Bidding Up the Spectrum Auction - Is Comcast Looking to Go Wireless?

by: SA Eli Hoffmann

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

PLUGGED IN: Why is Cable Bidding Big for Wireless by Tiernan Ray

Highlighted companies: Comcast Corp. (NASDAQ:CMCSA), Verizon Communications (NYSE:VZ), Vodafone (NASDAQ:VOD), Time Warner (NYSE:TWX), EchoStar Communications (NASDAQ:DISH), DirecTV (DTV), News Corp. (NASDAQ:NWS), Deutsche Telecom (DT), Sprint Nextel (NYSE:S), AT&T (NYSE:T), BellSouth (BLS)
Summary: The big surprise in the current multi-billion dollar airwaves auction in Washington is the aggressive bidding of SpectrumCo, a consortium controlled (52%) by the U.S.'s biggest cable player, Comcast (CMCSA). Comcast's bids seem to indicate the cable giant may plan to own and operate its own wireless network. There is speculation that Comcast's bidding is less-than sincere - in order to drive-up spectrum prices, or a covert attempt to help consortium partner Sprint Nextel (S) buy spectrum - but their aggressive bidding has convinced most observers that Comcast sees wireless in its future. Not all Comcast share-owners are happy with this development. Investing in a wireless network could mean billions of dollars in new capital expenditures; cable investors have waited a long time for the cash flow promised from network upgrades of the previous decade, which are finally paying attractive returns, and they're anxious a new round of investment could siphon-off most of that cash. But analysts generally believe Comcast will be prudent with any wireless investment. For Verizon [owned by Verizon Communications (VZ) and Vodafone (VOD)] and AT&T (T), there is reason for concern; they may soon be forced to contend with a new cellular entrant.
Quick comment: Recently, Andrew Schmitt gave 'Baby Bells' the upper-hand over the cablecos in the battle for residential subscribers, despite the cablecos' deployment of voice services, because, "Most baby Bells already have a wireless infrastructure. None of the cablecos do. This is why the Baby Bells ultimately have the upper hand... They can migrate their customers (and their phone numbers) to a wireless infrastructure, and Comcast... cannot." In this context, Comcast's aggressive bidding may not be such a "mystery wrapped inside an enigma." Noteworthy is an excerpt from Comcast's Q2 Earnings Conference Call Transcript, in which the questioner asks co-CEO John R. Alchin, "I was wondering if you’d be willing to comment a little bit about the AWS spectrum that’s coming up for auction relatively soon, especially in light of the form that was filed and the ownership that Comcast has. Could you give us a sense of what you think you might use the spectrum for?" His response: "I think the real commitment that we’ve made is to the partnership that we have with the other MSOs (multi-service operators) and Sprint. We’ll be rolling out two markets with wireless products by the end of this year. We’re keeping our options open in terms of registering. It’s like going to a Sotheby’s auction and buying the, you know, the baton to participate and if there is something opportunistic in the way of, you know, prices that we think are attractive for our shareholders, we’ll be in a position to participate."

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