Questions Loom for Verizon, AT&T After Big C-Band Auction Wins

Verizon and AT&T face financial questions after they were the top spenders in the C-band auction, analysts said. Verizon dominated at $45.4 billion, almost twice the $23.4 billion bid by AT&T. T-Mobile was third, at $9.3 billion, while cable companies and Dish Network largely sat on the sidelines. The pending 3.45-3.55 GHz auction may have had some effect on bidding, experts said.

Oppenheimer’s Tim Horan downgraded Verizon and AT&T to perform. “This was a must-win auction for [Verizon] as it had to acquire 5G midband spectrum to compete with [T-Mobile’s] network quality,” Horan told investors: “However, it will take at least a year to start deploying this spectrum, and revenues generated from it will take a few years.” AT&T needed spectrum to compete with T-Mobile but has “less financial flexibility,” he said. Horan saw the results as a “major positive” for T-Mobile. Of the major carriers Thursday, only that company's stock rose, closing up 1.3% at $120.89.

The amount AT&T agreed to spend means it needs to spin off some assets “given the company’s debt situation,” emailed Hedgeye Potomac Research analyst Paul Glenchur. “Moving a stake in DirecTV is an issue,” he said. “There is some concern the auction cost could crimp 5G network investment near term, so there could be an overhang on the 5G infrastructure beneficiaries until the dust settles.” AT&T announced a deal Thursday to sell its video distribution business for $7.8 billion (see 2102240046).

“Verizon went BIG; T-Mobile got a little less than we expected; Dish and Cable sat out,” New Street’s Jonathan Chaplin emailed investors: “AT&T lined up right where we expected.” Concerns about auction spending “have been an overhang for all,” and “Verizon may face some pressure” due to its bidding, he said.

AT&T and T-Mobile bid “very rationally,” said consultant Tim Farrar. “Right from the beginning Verizon didn't,” he said: “They were bidding for all 14 licenses in top markets and 10 in most others. Perhaps intending shock and awe to get others to drop out, but it simply didn't work.” Farrar told us that records show Dish bid and pushed up prices but dropped out after round 25.

With the 3.45 GHz auction looming, Dish “may have made the right call,” MoffettNathanson’s Craig Moffett told us: “Instead of chasing a runaway freight train, they decided to wait for a better price in another auction. You can’t fault them for having some discipline. Discipline was in short supply from everyone else.”

LightShed’s Walter Piecyk told investors that Verizon’s win wasn’t as clean as it appears, since it got only 60 MHz of the 100 MHz that will be cleared first. AT&T got the rest. “That is surprising because operators, including Verizon, have vociferously claimed they need 80-120 MHz of contiguous spectrum to unlock the true potential of 5G,” he said. When the other 100 MHz it bought comes online, Verizon will have enough midband to satisfy its 5G needs, he said. Comcast and Charter Communications had made clear they probably wouldn’t be big bidders, and Dish has much spectrum, Piecyk said. The 3.45 GHz auction “could be an interesting opportunity for Dish and the cable operators, as AT&T and Verizon’s balance sheets might not be in the best position to compete so soon after the C-band auction,” he said.