Click to view chart entitled: “EBS/BRS: Significant Events Since 2003″

At the National ITFS Association (NIA) (now National Educational Broadband Service (NEBSA)) conference in mid February, I gave a presentation that showed just how much multiples have increased since the FCC announced the rebanding of the spectrum.

In 2005, the weighted average price per MHzPop[1] was approximately 6.1 cents. In 2006, the multiple grew exponentially to just over 23 cents. In 2007, the weighted average multiple leveled off at just over 23 cents (just barely above 2006).

So, why such a big increase in multiples between 2005 and 2006?

I believe that is really when the real activity began as WiMAX gained momentum both in the technology sector and on Wall Street. As Sprint Nextel solidified their position as the market leader in the 2.5 GHz band with the merger of the two companies in July of 2005, Clearwire emerged as the second largest operator and continued to actively bid against the company for spectrum licenses and leases.

NextWave also re-entered the market as a wireless player after emerging from bankruptcy in April of 2005. After pulling out its first IPO, Clearwire received $900 million in funding from Intel and Motorola in July of 2006. Smaller market operators such as DigitalBridge Communications, Xanadoo, Oneida Broadband, and several other local operators emerged or in some cases, continued to compete in smaller markets, contributing to the increased demand for spectrum. Then, both NextWave and Clearwire became publicly traded companies, NextWave in late 2006 and Clearwire in March of 2007.

There is no doubt that the access to capital, increased competition, and the hype of WiMAX helped stimulate the prices paid in the 2.5 GHz band.

While multiples do not appear to have grown quite as much in 2007 as they did in 2006, I think there still has been some upward movement in multiples as the amount of available and unleased spectrum declines. It may be that the operators’ focus has shifted to building networks and proving to investors that the model works.

As more spectrum becomes available and usable in the market (i.e. AWS, 700 MHz), operators in the 2.5 GHz band may want to capitalize on the potential advantage they have as being the first to market with a true WiMAX network.

As with most wireless spectrum, the value is highly dependent on the population served (i.e. the larger the market, the higher the multiple paid) and varies widely. To look at what licensees of spectrum in the 2.5 GHz band have been receiving for spectrum over the past 18 months, we grouped sales/leases into four different market size groupings. The results showed that as the market size increases, the weighted average price per MHzPop multiple increases as well. The weighted average multiples ranged from just under 5 cents for markets serving less than 100,000 pops to 25 cents for markets serving more than 1.5 million pops.

Given the range of values, it is important to carefully consider all of the factors that may impact value – density, growth, income levels, and other economic and competitive factors before entering into an agreement in order to ensure that the value of the license is maximized.

For those licensees entering into long term de facto lease agreements, another important aspect when reviewing lease offers, is the timing of payments. The time value of money says that a dollar today is worth more than a dollar in the future. Licensees should covert the stream of payments (over the 30 year lease) into today’s dollars (using a present value calculation) before calculating a price per MHzPop multiple to compare to other sales or leases and before evaluating different lease offers.

My final piece of advice to those licensees doing deals is to remember that upfront payments and fixed monthly payments are not the only factors to be considered. Service offers and other incentives also have value. The best choice may not always be the most cash if there are other needs that need to be met. Licensees should think carefully about their needs to structure a deal that works for all parties involved.

[1] Price per MHzPop is calculated as follows: sales price, or present value of the lease divided by product of the total MHz (we use the post-transition band plan – i.e. 22.5 MHz for a 4 channel group) times the population served under the Geographic Service Area (GSA)