The three big wireless carriers completely dominated the FCC's $81 billion C-band spectrum auction last month. That came as quite a surprise to most industry watchers, who expected DISH Network (NASDAQ:DISH) and cable giants Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR) to make some moves.
The three companies combined acquired a single spectrum license: DISH bought a license in Cheyenne, Wyoming, where it's conducting 5G trials. DISH paid just $2.5 million for the license. Analysts had expected the three companies to spend up to $20 billion in the auction before the FCC released the final results.
DISH was never expected to be a big participant in the C-band auction. Analysts expected it to largely play the spoiler, bidding prices higher for the major wireless carriers, but bowing out before the final rounds. But as prices quickly skyrocketed, DISH bowed out.
DISH has been opportunistic in acquiring spectrum assets in the past. Now with its acquisition of Boost Mobile from the T-Mobile (NASDAQ:TMUS) and Sprint merger, it's under pressure to actually build out its wireless network.
It has a seven-year mobile virtual operator network (MVNO) agreement with T-Mobile, so it can take its time to acquire the most efficient assets for its network. That said, the sooner DISH builds out its own network and migrates Boost customers to its own spectrum, the sooner it can stop paying T-Mobile.
"Our profitability is determined in part by what we pay to access the network as an MVNO. As we roll out our own network, we'll begin to benefit from owner economics," CEO Erik Carlson said during DISH Network's fourth-quarter earnings call. "That's going to drive profitability and will allow us to be more disruptive and drive better competition in the retail wireless space." As such, DISH's best use of cash right now is to put it toward deploying the spectrum it already owns, especially with the prices climbing so high.
Meanwhile, Comcast and Charter each have MVNO deals in place with Verizon (NYSE:VZ). It quickly became apparent Verizon was bidding big on the C-band auction, as it was the only company with both the need and balance sheet to support such massive prices. Indeed, Verizon ended up pledging $45.5 billion for 3,511 spectrum licenses. To that end, the cable companies can continue to ride on Verizon's network, while letting the wireless carrier spend to acquire spectrum and build out its network.
But as Comcast and Charter grow their wireless subscriber base, it becomes increasingly inefficient to pay Verizon for its network usage. While both can leverage their public Wi-Fi networks to some degree, owning a true wireless network can provide operating leverage they currently don't enjoy.
Investors should expect DISH and the cable companies to remain opportunistic in future spectrum auctions in order to shore up their spectrum holdings and bolster their network plans.
Opportunities may come sooner rather than later
Following the success of the C-band auction, the FCC is moving forward with plans to auction spectrum in the 3.45 GHz to 3.55 GHz band before the end of the year. This spectrum is very similar to the C-band spectrum the FCC just auctioned (3.7 GHz to 3.98 GHz). What's more, the spectrum licenses coming up for auction later this year could be cleared for wireless network deployment before some of the spectrum in the C-band auction.
The proposed rules include a reserve of $14.7 billion, which will go toward relocating the current federal use of the band. That puts a high floor on the aggregate price, but it'll still be possible to acquire spectrum licenses for less than what carriers just paid in the recent auction. Of course, it's no guarantee prices won't skyrocket even higher than we saw in January.
Unlike the big wireless carriers, DISH and the cable giants don't have a pressing need for more spectrum as soon as possible. They can continue to use T-Mobile or Verizon's networks at well-negotiated rates until it becomes most economical to buy more spectrum and build out their own networks. DISH does have a clock ticking on its network build out, but the cable companies don't have to be in any hurry. That puts them in a strong position to compete in 5G in the long run despite spending less on capital investments.