By Drew FitzGerald and Sam Goldfarb 

Bidders spent a record $80.9 billion in a U.S. government airwaves-license sale, capping a frenzied auction that will demand a commensurate wave of borrowing in an already-indebted telecom sector.

AT&T Inc., Verizon Communications Inc. and others competed in the Federal Communications Commission's sale of C-band spectrum rights -- a hot commodity for cellphone carriers seeking more frequencies for 5G services. The sale ended Friday ahead of a second phase that determines the specific frequencies each company will receive.

The public won't likely learn the names of the auction's winners for several weeks, but Wall Street is already taking cues from traditional network operators seeking loans or issuing bonds that could be used to foot the bill.

AT&T is in talks with banks about a possible one-year loan of around $14 billion and recently borrowed about $3.5 billion in the short-term commercial-paper market, according to people familiar with the matter. T-Mobile US Inc. raised $3 billion through a high-yield bond sale earlier this month. Verizon is widely expected to issue bonds in the coming weeks, analysts said.

The new debt this year adds to several billion dollars in bonds that carriers issued in 2020 before the auction started. AT&T's discussion with banks was earlier reported by Bloomberg News.

All told, the C-band auction will cost the winning bidders as much as $96 billion after they cover obligatory payments to satellite companies that are shifting their operations to make room for cellphone service. That financial burden is more than double the price of the previous FCC auction record, a $44.9 billion contest that ended in 2015.

Some of the licenses in the latest auction could end up in the hands of financial firms; cable-TV operators such as Comcast Corp. and Charter Communications Inc.; and cellular-industry newcomer Dish Network Corp.

Representatives for AT&T, Verizon and other registered bidders declined to comment on the auction. FCC rules bar companies that participate in the auction from discussing the process.

Telecom analysts expect the wireless industry's traditional leaders to walk away with most of the licenses.

"AT&T and Verizon need to catch up," said Allyn Arden, a debt analyst for S&P Global Ratings. T-Mobile's purchase of Sprint Corp. last year gave it a cache of midrange frequencies that can support the huge volumes of data expected to cross fifth-generation, or 5G, networks. The latest federal auction gives T-Mobile's rivals a chance to even the score.

Verizon, which sold $49 billion of bonds in 2013 to acquire full control of its wireless business, is expected to spend the most cash on the latest auction to snap up a valuable resource.

But S&P and other ratings services are giving the company more leeway to spend without threatening its investment-grade rating, which already enjoys a positive outlook that could lead to an eventual upgrade.

AT&T could spend less than Verizon and still face trouble convincing credit raters that its debt should maintain its current ratings. S&P and Moody's Investors Service both rate AT&T's bonds two levels above speculative grade.

The company, which borrowed $40 billion in 2016 before it acquired media giant Time Warner, last reported net debt of about $149 billion, a figure that will most likely climb if executives spend billions more on spectrum. AT&T has been exploring a potential sale of its DirecTV satellite business, among other divestitures, The Wall Street Journal has reported.

S&P, in a recent report, said AT&T's debt-to-earnings ratio could exceed its "downgrade threshold" if it bought $20 billion of spectrum. But forgoing a resource that wireless companies use to keep their customers happy could prove more costly.

AT&T finance chief John Stephens told a virtual Citigroup investor conference earlier this month that executives were confident after making "really significant progress in managing the balance sheet, giving us a lot of runway to continue to invest, to continue to pay a dividend, and to continue to pay down debt."

Ultralow interest rates could be driving bids higher than most observers expected when the process kicked off in December. The average yield on U.S. investment-grade corporate bonds was 1.85% on Friday, according to Bloomberg Barclays data, just above its all-time low of 1.74% set at the end of last year. The average yield was around 2.9% at the time of the FCC spectrum auction in 2015.

"That gave telecom companies some confidence to be aggressive," said Davis Hebert, a senior analyst at debt-research firm CreditSights. "If they got stuck with a larger bill than anticipated, the debt market would still be relatively favorable."

The extra yield, or spread, that investors demand to hold telecom bonds over U.S. Treasurys has ticked up as they anticipate additional borrowing to fund the auction purchases.

Verizon's 2.875% notes due in 2050 traded last week with a 1.17 percentage point spread, up from 1.03 percentage points in early December, according to MarketAxess. The spread on AT&T bonds due in 2053 has climbed to 1.87 percentage points from 1.67 percentage points during that span.

Write to Drew FitzGerald at and Sam Goldfarb at


(END) Dow Jones Newswires

January 17, 2021 08:14 ET (13:14 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.