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Shares of AT&T ( T ) and Verizon Communications ( VZ ) have rallied in 2016, owing to falling interest rates and their relative safety amid the stock market tumult. One factor sure to impact trading for both companies the rest of the year is the government’s auction of airwaves now owned by local TV broadcasters, set to start this month. Shares of the high-dividend-paying AT&T and Verizon are up 13% and 11% so far in 2016, respectively. But higher-than-expected auction spending would hit free cash flow and possibly credit ratings. Many analysts continue to downplay potential spending by wireless phone companies and others, but Citigroup estimates bids could reach $43 billion, in the neighborhood of 2015’s “AWS-3” auction. A Bloomberg survey , meanwhile, estimates the auction will raise only $33 billion, much less than the $60 billion figure floated by some observers in mid-2015. The Federal Communications Commission plans to begin the “Broadcast Incentive Auction” on March 29. The auction, which could last five to six months, will free up an estimated 60 to 80 megahertz of prime, low-frequency radio spectrum for wireless services. Both AT&T and Verizon have talked down their interest in the TV broadcast airwaves, and both have alternatives for spectrum, as IBD reported. T-Mobile US ( TMUS ) has stated it could spend up to $10 billion, while cable TV firm Comcast ( CMCSA ) has filed to be a bidder. There’s fresh speculation Japan-based SoftBank ( SFTBY ), Sprint’s majority owner, could bid, though Sprint ( S ) itself has bowed out. Alphabet ’s ( GOOGL ) Google also recently ruled itself out. Analyst estimates proved far too low for the AWS-3 auction, which ended in January 2015. Most analysts pegged AWS-3 auction spending in the mid-teens of billions of dollars, with the highest estimates around $20 billion. The auction, however, raised more than $41 billion — minus $3 billion in airwaves Dish Network ( DISH ) later surrendered. During that auction, wild rumors about Verizon’s purported spending pressured its stock at points, while AT&T eventually emerged as the top AWS-3 bidder. In the TV broadcast auction, JP Morgan estimates that bidders could spend anywhere from $25 billion to $35 billion. Cowen & Co. estimates AT&T, Verizon and T-Mobile will spend $27.5 billion combined. Comcast and private equity firms loom as wild cards. Several analysts have estimated Comcast’s spending at $5 billion-$6 billion. For the complex, two-part auction to succeed, bidding prices have to reach levels high enough that TV broadcasters follow through and sell the spectrum. If the auction doesn’t proceed as planned, it would be a blow for spectrum-needy T-Mobile, analysts say. Low-frequency airwaves travel over long distances and through walls, improving in-building services. AT&T and Verizon own more than 70% of low-frequency airwaves in the top 100 U.S. markets. FCC Chairman Tom Wheeler, whose legacy will be tied in part to whether the auction succeeds, has downplayed pre-auction comments by AT&T and Verizon, saying it’s normal for bidders to lower expectations. Scalper1 News
Scalper1 News