Dish Network, not too surprisingly, has gathered a few other objectors around it to try to block the sale of Qualcomm’s UHF spectrum to AT&T, a deal that was announced in January this year at a colossal $1.9 billion.
Dish CEO Charlie Ergen has always had a reputation as something of a gambler, but this attempt to block the sale of comparable spectrum to that which Dish acquired for $712 million in the 2008 US UHF auctions, has something of the sour grapes of a gambler who has already lost, about it.
Dish Network has combined with Cellular South, the Rural Cellular Association and what it describes as a group of open Internet advocates, and they are all asking the FCC to block AT&T’s $1.9 billion purchase of Qualcomm’s Flo TV spectrum saying it would further skew the market in favor of an AT&T, Verizon duopoly.
“The Commission should deny the Applications because entrusting additional beachfront spectrum to AT&T would cause irreparable harm to competition and consumers,” the RCA said in its FCC filing. “In a market that is teetering dangerously on the brink of true duopoly, the Commission should not tip the balance further.”
The real reason for Ergen’s disquiet is that the spectrum in question is all of what used to be analog TV channel 55 and handfuls of markets for Channel 56 in New York, Boston, Philadelphia, Los Angeles and San Francisco. Dish holds channel 56 in the rest of the US having been outbid by Qualcomm for those five markets only.
It is becoming clearer and clearer that LTE as a technology can harness pretty much any spectrum it likes, and use different up and down channels, and doesn’t need contiguous spectrum in order to build an effective network. This has been facilitated by Qualcomm’s promise to AT&T to build out technology for carrier aggregation within LTE, which is the process whereby multiple spectrum pieces can be used to upload data to phones, especially responses to wireless broadband requests.
We argued at the time that this changes the very nature of spectrum and allows for tiny pieces of one way spectrum to sit spare and waiting for the odd upload job, as long as some form of software defined radio shifts the handset’s main stream of data to whatever spectrum is allocated.
Prior to Qualcomm’s promise it was unclear if anyone would bother to implement carrier aggregation from the LTE standard.
AT&T and Verizon Wireless had already bought their main 700 MHz spectrum in the auction to use for their respective LTE networks for around $16 billion, and Dish is now arguing that AT&T should be forced to divest itself of ‘ guess what? Those New York, Boston, Philadelphia, Los Angeles and San Francisco territories which if acquired by Dish would give Dish full national coverage in its own spectrum.
Given that Qualcomm paid $558 million for the channel 56 markets it holds, if we take that as its true value for a second, that means it has got away a national UHF 6MHz unpaired license at $1.9 billion less that, so around $1.34 billion. That would put much the same price on the Dish spectrum if it can a) find a buyer and b) acquire the remaining markets of channel 56 spectrum if the FCC forces AT&T to sell it. But at that value, the $712 million that Dish paid, plus a further notional $558 million, that’s a total value of much the same as the rest of the AT&T deal, $1.25 billion instead of $1.34 billion. Not much of a premium there.
But surely much of the value of the Qualcomm spectrum is in the fact that it has those extra Channel 56 allocations in those territories where there are so many people in concentrated metropolitan areas, so that it can support even more broadband wireless downloads.
We think that the FCC was abundantly clear about what spectrum it had up for sale and what it could be used for and that nothing much has changed since then, so it is unlikely to be swayed by Dish’s arguments about a duopoly ‘ especially at a time when LTE networks are being mooted by Lightsquared, T-Mobile and there is a possibility of further investment in Clearwire being unforthcoming. Right now there would appear to be mounting evidence that there is plenty of competition in broadband wireless in the US, not counting what might come from a spectrum heavy Dish and partners.
Remember Lightsquared has annexed much of the MSS spectrum in the US, and Dish either has control over the rest or has a case in court to argue that it should have that control, due to its debtor relationship with the remaining bankrupt MSS players. Add that to the 700 MHz spectrum it holds and Dish has plenty of opportunity to add another raft of competition to the US LTE market.
Now we know that Dish is never going to build out such a network and that all of this spectrum is a gamble that it can either find a build out partner or spectrum buyer, and day by day, as the Clearwire investment case weakens, the idea that there are plenty of players building cellular networks in the US and that none of them urgently need the Dish spectrum, means that Ergen could be sitting on an asset that currently has almost no value or at least might not develop any for a considerable period of time.
Cellular South says it wants the FCC to block the deal, or failing that, mandate that AT&T enter into data roaming agreements to prevent it from forming device exclusivity deals in 700 MHz equipment.
The Free Press, Public Knowledge, Media Access Project, Consumers Union and the New America Foundation argue that AT&T’s application for the 700 MHz holdings “ignores facts that clearly demonstrate that this transaction will limit competition and harm consumers.”