz/POP, which is more than six times the $0.30/MHz/POP it effectively paid for this spectrum when it acquired Clearwire in 2013,” says BTIG equity analyst Walter Piecyk.

How much is Dish Network spectrum worth? Observers continue to argue about the matter.  

Analysts at Kerrisdale Capital have argued that demand for Dish Network’s spectrum is wildly optimistic, and that spectrum prices are headed dramatically lower.

Others have argued that the spectrum represents most of the equity value of Dish Network as a whole. Some have pegged the mobile spectrum licenses as 80 percent of Dish equity value, based on a valuation of $35 billion to $50 billion for the spectrum licenses.

By some estimates, facilities-based U.S. mobile operators, plus Dish Network, own about $368 billion worth of spectrum licenses.

AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman, while the value of Verizon’s spectrum is $79.4 billion.

In all, AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman. He also estimates the value of Verizon's spectrum at $79.4 billion.

The current equity value of all AT&T stock is $176.5 billion, implying that spectrum alone represents 51.6 percent of AT&T’s total equity value.

Verizon’s market value is $207.9 billion, implying that Verizon’s spectrum represents 38 percent of total valuation.  

Bloomberg Intelligence has estimated the total value of Sprint’s 2.5-GHz spectrum alone at $115.1, about 2.4 times Sprint’s enterprise value of $48 billion.

In fact, some have argued that T-Mobile US spectrum accounts for more than 100 percent of its total market value.

Sprint apparently values 14 percent of its spectrum holdings at $16.4 billion as part of a recent sale-leaseback of spectrum.

That implies a total valuation of spectrum at about $117 billion, or about four times Sprint’s present market capitalization. Clearly there is a huge variance; some might say a disconnect.

Either Sprint’s spectrum is not worth as much as it claims, or the market is seriously undervaluing Sprint as an asset.

Dish Network has a huge interest in spectrum valuation , as it holds a significant block of mobile spectrum that must either be put to use, or sold, or returned to the government.

“If we valued Dish’s core business at five times the consensus 2016 EBITDA estimate and $1.85 per MHz per POP it would imply a value of $106 per share for Dish and $85 per share if we taxed the gains from a sale of spectrum at that level at 35 percent,” Piecyk argues.

In the third week of October 2016, Dish Network’s equity is selling for about $57 a share. Again, there is a disconnect between implicit spectrum value and equity value of the whole business using--or potentially using--that spectrum.

So the value of mobile spectrum matters especially for a few firms (Dish Network and Sprint, in particular) that are monetizing, or hoping to monetize, those assets.

The specific value of existing spectrum matters less to AT&T, Verizon and T-Mobile US, as it is an asset meant only to support the business model, and not being collateralized (Sprint) or potentially monetized (Dish Network).
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