Wednesday, May 2, 2007

BIA's Randolph interviewed on BRS/EBS Industry Trends

Educational Broadband Spectrum (EBS) and Broadband Radio Spectrum (BRS) have been made available to businesses to provide high-speed, high-capacity broadband and Internet service. As such, owners of this spectrum have a very keen interest in effectively managing these assets.

In a recent interview published in BRS/EBS Update, BIA Senior Analyst, Kim Randolph, provides insight into how the industry is changing, the strength of commercial competition, and how the market is directing price and value of this unique spectrum. Her Q&A session is provided below.

For over 10 years, BIAfn has been monitoring spectrum rule changes and conducting valuations in the 2.5 GHZ Band. Our goal is to help our clients both understand and navigate the changing regulations in order to secure a lucrative source of revenue. If we can assist you by answering any questions, please contact us by email, ebsinfo@bia.com, or by calling 800.331.5086. You can also learn more about our services by visiting our website, http://www.bia.com/services_financial_ebsbrs.asp.
 

Q. How are BRS licenses values trending these days? What range of prices per MHzPop are you seeing now?

A. By my calculations, price per MHzPop multiples are ranging anywhere from $0.04 to slightly over $0.25. In 2006, the average was around $0.10 and the median was around $0.14. I'd say that prices in the latter half of 2006 were a bit higher.

Q. Are EBS lease values following a similar trend?

A. EBS lease values are following the same trend. Based on the deals that I've seen, there hasn't been much of a difference in the prices paid for BRS licenses and EBS leases. In theory, there is a difference between the two because at the end of the lease, the licensee is still left with some residual value. However, depending on the length of the lease and the discount rate used to determine the present value of the lease, the residual value can vary significantly. For example, as the length of the lease and discount rate increase, the percentage of total value captured during the lease increases, resulting in a lower residual value at the end of the lease. Keep in mind that with an EBS lease, there is risk of default and additional costs associated with maintaining the lease (e.g., EBS licensees are required to use a portion of spectrum for educational purposes). Nevertheless, supply and demand, competition, timing, and other market factors may result in some EBS licenses (or leases) commanding higher prices than their BRS counterparts in a given market.

Q. Is it necessarily wise for a licensee to play a "hold out" game at this stage in hopes for significant increases in values?

A. I can't really say whether it is or isn't. While values have been on the upswing in recent years, that trend may or may not continue. Spectrum prices in this band (and others) have seen both boom and bust. So, predicting the future is tricky.
 

There are a number of factors that go into assessing the value of the spectrum - it could be that a licensee is being offered more for a particular license now because all the other licenses are held up in leases. Waiting may result in a less favorable offer once more spectrum is put into the open market. If licensees are considering selling or leasing, they should be concerned with getting a fair value for the spectrum in today's dollars.

Q. In valuating licenses, is there any accounting for the licensee's share of transition costs?

A. An EBS licensee is not required to pay any transition costs. When we value licenses, we do not make any adjustment for transition costs.

Q. How do you expect the consolidation of the BRS/EBS industry to unfold? Will we end up with just one of two major carriers in the 2.5 GHz band? Will there be any plays for regional, rural or more localized players to pursue?

A. I do not think that will happen for some time because there are plenty of opportunities for more localized players. The key to their strategy will lie in being the first to market and obtaining a competitive edge.

Q. Do you have any thoughts about how the upcoming 700 MHz auction might impact BRS/EBS license values?

A. I believe that Sprint has announced they will not participate in the 700 MHz auction. However, if Clearwire decides to participate, it may have an effect. Given the investment put into the 2.5 GHz band and the commitments made to the FCC, I don't think that it will be abandoned. Everybody knows that the 700 MHz spectrum is out there so it shouldn't have a dramatic affect (if any) on EBS/BRS prices once the auction actually takes place.

Q. What do you see as the most significant challenge for the BRS/EBS industry at present?

A. In my opinion, meeting substantial service requirements will be the biggest challenge. Licensees and operators will need to work together to make this happen.

Contact us today for more information about BIA’s EBS/BRS Evaluation and Consulting Services at: http://www.bia.com/services_financial_ebsbrs.asp.
 

The above interview first appeared in the BRS/EBS Update, which is published monthly by MYERS LAZRUS, a Washington, DC law firm that specializes in legal services to telecommunications and technology clients nationwide with an emphasis on licensing, venture financing, corporate governance, transactional matters, and litigation.