Finish of February greetings from Charlotte/ Davidson/ Lake Norman, the place spring is within the air.  Featured is our canine Abby, sporting her model new T-Cellular pet bandana (free by way of their T-Cellular Tuesdays app).  Our family is a straightforward goal without spending a dime stuff, and T-Cellular’s app affords us Popeye’s hen sandwiches, Dunkin’ Donuts and Starbucks coffees, and even Domino’s pizza. 

Because the title implies, we’re going to touch upon the not too long ago accomplished “large block” public sale and the FCC’s announcement of one other 100 MHz spectrum arising for bid later this yr.  We can even element AT&T’s announcement of their linear TV carveout (a.ok.a. the New DIRECTV).

Every of the Huge 3 wi-fi carriers might be holding digital investor days within the coming weeks to stipulate their community deployment and enterprise methods.  Verizon is scheduled for six p.m. on Wednesday, March 10; T-Mobile on Thursday the 11th at 2 p.m.; and AT&T on Friday the 12th at 10 a.m (all instances EST).  Additionally, Morgan Stanley is holding their telecom investor convention this Thursday and AT&T might be talking on the occasion.  Count on the March 14 Transient to be packed. 

The week that was

“Not as unhealthy because it might have been” was the abstract of the week in line with one Sunday Transient reader.  The Fab 5 slipped right into a internet fairness loss for the yr of $39 billion (recall this time final yr, as COVID-19 worries have been growing, the Fab 5 have been down $73 billion, however ended the yr up $2.5 trillion).  To place this into context, the Fab 5 have now misplaced 2% of 2020’s unprecedented acquire, whereas the Telco Prime 5 have erased 57% of final yr’s meager enhance. 

So as to add extra reduction, we’ve got up to date the “We haven’t seen ______’s share value this low since” column for every inventory (if the sphere is clean, it’s as a result of the inventory is greater than ranges seen previously two weeks).  For Apple, who dropped $145 billion in worth or roughly one T-Cellular this week, the share value is again to starting of December ranges.  That story is comparable for Amazon (Nov 10).  For the opposite three, nevertheless, it’s hardly price mentioning the “Final seen” column.  Time to take that deep breath and acknowledge that what goes up, may come down. 

On the Telco Prime 5, it’s price noting that Comcast is the one inventory with features in 2021.  Not one of the different shares are struggling, however Comcast is the closest factor to a “COVID restoration” inventory play in telecom.  We are going to dive into the remaining telcos beneath in our C-Band dialogue.    

The one main wi-fi plan information centered round T-Cellular, who changed their Magenta Plus plan with Magenta Max.  Apart from considerably upgrading their Netflix bundle (one Normal Definition subscription obtainable now with the primary line; 2 screens of 4K streaming included with two-or-more-line plans), they eradicated any information caps and likewise elevated the Hotspot allotment to 40 GB.  With the pre-existing GoGo wi-fi profit (limitless GoGo Wi-Fi on planes), it in all probability must be known as the “highway warrior” plan.  Whereas it’s arduous to see whole households upgrading to Magenta Max, it’s good to know there’s a very limitless plan.

On a separate notice, we have been inspired to see CNET’s review of the T-Mobile Hotspot.  For these of you who will not be conscious, T-Cellular affords a wi-fi dwelling web service that primarily makes use of LTE at present (though the machine will decide up 5G sign when obtainable).  We now have been testing this service at headquarters since October and made it our sole dwelling broadband service in December.  Our Zoom calls are higher than our cable modem, and our HD streaming isn’t any worse than our earlier supplier expertise.  CNET’s conclusion parallels ours: “After greater than every week of enterprise as common — working on-line throughout the day, streaming video at night time, FaceTime calls to oldsters and so forth — I’ve encountered scarcely a blip in connectivity.”  Extra particulars on the service can be found within the hyperlink above.

TPG invests in DirecTV:  Implications to AT&T

On Thursday, AT&T introduced that they’d be restructuring their linear content material distribution and forming a brand new entity (known as New DIRECTV or DTV) with non-public fairness big TPG.  The next slide from AT&T’s convention name outlines the essential construction of the transaction: 

Crucial a part of the transaction is that TPG sits senior to AT&T on the popular scale and receives a ten% money coupon for his or her $1.8 billion funding.  The opposite vital level on this slide is that AT&T will proceed to fund the NFL Sunday Ticket value by way of 2022 (the top of the contract time period).  This quantities to a $2-2.5 billion extra worth block that’s not straight mirrored within the enterprise worth of the corporate (this legal responsibility is not going to switch from AT&T). 

The New DIRECTV will embody the satellite tv for pc operation in addition to AT&T TV and legacy U-Verse video providers.  There are various ways in which the brand new firm can unlock worth.  First, it will probably (and will) eradicate the requirement that AT&T TV can solely be bought along side an AT&T Web plan.  Whereas the connection may make sense in AT&T Fiber areas (which AT&T has dedicated to develop by 2 million properties this yr), foisting a “lower than” expertise on prospects is ridiculous.  The brand new firm may have much less curiosity in supporting the growing old copper infrastructure and will take steps (leveraging DIRECTV or different branding) to offer video providers nationally. 

Second, the brand new firm ought to embody HBO Max with all plans (at the moment, it’s one yr without spending a dime).  This is able to create substantial differentiation versus YouTube TV and different aggressive choices.  Third, it ought to embody limitless cloud storage.  Together with a measly 20 hours forces prospects to actively handle their recordings.  By the point they add limitless cloud storage ($10/mo) to their supply, nevertheless, the bottom package deal (with one gear rental cost) rises to $85/mo.  The pricing of AT&T TV’s providers (significantly compared to T-Cellular’s new service, TVision) is out of line. 

One of many nice mysteries of the DIRECTV and WarnerMedia transactions is the shortage of inclusive TV bundling.  Wi-fi contains HBO Max within the core product supply, but DIRECTV doesn’t (past a couple of free months).  We’re certain there’s a rational clarification for this (programs, compensation, MFN, anti-trust points… the checklist goes on), however AT&T missed a elementary alternative to bolster its place with a product that has minimal (exterior) incremental prices.  An actual headscratcher for shareholders. 

There are various questions remaining to be answered about how this entity will interface with the remainder of AT&T.  Indubitably, it makes their bundling/ joint advertising prospects tougher.  Distribution (incenting AT&T retailer representatives vs outbound advertising vs DIRECTV on-line efforts) goes to vary.  Customer support might change.  The news release states:

“New DIRECTV may have a industrial settlement with AT&T to proceed to supply bundled pay-TV service for AT&T’s wi-fi and web prospects. Moreover, AT&T and New DIRECTV may have industrial agreements in place that may give New DIRECTV video subscribers continued entry to HBO Max; permit each firms to serve prospects by way of a number of distribution channels, together with retail, on-line, name facilities and oblique sellers; and share revenues for advert stock administration and advert gross sales.”

How these industrial agreements are structured determines the money circulation trajectory.  If I have been TVision, Dish, cable or any fiber-based broadband challenger, I might be licking my chops by way of the transition.  Despite the fact that AT&T retains 70% of frequent inventory possession, the brand new entity has its personal administration group and Board.  DIRECTV is not a division of AT&T, it’s a “beneath the road” consolidated holding. 

Backside line:  Assuming AT&T has to pay $2.5 billion in NFL Sunday Ticket charges on behalf of the brand new entity, Ma Bell will internet simply over $5 billion from this transaction to pay down debt.  They’ll retain 70% of frequent fairness in an entity designed to pay out $180 million per yr to an exterior shareholder into perpetuity (which might render the frequent fairness ineffective by the top of this decade).  With out a turnaround, the one winners from this transaction are T-Cellular, Dish, and cable. 

I like large blocks and I can not lie …

The FCC announced the “winners” of Public sale 107 (a.ok.a., the C-Band public sale) on Wednesday.  4 bidders accounted for the overwhelming majority of the winnings:  Verizon, AT&T, US Mobile, and T-Cellular.  After lively participation within the CBRS license auctions final summer time, each Dish and cable declined to hitch the bidding frenzy.  Nobody leaves this public sale feeling victorious. 

There’s lots of terrific commentary on the public sale and implications.  For these of you who obtain Craig Moffett’s evaluation, he does an amazingly good job of setting up post-auction professional forma leverage for every of the Huge 3 wi-fi carriers.  There’s additionally a prolonged however insightful article revealed by Mike Dano in Gentle Studying here

A fast recap for brand new Transient readers who will not be aware of the C-Band public sale:  There have been three main blocks of spectrum up for bid:  A Block (100 MHz; 3.7–3.8 GHz; largely avail later this yr), B Block (additionally 100 MHz; 3.8-3.9 GHz; obtainable by December 2023) and C Block (80 MHz; 3.9-3.98 GHz; additionally obtainable by December 2023).  In most metropolitan areas, bids have been separated into A and BC classes (exterior of the metros, bidders positioned one “ABC” bid).   That is not often a “winner take all” state of affairs, as this instance of the Houston Partial Financial Space reveals (from the FCC results database): 

Verizon (d.b.a, Cellco Partnership) received three of the 5 A Block 10 MHz license pairs (60 of the whole 100 MHz), and likewise received 5 of the 9 BC Block 10 MHz license pairs (Verizon’s total winnings map is proven close by and can be accessed by way of Sasha Javid’s public sale tracker web site here).  This resulted in a complete of 160 MHz of latest spectrum Verizon can put to make use of in Houston – 60 MHz beginning the top of this yr, and the rest by the top of 2023.  They paid simply over $1.27 billion for his or her share of this spectrum excluding relocation prices (roughly a further 12% or $150 million).  The Houston PEA has a inhabitants of 5.891 million in line with the FCC web site leaving a value per MHz POP of $1.43 for the A Block and $1.30 for the BC block.

Distinction that to what Verizon paid for 30 MHz of CBRS Precedence Entry Licenses just some months in the past (outcomes additionally from the FCC database hyperlink above – notice that these outcomes are for Harris County solely which is about 75-80% of the PEA inhabitants.  Verizon didn’t have the profitable bid on any surrounding counties within the Houston space):

On this public sale, Verizon netted 30 MHz of adjoining spectrum for $57.4 million (Harris County has a inhabitants of 4.71 million so 41 cents per MHz POP).

To recap, in July, Verizon paid 41 cents per MHz POP for 30 MHz of spectrum and 6 months later paid between $1.30 and $1.43 per MHz POP for 160 MHz of spectrum.  The “large block” worth is roughly 3-3.5x for Houston

We scratched our heads on this sizeable distinction for adjoining spectrum bands in January (Brief right here).  And plenty of of you touted the worth of getting a big block of contiguous spectrum.  Is a “large block” price 4x?  Why?  What’s that use case, even for a vibrant market like Houston? 

To make issues worse, this spectrum band would require extra clearing prices and extra towers than decrease frequencies.  Tower suppliers in denser areas (and the fiber suppliers that hook up with them) ought to prepare for extra enterprise.  It’s going to value much more to deploy C-Band, which leaves much less capital for current spectrum capability augments and different competing capital priorities (like in-building 5G and fiber to the house). 

Backside line:  Verizon and AT&T overpaid for the C-Band (Verizon specifically with their profitable bids for 200 MHz of spectrum in Helena, MT, and Lewiston, ID).  Their “large block” infatuation is puzzling.  T-Cellular’s acquisition of Dash goes to seem like one of many smartest offers in telecom historical past when that is throughout.  And cable may be the largest winner of all by mendacity low and presumably ready for the next 100 MHz spectrum auction (extra to come back on that in future Briefs).   

That’s it for this week.  Subsequent week, we’ll proceed the infrastructure dialogue and talk about the outcomes of AT&T’s look on the Morgan Stanley convention.  Till then, you probably have associates who want to be on the e-mail distribution, please have them ship an electronic mail to [email protected] and we’ll embody them on the checklist (or they’ll join straight by way of the brand new web site).  Thanks once more for the referrals. 

Have an awesome week and Go Davidson Wildcats!