As the Federal Communications Commission puts the finishing touches on the rules for the 2016 broadcast incentive auction, media and telecom analyst Todd Juenger issued a downbeat report, damping down the hopes of any broadcaster who might be anticipating a big windfall from the sale of spectrum to the FCC.
In an analysis of what the Big 4 (NBC, CBS, Fox and Disney) might get in the upcoming auction, Jueneger, senior analyst for AB Bernstein, wrote that “our most optimistic estimate for CBS, Fox, and NBC (Comcast) is $1.3-$1.5 Billion….far below what…some companies have said is possible.” Juenger notes that his top end estimate for CBS of $1.3 Billion is “much lower than the $2 Billion estimates their CFO mentioned” during the Q4 2014 earnings call.
Juenger also isn’t counting on FCC Chairman Tom Wheeler’s repeated assurances that the auction will take place in 2016. “…There appears to be little reason why AT&T and Verizon would not try to delay the auction” to delay a big hit to their cash holdings and to slow down any expansion of competitors.
The companies may not be as willing to spend as most believe, Jennifer Fritzsche, a senior analyst with Wells Fargo wrote in a report on Monday. Commenting on the “big numbers” being thrown around like $60-80 Billion, Fritzsche wrote: “We don’t get it…. consider the buyers…. Each of these companies’ CFOs [AT&T, Verizon, T-Mobile, Sprint] has indicated it wants to bring these [leverage] ratios down, not up. While we know spectrum is a finite asset and we have written about that a lot….as I also try to teach my kids – money does not grow on trees. So there seems to be a very big disconnect somewhere. When I asked one of our speakers last Thursday at our DC meetings if anyone in DC focuses on balance sheets, the response was priceless….’Well of course we don’t – we have a $500B deficit!'”
The auction could also be held up by further lawsuits. Juenger believes that low-power TV, TV translator and wireless microphone industries “appear to be increasingly restive and therefore potentially litigious.”
Juenger juggled the stations owned, number of duopolies, median estimated station values and proximity to the Mexican and Canadian borders as variables in his Big 4 analysis. He does not think Disney will participate in the auction.