Spectrum Omega

1. Dish-affiliated bidders, with their DE credits, managed to secure a lot of “G” blocks in major metro areas.
2. AT&T is still at a deficit of spectrum in the top 10 markets. Things get better after that.
3. Verizon is doing OK on spectrum, they have enough spectrum in the top 25 markets to do 20×20 LTE (if they can manage to either do intra-band aggregation or make some spectrum swap deals with the other carriers).
4. T-Mobile spent very little in the auction, but I think that’s on purpose (they want more 600MHz spectrum). They picked up a little spectrum here and there at a great value.

Open spreadsheet in full window

(this post inspired by a series of tweets by Tim Farrar of TMF Associates)

The biggest proclamation we heard at the height of the latest spectrum frenzy is that we need to free up 500MHz of spectrum for mobile communication between now and 2020, with 300MHz of that coming by 2015. President Obama repeated it, the FCC Chairman at the time Julius Genachowski repeated it. But there is a flip side to all this spectrum becoming available.

* includes the 6 MHz Lower 700MHz “A” block because the block will become usable when TV stations are relocated, this effectively adds more spectrum to the usable inventory than will be auctioned.

** its possible for this spectrum to become paired if the FCC forces broadcasters to give up some spectrum they use currently (predominately backhaul), this would add another 15MHz to the totals. But if I were the broadcasters, I’d be sick of the FCC’s bullshit by now.

Congress has dollar signs in their eyes. They see spectrum auctions as a way to raise dollars for the federal treasury. But their desire to raise funds ultimately conflicts with the FCC’s and the administration’s desire to free up a lot of spectrum because of basic supply and demand – there will be so much spectrum for sale in the next three years, its likely that the spectrum prices will plummet. The price of 69c/MHz-POP will fall, since its not likely the big four will spend over $30 billion on spectrum purchases in the next three years. So what will they spend?

600MHz Incentive

T-Mobile and Sprint desperately need low-frequency spectrum for their networks (for coverage, not capacity), AT&T could use a little more spectrum below 1GHz, especially if it can get it on a nationwide basis. Verizon is good on spectrum (or so they say), and would really only be playing a game of keep-away from the other carriers if it were to aggressively bid during the auctions. Dish network is also a contender here, acquiring one or two 5MHz blocks for rural and in-building coverage. I expect this to be the most contentious auction if there are no hard ownership caps, and moderately contentious if AT&T and Verizon are limited in the amount of spectrum they can purchase.

AWS Band Extensions

The AWS band extensions are valuable because three of the four carriers (plus a host of smaller regional carriers) already have spectrum here. We’re also likely to see another round of musical chairs here after the auction is closed and the big three look to swap spectrum to create larger contiguous spectrum segments. It’s entirely likely that after the upper band extension is auctioned, we could see AT&T, T-Mobile and Verizon all swapping spectrum to squeeze out as many 20MHz FDD LTE channels as they can. Sprint is likely to stay out of the game, as with Dish. Smaller carriers might be able to get smaller bits in mid-tier markets, but not much in the top 25 markets where I expect competition to be fierce. AT&T will likely have the most to spend in this band to catch up given its small amount of AWS holdings (even if the Leap acquisition goes through, it may be 3-4 years before that spectrum is available for 100% LTE).

PCS Band Extension

The 10MHz PCS band extension is likely to be Sprint’s, unless Charlie Ergen wants to play spoiler. Which he might, just for the hell of it. But I think there is less pressure now that it seems like he is going to get LightSquared’s spectrum through bankruptcy – 40MHz of LS spectrum plus the 40MHz he owns would definitely be enough to start his own carrier, along with some 600MHz spectrum he would need to pick up in the incentive auction.

Totals

My carrier spectrum ownership totals post-auction estimates. Existing ownership figures are national averages from my current spectrum ownership database. Expected spectrum purchases in the expansion bands shown in parenthesis.

* “Boutique” spectrum (not a large ecosystem of players worldwide who use that same band)
** Not listed: 40MHz AWS-4*, 40MHz L-Band* (Lightsquared)
† Unpaired spectrum, only usable to supplement download speeds

This thought exercise made me realize a few things

1. I understand why Verizon is fighting against spectrum caps – if things play out this way, they could fall further behind AT&T for spectrum, though they do have the trade off of not being saddled with any boutique spectrum, unlike AT&T and Sprint.
2. The race to acquire large regional carriers is on – US Cellular, Cincinnati Bell, nTelos, etc. will likely be bought, and the FCC doesn’t seem to care as long as we keep at least four major carriers. AT&T is throwing its cash around to buy up these carriers, Verizon is a little more diligent.
3. AT&T is amassing a spectrum ownership lead over the other carriers, yet it doesn’t translate to any meaningful improvements in service – coverage or speeds. They’re a little faster than Verizon in terms of LTE, but I attribute that to 1) hardware differences (RRH) and 2) less LTE unlimited subs than Verizon (c.f. the Reddit user who uses 40GB/mo on Verizon).
4. Sprint has been heavily spectrum constrained. But they’re poised to break out – CDMA Adv. and LTE in the SMR band should allow them to catch up a little bit to the big players. They have the chance to be just as fast (with their tri-band LTE equipment), but I’m still skeptical of their execution. I hope I’m wrong.
5. T-Mobile should work to get as much AWS spectrum as they can – 20+20 channels would keep them at the top of the speed race. 600MHz will allow them to get the suburban, exurban and rural coverage they desperately need. But can they afford to buy all this spectrum?

So back to the question of how much they will spend. For the most part, the spectrum to be sold is uniform within each band, unlike the 700MHz auction which had different characteristics for each of the different blocks (Verizon’s “C” block had open access requirements, the lower “A” block had interference issues). I’m venturing to say that the prices are as follows…

Smaller operators excluded from this table.

So $23B is roughly the amount I expect the spectrum auction to go for. This includes 70MHz of incentive auction spectrum, 50MHz of AWS expansion band, and 10MHz of PCS expansion band. Not included is the 15MHz unpaired AWS expansion band (this could bring in another $4-5B if it were 15MHz paired).