Pressure is piling on heavily indebted US telcos to boost cash resources as early-stage C-band proceeds have already more than doubled the entire CBRS mmWave auction. While AT&T (NYSE:T) is shedding non-core assets, MNO newcomer Dish Network (NASDAQ:DISH) is turning to convertible debt.

The C-band auction had raised just over US$10.5bn in gross proceeds by the end of round 20, easily eclipsing the sale of higher frequency CBRS priority access licences, which generated nearly US$4.6bn when it concluded in August after 76 rounds.

There is plenty left to bid for in the current auction with at least 75 rounds expected to play out before results can be unveiled.

Analysts anticipate Verizon Communications (NYSE:VZ) will draw on its significant financial firepower to take the largest share of mid-band frequencies, helping the telco compete more effectively with T-Mobile US (NASDAQ:TMUS) and the 2.5GHz it gained from snapping up Sprint.

However, recent moves by AT&T suggest heightened competition as it also guns for more C-band spectrum to narrow the gap with T-Mobile.

The strong momentum being gained by T-Mobile after acquiring Sprint will challenge AT&T’s wireless growth in the mature market, MoffettNathanson analysts said in October, and it would be “a potentially devastating blow to their long-term competitiveness” if stretched balance sheets prevent the telco from buying more mid-band.

Shedding distractions

AT&T was notably absent from the CBRS auction, which along with its recent tower activity suggests the company has been in capital preservation mode.

The telco has been busy selling off non-core assets to focus on growing wireless and fibre trends, while prioritising its new streaming service HBO Max as it finds ways to tackle a debt mountain of about US$153bn.

In October, the company sold its stake in Central European Media Enterprises (CME) to Czech investment firm PPF Group for US$1.1bn. The move also means AT&T no longer backstops about US$575m in debt for CME, which the US telco acquired as part of its 2018 Time Warner deal.

More recently, AT&T announced plans to sell its anime streaming service Crunchyroll to Japanese conglomerate Sony (NYSE:SNE) for US$1.175bn. That asset was also bought two years ago, as part of AT&T’s acquisition of Otter Media in a sum analysts put at north of US$1bn.

John Stankey, AT&T’s CEO, told an 8 December investor event that it is looking to shed “tangental” assets that may distract from the telco’s core focus.

The comments added more fuel to rumours it is nearing a sale of satellite broadcaster DirecTV, which has continued to lose subscribers since being acquired for US$48.5bn in 2015.

Stankey was quoted saying the traditional pay-TV bundle “has seen its best days” at the event.

The latest rumours suggest DirecTV has bids that value it at more than US$15bn, including debt, from blank-check company Churchill Capital Corp IV and private equity firm TPG

Apollo Global Management, once seen as a frontrunner for the asset, has submitted a bid valuing DirecTV at less than US$15bn, reported the Wall Street Journal.

As part of efforts to prioritise HBO Max, AT&T recently said all movies its Warner Bros unit is releasing to theatres in 2021 will be available on the streaming service at the same time.

Debt expansion

DirecTV rival Dish Network, which has been amassing spectrum to become the country’s fourth MNO, unveiled plans on 15 December to raise US$2bn in convertible debt, plus US$300m depending on allotments.

Although the announcement cited “5G network buildout costs” among general corporate purposes for the debt, analysts are assuming it will also cover spectrum needs because of the timing.

Dish Network would have US$4.6bn in available C-band auction resources if all the proceeds were applied to it, according to New Street Research, which is now using this level as the company’s base case.

“This lowers our estimate for total auction proceeds by US$2.5bn to US$51bn,” New Street Research analyst Jonathan Chaplin said.

“It lowers the licences we expect Dish to win from 40MHz to 25MHz. It increases the spectrum won by the other major bidders in proportion to their available resources (new estimates: 110MHz for Verizon; 75MHz for AT&T and 50MHz for T-Mobile).”

Chaplin cautioned that the process remains very dynamic given that Dish Network and other bidders could raise more capital for an auction where demand remains very strong.

Shifting sands

Given the heightened activity, connectivity investors will be keen to see if there is a bifurcation in the market in which AT&T and Verizon attempt to distinguish their 5G offering from the rest of the pack, noted Brian Barnell, managing director of boutique investment bank Q Advisors.

“Everyone is ostensibly going after private enterprise revenue, Verizon through extensive mmWave holdings and Dish through open architecture,” Barnell told Connectivity Business.

“Verizon partnering with the likes of [cloud giants] AWS and Azure would indicate that Verizon still views network as a differentiator and will likely ensure they are material winners in the C-band auction to maintain such superiority.”

While cablecos are among the qualified C-band bidders, Barnell does not expect them being a major force for mid-band in part because of a strong showing in the CBRS auction. Verizon, Dish Network, and cablecos Comcast (NASDAQ:CMCSA), Charter Communications (NASDAQ:CHTR) and Cox Communications (NYSE:COX) were among the big winners for the sale of 3.5GHz spectrum.

“Cable operators are OK with regional CBRS approach and probably won’t break the bank on C-band even if they have the balance sheet to do so,” he said.