What is a spectrum license worth?
It appears that the sale of Mobilicity to TELUS has fallen through, with raises the question of how should we value Mobilicity’s spectrum licenses?
In 2008, Mobilicity paid just over $243M for its AWS spectrum; its licenses were awarded in February 2009, starting the clock on 10-year licenses and an annual fee holiday for its AWS spectrum.
At the end of the 10-year licenses, there will be annual fees tied to the value of the spectrum. For the sake of this discussion, let’s assume that the spectrum begins to attract annual fees of 10% of the original 10-year license fee.
So, what is the current value of the licenses? Is it roughly half of the amount paid originally because we are just over 5-years into the original 10-year license? Given that the government has made it clear that the spectrum cannot be bought by an incumbent, has new entrant spectrum decreased in value, beyond the depreciated value?
The spectrum doesn’t depreciate to zero at the end of the license period. Keep in mind that at the end of 10 years, the spectrum holder effectively has the first right to renew the license to continue its business.
What is the correct accounting treatment?
How should an investor look at the value of a spectrum license?
Do you think with this debacle that Mobilicity’s bondholders might take the government to court to find out?
I think you are asking two questions: will one or more bond holders take the government to court; and, might they win?
Anyone can take anyone to court anytime. So the first question isn’t really worth looking at.
For the second, there are a lot of issues that need to be resolved before such a question can be answered. For example, what is the final settlement with another party. We may think that there are no other suitors, but it is now a different time, different players, so we just don’t know. It is post-700 MHz auction now, which was overhanging the decision process for potential bidders in the formal Mobilicity sale process.
I can envision various scenarios that could enable the bondholders to be kept relatively whole, allowing them (and the government and industry) to live to fight another day, continuing to do battle in the marketplace, not the bankruptcy courts.