Moffett: broadcast incentive auction $ not a slam dunk

Standing before broadcasters, Federal Communications Commission Chairman Tom Wheeler pointed to the recently concluded financial windfall of the AWS-3 auction as a harbinger of another round of record prices in the upcoming broadcast incentive auction. A good reason for broadcasters to put up the for sale sign? He may have spoken too soon. It’s easy to see the reason for the optimism. The AWS-3 auction surprised just about everyone, bringing in $41 billion. And, since the broadcast spectrum is “beachfront spectrum” and more valuable than the AWS spectrum because of its suitability for wireless phones, it isn’t out of line to think that the sky is practically the limit for the incentive broadcast auction. But Craig Moffett, an analyst with MoffettNathanson said that this optimism could be very misplaced since it is premised on a belief that the wireless business is healthy enough to do this all again.

“The reality is the companies are not generating enough cash to be able to sustain the kinds of purchases that they made in the AWS-3 auction and to try to do it again,” said Moffett. Moffett points to a change in the way wireless firms account for the cost of phones and the revenue they get from customers. The industry is moving away from subsidizing the price of the phone in the customers contract to a business model where more of their customers are buying the phone outright. When that happens, how the dollars show up on the wireless company financial statements changes and the change makes the profit picture look better.