Michael Dell could clear up to $4.2 billion if the government buys back airwaves his investment group snapped up by acquiring a slew of local TV stations over the past few years. All told, Dell has spent about $80 million on 12 stations since 2011, according to government records.
Savvy industry watchers started questioning why Dell (pictured above) was buying up bankrupt television stations in 2011. It didn’t take long to figure out that he was more interested in the airwaves than the hard assets. It was a speculative move that appears primed for a premium payout in less than five years.
Based on prices the Federal Communications Commission (FCC) recently set, the airwaves associated with those stations could be worth $4 billion, according to a report in the Wall Street Journal. The FCC is getting ready to hold an auction to acquire Dell’s assets and resell them to Verizon, AT&T and other wireless operators.
The FCC’s Plans
Dell’s move is not unusual. Blackstone Group and Fortress Investment Group, among others, have also acquired stations hoping to monetize coveted spectrum. Nearly $45 billion was bid in last year’s FCC airwaves auction. The FCC is set to begin its next auction on March 29. Broadcasters started submitting applications to the FCC last month.
“The auction will use market forces to align the use of broadcast spectrum with 21st century consumer demands for video and broadband services. It will preserve a robust broadcast TV industry while enabling stations to generate additional revenues that they can invest into programming and services to the communities they serve,” the agency said in a statement.
By making valuable "low-band" airwaves available for wireless broadband, the incentive auction will benefit consumers because it will ease congestion on wireless networks, lay the groundwork for fifth generation wireless services and apps, as well as spur job creation and economic growth, the FCC added.
A Big Gamble
We caught up with Rob Enderle, principal analyst at the Enderle Group, to get his thoughts on Dell’s big moves. Specifically, we asked him this question point blank: Is this an example of insider capitalism or just a coincidence that the FCC suddenly wants to buy Dell's airwaves that he bought for $80 million?
“Michael Dell has one of the stronger personal investment groups and they clearly saw this as an opportunity,” Enderle told us. “They took a pretty big gamble and it paid off big.”
Enderle said more investment funds could have moved to grab aging TV stations, but the level of risk probably appeared too high for most of them. One of the advantages to having a well-funded investment fund that you control is clear: You can take risks that others might not be able to take.
“Given the shortage of airwaves, eventually this investment was going to pay off. The only questions were how long it would take and how much of a return would result,” Enderle said. “I expect, if we looked into his portfolio, we'd find a number of bets like this that either won't pay off for years or may never pay off. Hits like this offset those.”