I have been asked by readers to delve deeper into the value of Sirius XM’s spectrum as a result of a recent article published by the Motley Fool. The article challenges Sirius XM’s “goodwill impairment” which stands at $4.4 Billion. That is all well and good, but investors and the street need to look deeper. A good portion of that “Goodwill” is assigned to the licenses that allow satellite radio to broadcast in the first place, and by many measures is undervalued. Upon the merger the XM spectrum was valued at $2 billion while the company is still carrying an $83 million vale on the Sirius spectrum because that is what they paid. By any reasonable measure the spectrum of both could be worth as much as $5 billion each, if not more.
The first thing that investors need to understand is that the spectrum and licenses do have value. The next thing that Sirius XM investors need to understand is that the spectrum is licensed for satellite radio (not cell phones, television, or Internet), and the licenses are for satellite radio as well. This perhaps limits the valuation in that it would cost a ton of money (on top of buying the raw asset) to get into the satellite radio business. Another consideration that investors need to consider is whether or not that spectrum or those licenses would be for sale in the foreseeable future. It is fine to have something of value, but the true valuation only comes with:
A: What someone is willing to spend
B: Whether or not you can even sell the spectrum
Sirius XM has two swaths of spectrum which happen to be very narrow. The company has offered a guarantee to the Federal Government that they will not make legacy radios obsolete. This requirement hinders their ability to “market” this spectrum in any kind of timely manner. Even though we can all see the shift to the XM side of the platform, there are still millions of radios out there that require service on the Sirius side of the equation, and thus the Sirius license as well as the Sirius spectrum. This fact alone will require the company to hold the license and spectrum for the foreseeable future. Even with that consideration, the company will likely want to hold the Sirius spectrum for the purposes of making the deteriorated sound quality that satellite radio offers a bit better. As things stand now some channels on Sirius XM are virtually un-listenable. Traffic and weather on Sirius XM… no thanks… I will tune in locally where I get better sound quality even if it is being broadcast from a helicopter!
The basic facts are that Sirius XM’s spectrum and license have a value, but does it really translate into anything at this point? The simple answer is no. The company’s hands are currently tied, and I do not see them in a rush to sell of a license or spectrum. Thus the value does not really enter the equation. If you are looking very long term this may become an issue, but for now theses items simply carry a value on paper for accounting purposes.
To put it simply think of the spectrum AT&T holds. The spectrum has value, but if it is sold off, AT&T no longer has a business. Do you picture AT&T selling off even a portion of their spectrum? No. They want to hold it and acquire more if possible. How many people do you see as willing to shell out $5 billion for satellite radio spectrum, and then another couple of billion on top of that to launch satellites? Never mind the marketing that would have to happen in order to become even remotely viable!
Long story short.. who cares what the spectrum and licenses are worth! They are not going anywhere anytime soon.