Assessment of COVID-19 impact on telecom industry; C-Band Spectrum Update

COVID-19 Impact on Telcos:

Source:  Analysys Mason  

The telecommunications industry has suffered limited damage as a result of the COVID-19 pandemic.  Revenue figures for most network operators have fallen slightly, but few have encountered anything that is particularly severe or long-lasting. As a result, few telcos have made significant changes to their strategy.

However, some aspects of the telecoms sector have been significantly affected by the pandemic. The most obvious is business services; revenue in this segment declined sharply for most operators in 2020 and prospects for 2021 are uncertain. Operators may have to rethink important parts of their strategies related to these aspects.

The telecoms industry has been affected by the pandemic in many different ways, and have been grouped these into three main categories depicted in the figure below:

                    Summary of the impact of the COVID-19 pandemic on the telecoms industry

Fig1.png

Assumptions of a stable economy and a continuation of existing service and technology trends often underpin an operator’s strategic plan. For some of the services offered by operators, business services in particular, these assumptions look outdated and may need a rethink.

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C-Band Auction Update:

Source: MoffettNathanson Research

Heading into the FCC’s C-Band auction, Wall Street analysts saw Verizon as the leading bidder for 5G wireless radio spectrum. Bidding for licensed spectrum in the telecom industry’s most expensive auction ever reached more than $75 billion on Monday amid speculation over how much each of the big wireless telcos and cable companies have paid.

In a note to clients, analyst/colleague Craig Moffett of MoffettNathanson is assuming that Verizon will end up being the largest buyer at the ongoing auction of mid-band spectrum targeted for new 5G deployments.  As a result, Verizon’s balance sheet will be more heavily burdened and more of their future cash flows will be diverted to debt service so their future profits will be lower.

AT&T, on the other hand, will “be disadvantaged for a generation” if they don’t get a significant chunk of the mid-band spectrum being auctioned.  Craig believes that AT&T was probably “one of the two big bidders that more or less backed away after round 24 or round 38.”

An important issue is “whether “winners” in this auction acquired reasonably uniform contiguous blocks, or whether they instead (worst case scenario) ended up with a patchwork of licenses and a hefty bill to burden the balance sheet. If so, will their footprints be largely erased by subsequent topping bids from others.”

With respect to using the purchased mid-band spectrum for accelerated 5G deployments, Craig wrote: “At best, the huge sums paid here for spectrum risk displacing the capital investment needed to put the acquired spectrum to use. At worst, they risk financially destabilizing one or more players.”

In conclusion, Craig asks if the large amounts of money being spent for an asset (licensed mid-band spectrum) that is best thought of as simply maintaining the status quo will be worth the price paid?  “Again, the most important question is this: is anyone going to change their revenue forecast just because the industry had to spend twice as much as expected to buy spectrum for 5G.”

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References:

https://www.analysysmason.com/research/content/comments/post-pandemic-landscape-ren02-ren01-rdmz0-rdmm0-rdmb0-rdmd0-rdmv0-rdmy0-rdcs0-rdvs0/

Mid-band Spectrum for 5G: FCC C-Band Auction at $70B Shattering Records

 

One thought on “Assessment of COVID-19 impact on telecom industry; C-Band Spectrum Update

  1. Verizon, AT&T, Comcast/Charter, T-Mobile and Dish Network are among the big companies registered to bid in the FCC’s auction. However, the agency is not releasing the identities of the entities placing bids during the auction, only the amount of the bid.

    “While we obviously can’t say for sure, we might guess that those two bidders [that dropped out] are T-Mobile and AT&T,” the analysts wrote.

    Specifically, the MoffettNathanson analysts speculated that T-Mobile “succeeded in forcing competitors to pay far more than originally anticipated. That could hamstring competitors (e.g., Verizon) with respect to both future capital investment and future pricing.”

    Indeed, T-Mobile executives may have provided a peek at their bidding strategy in September, prior to the start of the auction.

    “I think AT&T and Verizon will absolutely kill each other over C-band,” T-Mobile CEO Mike Sievert said during an investor event last year. “I think they’re going to spend tens of billions of dollars they don’t have to stress out their balance sheets and put at risk their share buyback and dividend plans in order to not be left out of the party on 5G. Because they’re stuck. They got themselves stuck. And they’re way behind [in spectrum ownership] and they can’t stand it. So they’re going to have to do things that are probably going to be uneconomical.”

    In fact, AT&T and Verizon both argued last year that T-Mobile should be prohibited from purchasing more valuable midband spectrum.

    Billions of dollars an hour

    The FCC’s C-band spectrum auction has dramatically surpassed even the most aggressive forecasts; when bidding resumed Monday after a holiday break, the total amount of gross proceeds in the event reached a staggering $76.5 billion. That’s roughly double analysts’ high-end estimates, and triple the general consensus.

    Incredibly, there’s no telling how much higher it will go. During five rounds of bidding action on Monday – totalling just two and a half hours – bidders collectively added almost $7 billion to the auction’s total. Such eye-watering prices likely indicate that T-Mobile and AT&T haven’t completely exited the event. However, they may have shifted their interest toward B and C Block licenses (which will become available in 2023) rather than the more valuable A Block licenses that will become available in 2021. Further, according to Recon Analytics analyst Don Kellogg, recent auction action also has shifted away from spectrum licenses covering big US cities and onto licenses covering smaller cities.

    That said, most analysts agree that the incredible demand displayed during the C-band spectrum auction likely indicates that there are few bidders on the sidelines, and most big players will likely walk away with spectrum winnings of some kind.

    https://www.lightreading.com/5g/is-t-mobile-overcalling-verizon-in-c-band-auction/d/d-id/766377?

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