July 15, 2022
According to Global Crossing founder Gary Winnick, the time has come for spectrum licenses to sit alongside real estate, bonds and insurance as a distinct class of financial assets. In making that change, he suggested that operators like AT&T and Verizon could raise billions of dollars for things like stock buybacks and potentially massive new investments into their businesses.
"The value of spectrum globally is somewhere between $5 [trillion] and $7 trillion. It's an asset class that's never been created, and we are going to create it," Winnick told Light Reading during a recent interview. "It's obvious to me that spectrum is an asset class whose time has come ... Institutions across the globe are going to want to own this in their portfolio. It's a stable asset; the tenants are stable. It's a robust industry ... and the demand is exponential."
He added: "Who knows what the future holds in store, in terms of the types of opportunities that spectrum is going to create? But tens of trillions of dollars of new revenue opportunities will be created over the next century because of wireless spectrum."
Winnick is pursuing the opportunities. He said his investment company, Winnick and Company, is in discussions with several international wireless network operators to purchase their spectrum licenses and then lease those licenses back to the carriers for up to 100 years.
Pros and cons
According to Winnick, this kind of deal could remove a giant weight from wireless network operators' balance sheets and raise their credit profile. It could also net them a huge bundle of cash that they could use for things like stock buybacks, which would then dramatically raise their stock prices. For operators like AT&T and Verizon – which have each doled out billions of dollars for spectrum licenses in recent years only to watch their stock prices stagnate – the idea may be enticing.
Figure 3: Global Crossing founder Gary Winnick.
(Source: Gary Winnick)
Winnick said spectrum licenses are no different than other assets that wireless carriers can offload, from debt to cell towers. Indeed, Deutsche Telekom is reportedly in the final stages of selling off thousands of its cell towers in Germany and Austria. However, the operator will continue to host its network equipment on those towers after the sale. Winnick said operators could enact a similar sale-leaseback transaction with their spectrum licenses.
Carl Katerndahl, one of Winnick's colleagues, acknowledged that there are clear stumbling blocks that must be addressed before any kind of spectrum license deal can happen. One of the most pressing is how the taxes in any such transaction might be handled.
Financial analyst Craig Moffett, of MoffettNathanson, pointed to other potential pitfalls.
"Unless the spectrum is going to be shared by multiple carriers, the way towers are, the idea doesn't really work," he wrote in response to questions from Light Reading. "Leasing doesn't really take the cost of the spectrum off a carrier's balance sheet. No carrier is going to invest behind spectrum unless they have a long term lease, but from an accounting perspective a long term operating lease is counted as debt. So, at least in calculating leverage and financial capacity, there's no real difference between leasing and buying."
Moffett added: "The only reasons it would make sense for a carrier to lease spectrum from someone else would be if the spectrum was going to be shared by multiple carriers, or if the lessor had a lower cost of capital than that carrier. But the carriers haven't ever shown much interest in shared spectrum models, and there's no chance of an alternative buyer having a lower cost of capital than one of the major carriers."
Analyst Tim Farrar with TMF Associates noted that spectrum is not amortized on a company's balance sheet in the US because FCC spectrum licenses can be renewed indefinitely. That's different from cell towers, which are costly to maintain and depreciate every year.
Spectrum is a different type of asset, Farrar said, because when an operator owns spectrum, it essentially incurs no cost to use it, at least from an accounting perspective.
A history of money
Nonetheless, Winnick said he believes it's only a matter of time until wireless network operators in the US and internationally begin to pursue spectrum license sale-leasebacks. He believes it will happen sooner than later.
Winnick also argued that he has a vast amount of experience to leverage in pursuit of leasebacks. Early in his career, he worked with financier Michael Milken at investment bank Drexel Burnham. During Winnick's time there, the firm grew substantially, including through the creation of new financial instruments. (Years later, Milken was convicted of racketeering and securities fraud but was pardoned by former President Trump in 2020.)
Then, as the founder of Global Crossing Winnick worked to build fiber networks globally, including undersea cables, and then sold capacity to network operators domestically and internationally. He left Global Crossing in 2002.
More recently, Winnick has been pursuing 2.5GHz spectrum licenses in the US, in competition with T-Mobile.
According to his Wikipedia page, as of April 1999, Winnick amassed the fastest billion dollar fortune in history, in 18 months. That's ahead of Jeff Bezos, Mark Zuckerberg and Bill Gates.
"If Willard Marriott, the founder of Marriott Hotels, owned hotels, he'd have two hotels in Washington, DC, and we never would've heard his name," Winnick said. "But he looked to the future and invested in operating income to expand his brand."
Winnick said wireless network operators need to take the same approach to their businesses by investing in a broader, global communications play rather than insisting on owning networking assets.
"What is their business? Servicing lenders and paying more dividends? When they should be investing in the future, where their customers are going to come from," he said.
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