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Feb. 25, 2021, 10:30 a.m. EST

AT&T, Verizon downgraded at Oppenheimer following hefty bids for spectrum

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By Emily Bary

Oppenheimer analyst Timothy Horan downgraded shares of AT&T Inc. and Verizon Communications Inc. to perform from outperform Thursday, after the Federal Communications Commission revealed the results of a recent spectrum auction, showing that the two telecommunications companies were overwhelmingly the largest bidders in an expensive auction.

Verizon’s /zigman2/quotes/204980236/composite VZ -0.43% winning bids amounted to $45.4 billion and AT&T’s /zigman2/quotes/203165245/composite T +0.74% amounted to $23.4 billion, while the overall auction raked in $81.2 billion. The auction opened up access to mid-band wireless spectrum that the carriers will use to build out their 5G networks.

“This was a must-win auction for Verizon as it had to acquire 5G mid-band spectrum to compete with T-Mobile’s network quality,” Horan wrote. “However, it will take at least a year to start deploying this spectrum and revenues generated from it will take a few years.”

AT&T “is in a similar situation as Verizon but has less financial flexibility,” he continued. The company also needs access to mid-band spectrum but came into the auction more financially stretched due to debt from recent acquisitions and weak recent performance for areas of the business like DirecTV . AT&T may have to sell some or all of DirecTV for about $15 billion “or a very low 20% [free-cash flow] yield,” Horan said.

T-Mobile US Inc. /zigman2/quotes/204659678/composite TMUS +1.20% already had mid-band spectrum, which it obtained through its acquisition of Sprint last year, and the company only spent $9.3 billion to bolster its position.

“The results are a major positive for T-Mobile and shows that it is ahead of the competition,” Horan wrote. “Its successful rollout of 2.5GHz [spectrum] was the catalyst for the higher auction prices and its spectrum holdings satisfy nationwide 5G coverage with mid-band.”

Verizon shares are off 1.1% in Thursday morning trading, while AT&T’s are down 0.8% and T-Mobile’s are up 1.2%.

/zigman2/quotes/204980236/composite
US : U.S.: NYSE
$ 58.14
-0.25 -0.43%
Volume: 18.31M
April 21, 2021 4:00p
P/E Ratio
13.53
Dividend Yield
4.32%
Market Cap
$241.73 billion
Rev. per Employee
$970,439
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/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 30.11
+0.22 +0.74%
Volume: 34.36M
April 21, 2021 4:04p
P/E Ratio
N/A
Dividend Yield
6.91%
Market Cap
$213.37 billion
Rev. per Employee
$746,783
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/zigman2/quotes/204659678/composite
US : U.S.: Nasdaq
$ 132.12
+1.57 +1.20%
Volume: 3.37M
April 21, 2021 4:00p
P/E Ratio
47.37
Dividend Yield
N/A
Market Cap
$162.25 billion
Rev. per Employee
$911,960
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