Anterix Inc. (ATEX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Anterix FCC update call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Natasha Vecchiarelli. Ma'am, the floor is yours.

Good morning, everyone, and thank you for joining us. With me today are Brian McAuley, our Chairman; Morgan O'Brien, our CEO; Rob Schwartz, our President; and Tim Gray, our CFO. Before we begin our prepared remarks, please note that any statements we make during this call that are not based on historical facts constitute forward-looking statements, and our actual results could differ materially from those implied. Information regarding the risk factors that could cause such differences can be found in our public filings, including our most recently filed Form 10-Q for the quarter ended December 31, 2019. A copy of our recent 10-Q can be found on our Investor Relations web page. With that, I'll turn the call over to Morgan O'Brien.

Thank you, Natasha, and thank you, everybody, for joining us this morning. First, we want to thank Chairman Pai, his staff and the staff at the FCC for their hard work on this item. And we look forward to continuing to work with the commissioners and their staff. No principle in telecommunications regulation is more durable or more valuable than on public interest. The current FCC led by Chairman Pai, every week maneuvers through issues of mind-boggling complexity by steering a steady course that supports the public interest. Today's announcement is a great example and comes after more than 5 years, at least 250 filings on the record, and countless staff hours spent weighing the conflicting interest, which always accompany spectrum allocation decisions. Anterix' employees and supporters initiated this proceeding with the conviction that the public's interest is advanced by innovation, investment and the introduction of new technologies. With due caution to minimize any risk to incumbent operations, particularly those which are vital to life and safety, the FCC is preparing to promulgate new rules for wireless broadband in the low-band below 1 gigahertz. This item affirms that spectrum allocation is a living, not a static process, and that the FCC always leans towards expanding the finite spectrum resource so that it does more in the public interest. Private enterprise often has been the wireless step child, receiving less attention and fewer resources than the more glamorous uses of spectrum, satisfying the insatiable demands of the consumer which continuously has served up new and compelling products by the endless creativity of wireless vendors around the world. This item is a departure from this consumer-centrism, and it comes precisely at the time when the imperative needs of critical infrastructure are obvious to an America lockdown in place during the pandemic. For decades, the electric utility industry has pioneered the uses of private radio systems. Often a single utility will have a half dozen or more disparate wireless systems. But unfortunately, the industry has fallen behind the technology curve ever since the global standard for LTE emerged as the ideal tool for all kinds of innovative wireless connectivity. The SEC takes a long stride in this item towards putting broadband spectrum in play for critical infrastructure. Having listened to the concerns expressed by these vital elements of the modern world, it starts a productive process of making more spectrum available for more enterprise uses. Rob and Tim will take you through some of the specifics of the order. And then all 3 of us will answer questions afterwards as best as we can, recognizing the complexity of the document. And in fact, we've only had a few hours to digest it and undertake our analysis. Before I turn the microphone over, however, I have a few generalized observations to make, which I think might help you to better understand the item and how it fits into the Anterix business plan and the electric utility industry we have set out to serve. Let's begin with the lengthy rule-making process, which now is coming to an end. It began 5 years ago when Anterix, formerly known as PDV Wireless, observed the remarkable emergence of LTE 4G as the first truly global standard for wireless communications. Even then, it was obvious that this technology would see millions and billions of devices deployed worldwide. And it was clear that LTE would support use cases for wireless that had the potential to revolutionize the way industry operates, and in particular, ways that the electric utility industry would control and operate a modern electric grid. The opportunity for a win-win-win seemed clear even though the path forward would be long and formidable. First win would be with the FCC, if its allocation of 10 megahertz in the 900 megahertz band could be reconfigured to produce a virgin swap, 6 megahertz for broadband communications in the scarce and precious low-band, all in 1 gig. Second win would be for the critical infrastructure industry which come up empty handed after more than a decade of seeking virgin broadband spectrum to support grid modernization. The third win would be for Anterix. If it could put its spectrum, originally purchased for a series of FCC auctions and private market transactions, to a higher and better use. The FCC now is poised to deliver all 3 wins. The devil has been in the details of how an allocation of spectrum that's over 30 years old, occupied by incumbents with complex radio systems, often serving purposes involving the safety of life and property, could be updated with the proper balancing of current interest against the promise of next-generation technologies. Our investors and the analysts who have followed Anterix know that we have consulted and modified and reworked our original proposal through countless meetings, sometimes contentious and adversarial with the incumbents, the industry representatives, the manufacturers and the representatives of Congress. It's in the nature of the rulemaking process under the rules of the administrative procedures that proposals and counterproposals are advanced and digested. Compromises are struck, modifications are designed, and overall, the staff of the FCC moderates to keep the process on track. Finality is achieved when the FCC determines that the risks and the rewards of altering its rules have reached an appropriate balance. New rules then are put in place, the pace of technology moves along and the public interest is served. We'll give you the details of how this all will work in a minute. But as a background, I want to make 3 points, I think, should be very helpful in understanding how the new rules operate. First, the FCC here shows a very strong preference for the marketplace as opposed to detailed regulation. For example, not one of the 3,000-plus candidates is eligible for broadband until at least 90% of the channels in the 6 megahertz broadband segment voluntarily has been cleared. Even more to the point, looking at the top U.S. markets, which include approximately 50% of the U.S. population, more than 50% of these include complex systems, which are only voluntary, meaning their eligibility for broadband is driven completely by the incumbents' desire for this new technology and an agreement to a mutually acceptable plan. While Anterix recognizes its responsibilities in an environment with so much reliance on marketplace transactions, nevertheless, our experience to date has been that most of the incumbents in complex markets already have determined that a cooperative plan makes more sense than losing out on the opportunity for broadband. Second, our objective from the outset was to carve out at least 6 megahertz of spectrum. Anything less would not be sufficient to warrant the considerable investment in infrastructure. The obstacle to achieving 6 megahertz was the impossibility in all that the top markets of the U.S. for any licensee to be eligible for more than 5 megahertz. So what this meant is that often the spectrum, which will be needed, would only be available from the FCC. Due to long-standing regulatory policies favoring windfall payment provisions, there was no easy public interest methodology for simply making the spectrum available at no cost. The key conundrum of the rulemaking, therefore, became how to design a mechanism that would efficiently transfer a vacant spectrum to a potential broadband licensee for value, without an auction or other valuation process that could take years to set up and conduct. We will describe how the FCC design rules to solve this conundrum with a straightforward fee payment based on fair market values derived from the 600 megahertz auctions. The third and thorniest dimension of the rulemaking involves incumbents and their completely legitimate concerns with their investments in existing narrowband systems. Further, the uses for which radio is deemed essential often will involve the safety of life and property. The reality of the equipment used in virtually every incumbent 900 megahertz system is that it can be retuned rather than replaced if 1 set of assigned channels is replaced with another in the same band. What rights and processes are required and whether that process is fully voluntary or has mandatory backstop consumed various substantial parts of the record. As we study the retuning challenge and having gained the crucial tool of a mandatory backstop, we become very comfortable with earlier estimates to the cost of the returning application, as Tim will discuss in more detail later. Now I'll turn the microphone over to Rob Schwartz, our President.

Thanks, Morgan, and good morning, everyone. My goal this morning is to provide you with an initial overview of some of the key elements of the proposed 900 megahertz Report and Order and talk about its impact on Anterix. As you all know, the document was released yesterday afternoon and is over 100 pages. This is complicated stuff that we get to do for a living, so I'll do my best to boil it down to the essential elements, and we'll take Q&A at the end of the session. These key elements include the broadband license eligibility, the anti-windfall provision and the complex systems definition. So let's start with the broadband license eligibility which is what's required to apply for a broadband license in a county under the draft Report and Order. There are 2 eligibility requirements on the path to a broadband license. Licenses are going to be issued on a county by county basis, and there are about 3,200 counties in the U.S., including Puerto Rico. In order to be eligible for a county license, an applicant must satisfy both of the following discrete requirements. For the first requirement, the 50% spectrum threshold test, an applicant must demonstrate that it holds more than 50% of the licensed channels in the county. It's important to understand that this 10 megahertz band is made up of 399 channels. But in many places, all 399 channels have not yet been licensed by the FCC. So in other words, if only 200 of the 399 channels are licensed, like in Indianapolis, Indiana, for example, then to pass the ownership test, the applicant only needs 101 channels out of the 200 channels to hold this more than 50%. If, however, all 399 channels were licensed, like in New York, for example, then the applicant will need to hold 200 channels to be eligible. Based on all of the spectrum that Anterix has consolidated to date and considering the channels that have not been licensed by the FCC, we hold more than 50% of the licensed channels in a significant portion of the country. In a few places where we don't reach this threshold of more than 50%, we have the option to buy additional channels from existing licensees to qualify. The second requirement addresses the balance between the voluntary market process and mandatory relocation. Of the requirements, the really hard work is here in this second step as you work towards securing voluntary agreements with 90% of the incumbent channels. This step addresses the concerns raised about potential holdouts as part of the voluntary market process for retuning, with an exception for complex systems, which I'll address in a moment. Mandatory relocation stands as a backstop to all the incumbents who don't voluntarily negotiate as they may be required to retune under this mandatory right if triggered. As the FCC proposed in its NPRM, and we supported the applicant must provide the FCC with a plan that identifies that it has under their control, at least 90% of the 240 channels in the 6 megahertz broadband allocation, which equates to 216 channels. This 90% test can be achieved through an agreement to purchase, relocate or even protect incumbent licensees, and combined with Anterix' and the FCC spectrum, again, must reach this minimum of 216 channels in the 6 megahertz broadband allocation. Based on these requirements, we believe we are well situated to apply for broadband licenses across the country. Now let's talk about the anti-windfall provision as proposed in the draft rules. In exchange for a 6 megahertz broadband license, the applicant must relinquish 6 megahertz of spectrum. If the applicant relinquishes less than 6 megahertz of spectrum, then the applicant must remit an anti-windfall payment prior to the grant of the 900 megahertz broadband license. An applicant can count the FCC inventory channels towards the 6 megahertz requirement but they must make the anti-windfall payment to the U.S. Treasury for those channels received from the FCC. These payments were based on prices paid in the 600 megahertz auction in 2017. Of course, Anterix will have the option on a county-by-county basis to determine whether it's more cost-effective to pay the FCC pursuant to that formula or to purchase channels from incumbents were available or possibly a combination of both. And we have already completed a fair number of private market transactions over the past year that will help us meet this test. Now let's address the pivotal regulatory decision to adopt the concept of complex systems, as mentioned earlier. A complex system is defined for this purpose as a radio system that has many integrated sites and, therefore, retuning it would be much more complex than the systems operated by most other incumbents. Anterix was actually the original proponent of the concept of exempting a small number of complex systems from mandatory retuning and suggesting a 65 integrated site definition, which said any single radio system that had 65 integrated cell sites would not be subject to the mandatory retuning, as I described earlier. We believe that trying to impose mandatory relocation on systems of this complexity and attempting to force involuntary channel exchanges would have been counterproductive and would have likely elongated an already lengthy FCC proceeding. Lower site numbers were proposed by some incumbents in their filings, and the FCC adopted a compromised 45-site complex system definition. Of the small number of systems that qualify for this 45-site exemption, based on our calculation, all but 1 system belonged to utilities that are in the bull's eye of Anterix' target market. We are in active spectrum leasing or retuning discussions with the majority of these entities, and we will continue to pursue relationships with the rest. Before I turn it over to Tim, I want to talk about the bigger picture, the expected implications of the proposed Report and Order on our Anterix business. Overall, we're quite satisfied with the balanced approach of the proposed Report and Order, as Morgan described, and there are not any surprises. We think the process that we will need to complete to get our broadband licenses is reasonable and achievable, especially given our experienced retuning team and the substantial work they have already done to date. The proposed rules will allow us to execute expeditiously on our business model to enable utilities and other critical infrastructure enterprises to lease our spectrum and build and operate networks that will provide critical capabilities. We've continued to take advantage of this elongated regulatory process to stoke the fire of pent-up demand for private LTE broadband from utilities and from the regulators. The number of prospective customers that have engaged with us continues to grow, and we see increasing numbers of RFPs, pilots as well as growth of interest in the utility broadband alliance. We also see growing interest in private LTEs across numerous other industrial sectors, spurred by the growing ecosystem and progress of the complementary mid-band CBRS auction slated to start this summer. And to preempt the obvious question of the moment, no business is exempt from being impacted by COVID-19, and we are still assessing the potential impact of our target utility customers and on our projected demand. From the impacts we are initially seeing on utilities, the result will likely have a short-term effect on their revenues and may delay decisions for the larger infrastructure projects in the near term. On the other side, we do see that this sector continues to be robust and essential, and the fundamental needs for building resilient and secure networks are only getting stronger, especially considering the current crisis. We remain optimistic that utilities will be one of the most resilient sectors in our economy through this downturn. And with the support of state and federal governments, this essential power network will continue on the vital path to grid modernization, which should include robust broadband private communications networks. With that, I'll pass it to Tim Gray, our Chief Financial Officer.

Thanks, Rob. The proposed Report and Order is an important step forward for Anterix as we move toward commercializing our spectrum assets. In addition to the progress on the regulatory front, we continue to make progress on the customer front, as you've seen by the recent Ameren LOI announcement. As Rob mentioned, due to the COVID-19 crisis, visibility of the impact remains limited. But while we assess that impact, we believe we remain on track for the recurring revenue targets we've previously discussed. We look forward to keeping you up-to-date on our commercial progress as we near the light at the end of the regulatory tunnel. We've done an initial assessment on the financial impacts, driven by this Report and Order to Anterix. Based on our existing customer acquisition and spectrum clearing assumptions, plus our preliminary estimate of the payments to be made to the U.S. Treasury under the proposed anti-windfall provision, we believe that we still have a fully funded plan and do not need to raise additional capital at this time. We'll come back to our investors after the May 13 meeting to give a more detailed update. The requirements Rob described, especially the anti-windfall provision to be able to apply for and receive county broadband licenses, will add additional cost over the next several years to our previously discussed retuning and spectrum acquisition estimates. Note, however, that the spectrum held by the FCC is mainly in smaller markets, where the price per pop is generally lower, and in many cases, significantly lower than the nationwide 600 megahertz average auction price. Also keep in mind that we are in control of the rate of spend and can accelerate or decelerate based upon customer opportunities and our available capital. Our rate of spend in each of the 3 categories: retuning, spectrum acquisition and anti-windfall payments will be closely tied to revenue opportunities. We will also attempt to manage cash by acquiring channels through trades of our excess channels whenever possible, rather than by using our cash. We will also be making investments in the commercial team to continue our advance -- to continue to advance our customer pipeline once the Report and Order is approved, but we are keenly aware of the general economic uncertainties currently affecting our country. We are fortunate to have a significant cash balance and only make those investments when it is prudent. That concludes our prepared remarks. I'll now turn it back over to the operator for questions.

[Operator Instructions] Your first question is coming from Mike Crawford.

Can you talk a little bit more about the 90% threshold with complex systems? For example, does Ameren qualify as a complex system?

Let me have Rob answer that one, Mike.

Sure. Mike, so the complex system definition, as I mentioned, is really set up for those systems that have enough sites, and as contemplated here in the Report and Order, they've agreed on 45 sites. And so there's a small number of those systems, and we can share that as we do the calculations on it. Ameren, as I understand, is not part of that. But what's important to note is that the majority, in fact, all of those except for one, as I said, are utilities. So even if one of those customers, as we see them, not as complex systems, is a complex system, it doesn't impede our ability to move forward in any way because, in essence, they're part of our opportunity to move forward and file with the FCC for broadband license. So Ameren doesn't fit within that category, but several other utilities do, and we don't see that as a challenge.

Let me clarify, Mike. Let me clarify one thing that's suggested by your question. Complex systems is one mechanism, and that's a mechanism that only applies in a handful of markets. 90% is the rule that applies everywhere. And that is until an applicant for broadband can show either they own or they control 216 out of the very specific 240 channels in the proposed broadband block, can a mandatory period kick in. So it's -- so everything is voluntary until it's not. And in every county, everything is voluntary until you get to 90%?

Right. It's voluntary for the first year, and then the FCC will reassess in 2021 based on progress that it's seen you make during this...

Yes. Even that, Mike -- I think even that, although I know exactly what paragraph you're referring to, I think even that the commission is just saying, we're going to take a look in 2021 and see how all this is going because we want to track progress towards broadband. And so I actually like that provision, but they specifically said the application window doesn't close that. It's just a -- it's an opportunity to assess how things are going.

Okay. Great. And then given the -- so the FCC holds 22% of the entire band and it's vacant in its coffers and it is setting this roughly $0.60 per megahertz pop price to the applicant to get the requisite channels needed to do a 3x3 broadband, but your -- from where you stand today, how do you compare that $0.60 price with the value that you will be communicating with prospective customers when you negotiate long-term leases with them and further with the value against others who might just have a narrow band channel that you might alternatively seek to acquire for something less than that $0.60 price?

Yes. Let's go back a minute and think of a couple of principles. One is that where the FCC has the most spectrum in inventory, are those markets that are not the large markets because the large markets, like, say, the top 30 U.S. markets, all that spectrum has been licensed 10 or 15 years ago. So when the -- when we look at acquiring channels from the FCC inventory, it skews, as Tim said, way towards the smaller markets. And so way below the averages for the 600 megahertz auction because as in every auction, the price is paid in the dense markets, and the top markets way outweigh and skew the averages for the channels paid nationally. So that's the first thing. The second thing is, when we're looking for either the 240 channels out of 379, which is one of our thresholds, as we've said for a long time from the start of this, on average in the top 20 markets, we already have 6 megahertz through acquisitions made over the last 2 decades. And the rest of the spectrum is held not by the FCC in those top markets by various incumbents. And it's in there that we have been doing transactions for the last couple of years, and we will continue to do them. And I think that the market price we've been paying, which is lower than the average of the 600 megahertz is more likely to control the additional acquisitions that we're going to make than the FCC's average at 600. But we'll see. We'll have to wait and see. That's one of the things -- we're starting to do a lot of different analyses since we saw exactly how this is going to play out. I hope that answered your question, but didn't come back at me.

This is Tim. Just to clarify one thing, the $0.60 you used in your question, I think was the example that is in the Report and Order from Santa Fe, which is just that specific area. And again, that's going to vary county by county based off the 600 prices, and the $0.60 megahertz a pop is only the specific example they put in the Report and Order.

So -- and a final question from me is in this 113-page document, there's a reference that Anterix already is -- it sounds like almost completed negotiations or close to completing negotiations with a number of prospective licensees. So given that level of negotiation with these customers, does that lead you to change your expected time line of how many of these deals you can get under the water in the next 12 months?

Yes, Michael. Let me give you an answer to that. The process is almost over, but not over. Once the FCC has an opportunity to vote -- all commissioners get to vote on the 13th. We're going to take a much closer look, and we'll share that much closer look with the marketplace as to where we are. We have an awful lot of NDAs in place that restrict us, but we'll give a better view. But we think in respect of the process we're in, where the Chairman has put out this item and the other commissioners have yet to vote, we want to be a little careful how many specifics we go into at this point. As Rob said, we're very happy with what we see. We think it's very balanced, very fair. But we don't want to get into too many more specifics until the other commissioners had a chance to vote. So that would be post the 13th of May.

And Morgan, if I can just add for clarification, Mike. What -- I think the reference that you're mentioning is there are a number of incumbent licensees that we've already worked on retuning, right? So we've talked about some of those utilities, some of them are just other operators within the broadband allocation. So we've already made progress on clearing some of the spectrum, starting to make some of the deals that will help us achieve some of these tests that are defined here. And so those are different than the transactions that we're looking to do with our customers to create spectrum leases and revenue opportunities. So there are 2 sets of parties, some that overlap, right? As you mentioned, Ameren. Ameren is a potential customer as we announced our LOI, but they're not an incumbent licensee in 900 where there's other utilities. There are major licensees of 900, but also prospective customers as well.

Your next question is coming from George Sutton.

My congratulations as well, finally getting to this point. So relative to your pipeline, I'm curious if you could just give us a sense, is there anything in this that challenges the needs of your customers in the pipeline or challenges the time frames that you were anticipating being able to satisfy those opportunities?

As the keeper of our pipeline, I'll ask Rob to answer that.

Sure. Thanks, Morgan. Thanks, George, for the good question. The simple answer is no. I think what -- as Morgan said, we see this Report and Order as very clear, very reasoned, thoughtful, balanced. It took all the right approaches on -- obviously, there's -- you could see by the hundreds of footnotes, the numbers of references they have to all the information that was accumulated over the record, and I think recognizing just the fundamentals of there is a strong need for a nationwide broadband spectrum opportunity at 900 for -- as recognized for utilities and other critical infrastructure. We think the process enables us to be able to bring this spectrum to market on a timely basis. There clearly is some work ahead through -- getting through all of these individual tests, but we think we're in a really good place for that, and we'll continue to push forward and be able to bring the spectrum in the market. So long answer to the question is we think that it's very well written and puts the right balance of parameters for us to be able to bring spectrum to market as clear as that.

And George, let me just give you one other answer, which is that never, is there a discussion with a major utility up until now that didn't have a lot of time devoted to, well, what if you don't get the FCC approval. So just the imminence on the 13th of May, that we can say, the FCC has -- hopefully, we will anticipate a positive outcome. We'll say it's 100% clear that the FCC has dedicated this 3 megahertz opportunity for broadband. So that is taken off the table. I can't think of anything more helpful on the pipeline.

Yes. I think Morgan, I just to add one more point there. What it does recognize, clearly, as we've been talking about it in the industry and obviously, in our filings, is it's a strong endorsement of a standards-based LTE band 8 and the implementation of that specifically for this audience, critical infrastructure and utilities, and it even gets into the value, the use cases of cybersecurity and resilience. And so obviously, we think that's all very supportive of the industry's needs. And we think, again, the FCC did a really great job in summarizing it here.

I know this is a hard question to answer at this point. But given your strength in the top 30 markets, is there a sense you could give us on average, how quickly you would be able to retune the top metro markets?

Let me take a stab at answering that first, George. Retuning is underway. We have a lot more clarity into it now than we did 6 months ago. And now that we have the actual set of rules, we have even more clarity. And I would say that as the pipeline delivers potential users, our retuning team will be out in front in those places, acquiring the spectrum. And as we've often pointed out, it's the rare utility that would be equipped to take a full 3x3 or 6 meg on day 1. And so in most cases, the delivery will probably be 1.4 megahertz first, followed by the other 1.4. So that cuts the size of the immediate retuning task in half. One of the great benefits of our railroad agreement, which was enshrined in this Report and Order, is that the railroads were -- currently have 3 out of their 6 channels up in our affected band, but what they will be doing is they will be clearing their spectrum out of there. And you can always do a 1.4 around the railroads in every county. So I would say the short answer is this clarity, this system that's anticipated here makes retuning easier. And we'll track sales to retuning and it shouldn't be a problem.

Perfect. One more question, if I could. Will you be taking advantage of filing a single transition plan covering all initial counties? Any perspective on the size and timing of doing that?

I would say, way too soon. People inside of our operation would have a fit if I tried to anticipate how we're going to do that. We have to have a little more time to think this through.

Your next question is coming from Walter Piecyk.

So first, I guess, on the auction stuff, the 600 was at $0.93 a megahertz pop, as you know. I just looked at a couple of markets. I guess, Harrisburg and Allentown, places like that are like $0.25. Some of the spectrum that you purchased to this point, where would that come in relative to that $0.25 per megahertz pop smaller market?

Rob, you want to take that?

Yes. Well, I just want to make sure I understand your question, you're saying, where would it come in -- where do we see ...

I think you had mentioned some of the kind of cleanup that you've done thus far ...

Yes. What we have been saying...

I would say that we are -- I would say that we've done a lot of deals. The majority of our deals are below those numbers.

Even those small market numbers.

Right. Yes.

Yes, yes, yes.

So the windfall then is basically going to be whatever was paid in that particular county in the 600 million, right? I mean, just -- I think Tim mentioned something about that, right?

Yes. That’s correct.

I think it's the market. I was going to say, well, as I mentioned in my comments, we have the option, obviously, of going out and doing these private market transactions as we have been at -- obviously, we -- at a lower price than what that windfall payment would be or the option were available. It's only in the place where FCC actually has spectrum would be paying them for that spectrum. So yes, you should assume that our target price on our private market transactions would be below the referenced 600 megahertz auction pricing in that county.

Got it. And then to hit the mandatory retuning, is the 90% -- so I guess the way I understand it is, it's 90% of the total number of channels, right? And then you're saying, okay, if the FCC -- no?

No. The 90% rule only applies to the 240 broadband. And at the point that you can show the FCC that you own or have arrangements with 216 of the 240, mandatory kicks in for those who hold the other channels in the 240. So that's very specific. The numbers that came out more -- all counties is the 50.1%.

Understood. But in the 216, if you own like 100 of those and the FCC had inventory of 116 you still can get that to that 90%. It's just the assumption that you're paying the windfall payment to the FCC for their 116 channels. Do I have that right?

Yes. Yes.

Correct. Okay. So -- and then lastly, when this is kind of all done and you have this 6 megahertz, a couple of things. One, does it have to be uplink/downlink? Can you use either way in terms of uplink or -- let's say, the use case is going to be more favorable to uplink or downlink? Can you switch those blocks? And then secondly, is there any restriction in the future in terms of buildout requirements or ability to lease or sell that spectrum to another -- a third party or a wireless operator or a utility, whoever it might be?

Let me answer by saying that -- the second part of your question first. It's pretty clear to me from the way the commission has structured this Report and Order that they're going to continue with very flexible, very open decisions for the marketplace as to the best -- highest and best use of spectrum. So I think there's wide open opportunities. But having said that, we're -- to put it mildly, we've made it clear where we think there's the best fit for this pretty unique piece of spectrum, and that's critical infrastructure and grid modernization. So while we have no handcuffs, as I can see whatsoever on what to do with the spectrum, our clear preference is the one that we've indicated. Now on the other hand, I'm going to answer your technical question with the right to maybe come back later and correct this, but I'm 90% sure that the answer is no. We have to leave the transmit and receive situation the way it is. We can't play around with it because it's FBA.

Are there adjacent -- like what is the adjacent spectrum use? Is it predominantly in that format, downlink/uplink? Is it -- are there opportunities that once the band is achieved, that you kind of expand it? What is the use case?

Again, let me say, we'll come back and answer that excellent question a little more precisely. But my tentative answer is on either the -- as I call it the south end and the north end is roughly the same pairings. And we can give you a lot better look, and I think we probably should give ourselves a task. Post May 13, will give you a lot better idea of what the neighborhood is like surrounding this [ 10 ].

Got you. And then just no buildout requirements at all in this document?

No, there are some. There are some. It's a 15-year license term. And again, because I've only had a little bit of time, as with all of us yesterday, to read this monster of a document, there are some. They are -- again, they're not tight handcuffs, but they don't let you just sit on the spectrum either. They're pretty consistent.

Your next question is coming from [ Tom Keadle ].

Congratulations on this long journey.

Thanks, Tom.

Yes. No seriously. Been there a while. These are kind of qualitative in nature. Given the starting point of having this major win that we've been waiting for, it's a given that there's no way to describe this as other than a very positive development. And my question is, is there anything in here sort of qualitatively, but against the backdrop of monetarily effects of it that surprised you to the positive, meaning like, "Wow, they did it that way. That's the way we hoped." Or surprised you to the negative? And again, with the intent on something material primarily from a financial standpoint, if you will?

Let me take a stab at that, and then I'll ask Rob and Tim, if they want to answer it. But my answer is, I can't stand watching premature celebrations of victories when the game is not quite over. So our game is not quite over. We're -- what we're looking at is, as best we can tell after having lived this night and day, and a lot of you have lived it with us, and for that, many thanks, it looks good. It really looks good. It isn't everything we could have possibly imagined, of course, but it's good. And I think I should stop there. We have a lot more analysis to do, and we're going to share that with you post the 13th. Rob, do you want to take a stab?

No, Morgan, I think you hit it square on the head. As I mentioned earlier, we're really excited to see the FCC making the statements about the importance of bringing this broadband spectrum. And it identifies it well. It's the things we've been putting on the record for a long time, along with lots and lots of a growing number of parties. We're just excited to see that there is a defined process now to bring it to conclusion. And we think that the way it's written allows us to get on with the commercialization of our business and enabling all these important customers to build these mission critical systems.

And Tom, we've gotten a lot of questions on the anti-windfall provision. And just to answer that, we always expect that the FCC was going to have to do something around the markets where we would come in with less than 240 channels to be able to get the full broadband allocation. And we feel like they took a very reasonable approach that still fits into our business model.

Got it. I just have one more question. Just thinking out loud with you here, and I don't claim to know the utility industry and their mindsets other than I presume they're somewhat glacial at times. Is there a hockey stick effect here? I know you're pretty pregnant with Ameren, if you will, and I know others are in the fold. Is there a point where the second, third and fourth one signs up and the other people start thinking we need to get our act together? Or are they just independent or stubborn or whatever you want to call it, and they're going to be at their own pace no matter what, if that makes sense?

Let me answer that, Tom. We've spent the last couple of years finding a steep curve to understand this industry because we felt it was such a perfect fit for our spectrum if we could get to broadband. And it's impossible to sort of oversimplify by giving you a single answer. But I would say this. The nature of the process that an investor-owned utility goes through when considering making an investment as big as an investment in our spectrum and then the even bigger investment in infrastructure would be involved, there's a large part of the process that's outside the utility itself. It has to go to a public utility commission and get through that commission, the expenditures that would be considered, so that they can attempt to get that in their rate base and get a return on the investment. So it's easy to look at these giant companies and say, "Gosh, they're slow." But on the other hand, the process they go through is pretty darn complicated. All of them tend to be in different places in the cycle of -- they maybe, say, have a 3-year cycle of going into their PUCs for rates. And so somebody that has just finished one is a less likely candidate to do something when this -- than one that is just starting. So we're catching them all in different stages of it. But there is the phenomenon of the fast follower, and we're certainly proud of Ameren for having stuck its neck out there relative to the rest of the industry, but we do expect to see some fast followers.

Yes, Morgan, if I could just add to the question, Tom. Uniquely in this sector, the utility sector, especially investor on utilities, having sold into other sectors, they do work together. There is a collective interest. They are an interconnected network of power grid, and so there is a sharing of information. Utility broadband alliance that we stood up and now is standing on its own is a great example of that where they're coming together and sharing information. And they've been vocal about the need for this particular spectrum band. And so when you do get a customer interested, like, Ameren for example, Ameren is presenting to the rest of the industry, whether it's a Utility Broadband Alliance meetings or in other forums, and sharing their findings, right, the pilot that they did, how they transacted with us is all beneficial and does ripple through the rest of the industry. And I think as Morgan said earlier, the removal of the overhang of the uncertainty of this regulatory process through this Report and Order, and now, with a defined date in May, is a very big milestone and will change the dynamic of the conversations with customers that we'll have to spend less time talking about the uncertainty and more time being able to talk about the benefits and the outcomes of the systems and solutions that they want. So I do think it's going to -- we were clearly forecasting this, but now that it's happening we're looking forward to changing the dynamic of those conversations with customers, and I do think it will benefit considerably.

Got it. Well, the good news is, given their massive CapEx budgets, whatever the lease payment comes in at and the cost that they have to incur themselves intuitively, it's hard to build a case where it's very material. But hopefully, I'm not being too pollyannaish on that, but it just stands to reason, so...

So I would say that is -- at the very heart of our business plan is the realization that to truly make use of a relatively small amount of spectrum that's nationwide, you need to find a customer whose requirements are nationwide and who has access to the capital that can fully make the investment to take advantage of the spectrum. And that's why we think we're just perfectly situated for this industry. And we've made an awful lot of inroads into it, realizing that it's a complex process.

Your next question is coming from Alexis Roper.

This is Alexis on for Simon. Congrats on the announcement.

Thank you.

I wanted to ask, just going back to your other recent announcement around Ameren, is there anything you can share around kind of next steps there or anything else on the pipeline you can kind of update us with this -- update us with at this point?

Rob, do you want to take that?

Sure, sure. Thanks, Alexis for the question. We are under NDA with Ameren, and so we can't give you the specifics of the agreement or their plans. But I'll say, more broadly, you've seen Ameren both vocally at the FCC and other industry forums really talk about the breadth of the use cases that they're trying to solve and they will solve, and they've already piloted to show that the private LTE will enable these things. And so we expect to see more great announcements from them into the industry, and we also see them as a key catalyst in driving others to move forward, as I just mentioned earlier. Their pilot, for example, there were lots and lots of utilities that came and kicked the tires. Basically, saw the deployment, shared the findings publicly of what they saw there. And so we've got a rigorous deployment schedule with Ameren as part of the agreement of how we'll both deliver spectrum and how they're going to build out their system. And so we're excited about that schedule. But at this time, we can't give you too much more information about the specifics, except that they've got a very strong, robust schedule. The other thing is it's mission-critical for them. The attention that their system is getting within Ameren overall from the CEO's level down, it's strategic for them. They're a strategic leader in the industry. They use technology as a key strategic weapon to stay ahead of the curve on grid monetization. And the level of awareness and support within the organization of Ameren has been phenomenal.

Great. If I could follow-up with another one. Is there anything you could say around how your kind of 52% ownership of the kind of 10 megahertz block overlaps with the kind of 6 megahertz broadband segment, just to get a better sense of kind of where or how much further you need to go on that?

Let's just take -- let me take a stab at that. Just a little bit of a refresher. Our spectrum covers every square inch of the U.S. based on the way that the spectrum was allocated and we acquired it, which is in blocks through auctions. And so the Anterix 52% number that you use is truly nationwide. So that means we're in a very strong position in every market going in because in every market, we have a significant spectrum position. Having said that, as you correctly point out, at the end of the day, the relevant number is how many channels you have. Not out of the 399, but have you got the right number of channels in the 240 that are set aside for the broadband block at least to get to 90% so that you can trigger mandatory. And I would say there's a ton more analysis for us to do now that we see what the commission is actually looking at as a procedure for doing this. But nationwide, we are in a strong position, having come into this with a strong spectrum position. Of course, this benefits us in that respect. On the other hand, the way to look at this is that the incumbents who are problematic for the most part in the large markets when you're trying to get to 240, we don't think of them as incumbents, we think of them as customers. Because very largely, very often they are utilities. So the transformation, I think you're going to see post Report and Order is that the incumbent aspect shrinks and the customer aspect increases as we go through this. So I hope that's not too long-winded an answer to the questions.

Your last question is coming from Chase White.

Congrats.

Thanks, Chase.

Thanks, Chase.

Yes. So just a quick one for me. And apologies if you've covered this, I just wanted clarification. Is it your interpretation that the 6 megahertz relinquishment requirement to receive the broadband license, at the end of the day, includes all licenses of the 399 that you own or is it just within the project? So in other words, in your Investor Day presentation from May -- last May, you have in Minneapolis 125 channels within the broadband segment, 82 outside. So do you have 5.175 megahertz and only need to get out of inventory, 8.25 -- 0.825 megahertz? Or is it that you only have a little over 3 megahertz and you need another nearly 3?

Why don't we have Rob -- yes, I understand exactly. Why don't we have Rob answer that.

So yes. A couple of things, Chase. Obviously, as Morgan mentioned, we're still getting through all the specifics of the document that we just received, and we'll give you more specifics post the May 13 meeting. But I think as we understand it, you're really talking about whether it's the need for us to deliver 6 megahertz in order to exchange for -- we have to provide any 6 megahertz in order to get the specific 6 megahertz of the broadband allocation. Our understanding is that there are places where we will have it, there are places where we'll have to use the windfall provision and there are places where we'll be able to use the private market transactions to fulfill that requirement. None of which we see as an obstacle to being able to get to where we need to go.

But like if you have to exchange -- in other words, I guess, really and truly, though, it would reduce the amount that you had to buy by 2 -- over 2 megahertz, right, if you could use those 82 in the Minneapolis example, right? And so I guess, you can understand.

You can't. Let me see if I can clarify. When it comes to, do you have 240 channels, you get to count any channel you have out of the whole 399. So that's the first thing. So that means, yes, in terms of the 82 channels that you're talking about, but you're outside the proposed broadband block. But the -- having done that, you're now in a position where you look to see how do you meet the 90% test within the 240. Maybe -- we have Liz Sachs on the phone for just this kind of a question. Liz, are you hearing and able to jump in and just explain this a little bit better?

Well, I'll see if I can explain it better because it is complicated. I mean there are 2 totally different tests. They all involve the 900 band, but the first test, to even be eligible, you have to have 50.01% of the licensed channels and that can be anywhere. So anywhere within the band, and it's only the licensed channels. So you meet that test, then the question is, how do you get to satisfy the 90%? How do you get a 3x3, 240 channel broadband segment when you're delivering narrowband channels? And the answer is, you can deliver channels anywhere. The 240 can come from anywhere in the total allocation. And that gets you then the opportunity to say, okay, I qualify for broadband, now what gives me the right to clear people under mandatory relocation? And that says, you've got to have 90% of the very specific 240 channels within the broadband segment.

Excluding the FCC channel, right? So Minneapolis, example, DC has 45% of the broadband allocation channels, you guys have 52%. So the remaining few percentage points there are the only ones to add to it. You're only looking at a total of -- so in other words, you're already well over 90% of the channels?

Yes. As we read it, to meet the 90%, you get to include your channels, whether you are licensed for them or have a contract to buy them or a compressed spectrum and you get to include any FCC inventory channels that are within the broadband segment, because the whole purpose for you, how do you clear the band to make room for broadband? How do you clear that portion? And to the extent nobody's on the FCC spectrum, it makes sense that, that would be included as actively already cleared.

But to just make this even more complicated, what determines whether you "have a channel" depends not simply on where the base station is located, i.e., it's located in this county, but how much coverage it has and whether it overlaps other counties and vice versa. So we have a -- we've developed over the last 2 years a pretty sophisticated, expensive computerized program to get ready for exactly these kind of analyses. But there's 3,000-plus counties and there's thousands of licensees and the permutations and combinations are mind-boggling until you can get access to this computer. And I was just seeing this morning a trail back and forth on our internal e-mails of now we know what the inputs are because the commission has said this is how we're going to count a channel and so many DBs and whatever, whatever. And all these inputs are not going to be gathered together and we're going to start running these programs. So a lot better ability to give you actual pictures of how all this works. So you can say Minneapolis and we'll be able to say, "Okay, here's a picture of how that works," in a couple of weeks.

There are no further questions in the lines.

Could I then just take a few moments to summarize, particularly to this audience because I know in this audience, I can see that there are loyal friends who have been believers in our vision since the very beginning. And whether you're an old friend or a new friend, we are so grateful for the support because when this started, it was pretty intimidating, the things that had to go right and the process. Brian McAuley and I have, of course, spent years and years doing this kind of thing, and it's something we love doing. But I'll say on his behalf and mine and the whole team, of course, if we did not have people in the financial community that would listen and stick with us and trust us when we made some of these assumptions about our business plan, of course, we wouldn't be here today. So just a word of great thanks. And I'll just repeat at the end a point that I've made often, which is once you get the regulatory relief you need, the execution of this business plan is just infinitely different. And that's, in some ways, a lot more fun because once we have the regulatory backing, we know just where we want to drive this. And it's very exciting, and I think we have the team to do it. We've got the resources, thanks to a lot of you. So we'll be back in the aftermath of the 13th of May. If you have questions in the meantime, of course, you know how to get to Natasha and Tim. We'll try to be very diligent in answering questions as we ourselves work through the complexities of this order. So with that, thank you so much on behalf of the team. We really appreciate it.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.