By Andy Montero
Sirius XM Radio purchased spectrum in the 2320 MHz to 2345 MHz range at FCC auction over 12 years ago for $170 million dollars combined and subsequently poured billions of dollars into infrastructure, content and management over the ensuing years. Sirius XM, still a fledgling company as a combined entity, only recently reported their first ever consecutive profitable quarters. Several years after Sirius XM Satellite radio purchased their spectrum licenses and had started building out their infrastructure, the FCC auctioned off another section of spectrum which bookends the spectrum belonging to Sirius and XM in the 2305-2320 MHz and the 2345-2360 MHz ranges.
At the onset of this particular auction, there were rules with regard to this particular segment of spectrum which were quite clear in representing that no interference would be permitted with the Sirius and XM spectrum already being developed and deployed for consumers. The FCC unequivocally made sure it was known that protecting Satellite Radio would make mobile operations in the spectrum that was being auctioned most likely difficult, and worse case technologically unfeasible.
Even with that knowledge companies still submitted their bids for the licenses in the spectrum auction. As a result, the entire purchase price for WCS spectrum that was auctioned in those blocks was only $14 million dollars. This block of spectrum is 5MHz larger than the SDARS spectrum and sold at auction for $154 million less than the SDARS spectrum was sold for in the 1990s. The only plausible explanation for this is due to the restrictions placed on that spectrum at the time of auction. The companies who purchased this spectrum knew ahead of time and purchased it in any event due to growing demand in hopes of being able to utilize it at some point.
Fast forward and more recently the Federal Communications Commission has been loosening restrictions on spectrum in order to minimize the impact of a lack of available spectrum and maximize the usage of existing spectrum. The spectrum held by DBSD and TerreStar, which currently require a satellite component to the service was apparently part of that loosening of restrictions. Rules regarding spectrum use and ownership are being changed. With the loosening of some previous restrictions regarding spectrum use it will make available and owned spectrum more valuable to companies like Liberty, Sirius XM, Intelsat, Dish and Echostar as well as other entities. It is part of a recent strategy by the FCC to enable owners to make more services available through leveraging of limited available spectrum. The agency has been slowly loosening restrictions on Mobile Satellite Spectrum (MSS) since a couple of years ago.
The S-band licenses, which TerreStar and DBSD hold, are among the first to be less restricted. Depending on the final outcome of coming modifications to spectrum usage, each band of spectrum could be worth more than $3 billion.
The move to scoop up spectrum by Dish Networks’ Ergen has been raising eyebrows in the media space. Ergen spoke about spectrum value not long ago, in generic terms. EchoStar paid over $700 million just for wireless licenses alone in a 2008 government auction. Ergen has made several comments similar to these he uttered at a conference call “We think spectrum has value, and then if you can do something with it strategically, it can have more value.” In recent months it has become very apparent that Ergen does not mince words. Dish Networks’ bid for DBSD seems to indicate he’s not just buying spectrum of the cuff to flip it. Dish significantly upped its winning bid from $1 billion to $1.5 billion for DBSD. You would have to believe Ergen plans to do something significant with this acquisition in the near future if he was willing to increase his purchase bid by 50%.
Is Ergen really willing to spend billions to build his own wireless network? Is it possible he might pool the associated licenses in a partnership enterprise with an existing carrier or sell them outright? The licenses that DBSD happens to have ownership stake in cover what the FCC calls mobile satellite spectrum and require a satellite component in their use and operation. Interpret that as you will, but it is no coincidence that Ergen has been acquiring assets or has bid on assets through Dish Netwrok and Echostar over the course of the last 9 to 12 months specifically and over several years time has also been waiting on regulatory body decision making regarding plans that have been years in the making.
Disclosure: Long SIRI
