The industry has been waiting with bated breath for the end of the FCC’s spectrum auction quiet period and last week it finally happened. The restriction that threw a wet blanket on red hot deal talks was lifted, setting the stage for some fast and furious footwork to begin. But while companies have been coy about just who will be taking the floor, analysts have some ideas about which dance cards will be filled.
For anyone who’s been following the rumors over the past few months, most of the names won’t come as a surprise. Of course, Verizon and AT&T are also in the mix looking for advantageous partnerships, but our rundown below focuses on some of the more talked about players of late.
T-Mobile
Fresh off a win as the top bidder in the FCC’s 600 MHz spectrum incentive auction and a strong first quarter, T-Mobile is flexing its muscles to impress potential suitors.
CEO John Legere on the carrier’s first quarter earnings call noted there are a number of “strategic possibilities between wireless companies, cable players, adjacent industries, Amazon, (and) internet players that should be thought about” in the wake of the quiet period’s end. Legere said T-Mobile will be coming to any deal talks from a position of strength as a company that has “not exhausted the potential growth and has 45 percent to 48 percent three-year CAGR on cash.” By contrast, he said, other players like Dish, Sprint, and Comcast “have been clear they need to do something … to complete their hand.”
Wells Fargo Senior Analyst Jennifer Fritzsche said T-Mobile is expected to play a key role in heightened M&A chatter in the coming weeks. Though T-Mobile (and parent company Deutsche Telekom) could be either a seller or a buyer, Fritzsche said recent speculation has leaned toward the latter.
In either scenario, Sprint has long been the rumored sweetheart for a deal.
Sprint
BTIG’s Walter Piecyk said the focus right now is on whether SoftBank CEO Masayoshi Son can cut a deal with Deutsche Telekom to merge their Sprint and T-Mobile wireless assets. If a deal fails to go through, Piecyk said Sprint and T-Mobile’s stock may take a hit.
But the form of a potential deal is uncertain: Sprint/Softbank as a buyer or seller? Son appears to be keeping his options open.
“Two years ago or three years ago, we just saw one option, one way: we are always the buyer,” Son said via a translator during an earnings call in February. “But now we may buy, we may sell … we may be dealing with T-Mobile, we may be dealing with totally different people … So we can do that or we may be able to enhance the enterprise value by having a partnership. So there are so many options available and we are looking into that.”
Dish
As noted by MoffettNathanson analysts in mid-April, Dish actually acquired more spectrum in the incentive auction than expected – an average of 18 MHz nationwide. But that actually casts a pall on the idea of Dish as a seller given that other carriers like T-Mobile, AT&T, and Verizon either already got the low band spectrum they needed out of the auction or claimed not to need it at all, the firm noted.
“Dish’s decision to load up on low frequency (coverage) spectrum makes no sense if they are planning to sell the rest of their spectrum…but it makes all the sense in the world if they are planning to build a network,” MoffettNathanson observed.
Piecyk added color to this idea, noting “the barriers to constructing a new network have dropped as a result of new network architectures and lower access radio costs” and cable players might want a hand in the $200 billion per year wireless industry.
But Piecyk said a number of other options are still on the table.
“We believe the suggestion that the incremental spectrum purchase makes Dish too big to buy is misguided,” he wrote in a mid-April note. “We believe there is an opportunity for Dish to sell its spectrum assets in parts or lease access to the spectrum while maintaining ownership.”
Comcast
While Dish’s auction investments called its future prospects into question, MoffettNathanson noted Comcast’s lackluster purchases clearly boosted the odds the operator will have to purchase a wireless player down the line.
“If they were planning on a deal down the road, Comcast arguably wasted a couple billion dollars. Still, it is hard to reconcile Comcast’s half-hearted participation with a serious expectation of going it alone,” MoffettNathanson analysts wrote. “Certainly, Comcast didn’t buy enough low band spectrum themselves to support a network build.”
Though Comcast isn’t expected to be bid for a wireless company, T-Mobile and Sprint would be at the top of the list if it did, the firm noted.