GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Sprint Pulls Back from the Upcoming Spectrum Auction

November 15, 2013 | About:
Neha Marwah

Neha Marwah

1 followers
Sprint Corp. (S), which recently acquired the spectrum king Clearwire, said that it will not be participating in the upcoming incentive auction arranged by the government. The carrier’s chief financial officer Joseph Euteneuer confirmed that the telecom provider would not be bidding at the airwaves auction as it is pretty comfortable with its current spectrum holding.

But Why

The segment of spectrum that is being offered at the auction is of the H-Block. Sprint was expected to actively participate in the auction as the company’s current spectrum holding is very near to H-Block. However, the Kansas players rather wishes to concentrate on purchasing some spectrum at frequencies lower than the H-Block. Lower frequencies are an area of great interest and value to telecom providers. Both the biggies, Verizon (VZ) and AT&T (T), have strong airwave holdings in the lower frequencies.

Another reason for backing out from the government auction of spectrum is the rules laid down by the Federal Communications Commission, or the FCC, which governs the auction.

The auction which is slated for January has a reserve price of $1.564 billion, which has been determined by the FCC. The radio spectrum auction is expected to fetch billions of dollars for the US treasury. And now that Sprint seems to have pulled back from auction, there is still no dearth of eager participants. Dish Network (DISH) is one of the major players willing to take part in the bidding process. Early this year the satellite provider said that it would take part in the auction if the FCC made rule amendments with respect to the spectrum it already owns. US Cellular’s (USM) Chief Executive Kenneth Meyers said that the company is also weighing its options to decide if it can take part in the auction. There would be few other bidders for the long planned auction, but if this remains the scenario, Dish would have an upper hand over all other bidders.

So Is It a Smart Move?

Sprint recently sold 80% of its stake to Japan based Softbank, and partially used the proceeds to buy its remaining stake in Clearwire. Through this, the Kansas carrier not only got the financial cushioning from the deep-pocketed Softbank, but it also became the owner of Clearwire’s envied swath of airwaves.

Sprint is more than satisfied with the existing portfolio of spectrum it holds now. It is therefore leaving the H-Block spectrum at the disposal of its rivals to shell out big bucks for these airwaves. Certainly the spectrum would be sold off at much higher rates in the auction, and so purchasing the H-Block spectrum at pocket pinching rates isn’t prudent unless a carrier is in great want of airwaves.

The company can rather devote quality time in enhancing its network capacity instead of shedding its wallet for expensive spectrum. Sprint is already working on building its 2.5 GHz licenses other than the 800 MHz and 1.9 MHz licenses. This would help the mobile operator increase its network capacity along with providing faster and more efficient network to its customers. Last month the company released the first set of LTE enabled handsets.

In fact this week itself, smaller rival T-Mobile (TMUS) also said that it is not interested in the incentive auction of 1900 MHz PCS H Block. The fourth largest US national carrier said that it is in the process of raising $2 billion in funds to enhance its wireless holdings, but not from the spectrum auction scheduled for January 22. Some analysts believe that both these major national telecom players are avoiding participation in the auction as they are focusing on some other mass of spectrum. Additionally, they want to stay away from complications and keep themselves at arm’s length from transactions that involve Dish Network and its Chairman Charlie Ergen.

What remains to be seen is if Dish would be the only major player participating in the auction, or will other larger companies bid at the auction as well.


Rating: 4.0/5 (5 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK