Zorro, One material difficulty with any MDS spectrum valuation analysis is the issue that most of the aggregated spectrum is actually licensed to "dentists and doctors" -- winners of license lotteries in the 1980s. As you know, it is then sub-licensed to MDS operators like CAI, who put forward a business (should that be in quotes, too?) that creates firm value, and thereby, spectrum value. About half of the spectrum out there for MDS operations is that other peculiar animal, ITFS licenses. CAI holds some licenses directly, of course, but the vast majority of their operating spectrum inventory is sub-licensed pursuant to medium to long term license agreements (where Gerry Kittner (Senior Vice President - Spectrum Management) makes his rather grand $180k, but for some reason, the smallest 1997 bonus, $53775, from CAI reports. Do you imagine the shabby bonus reflects some management displeasure in the spectrum management scene at CAI?)
It seems to me that valuing MDS aggregated spectrum may necessarily be an exercise in minutiae -- how can you value the 25 or 28 or 31 licenses a company "holds" in a given market/BTA without examining the terms and duration of the sub-license agreements? What if the license holder stands to be able to renegotiate the license fees or withhold the spectrum in two or three years based on the operator's success with its business? On the other hand, some licenses may have just been renegotiated for a 10 year term at very favorable terms -- that is almost like holding the spectrum yourself, but without any terminal value.
The ITFS rules could potentially be a stumbling block for some of the data applications being contemplated absent a waiver of the FCC rules, which require, as I recall, 20% of the "broadcast programming" to be qualified "educational" programming. That could be the wrong paradigm altogether for a data service use of the spectrum, complicating the valuation unless you are willing to assume a waiver or change in ITFS rules (I tend to believe such a waiver would not be difficult if there were commitments to certain specific educational access, but I know of no actual tests of these rules.)
I did not see or review the CAI valuation methodology, but I would concede to anyone who has plowed through a valuation process that there is nothing tidy or obvious about the most reasonable approach. I would also agree with you, Zorro, that the complications tend to make the process quite easy to game if there is a specifically desirable result sought from all the manipulations and calculations. |
