We have written about spectrum, its value, and its impact on competitive dynamics continually over the past decade. The past few weeks have delivered a particularly rich seam of new bands we haven’t thought about before, an old band we had forgotten about, and evolving thoughts on the big and obvious bands that have been at the forefront of investors’ attention.
A brand-new band between 3.5GHz and millimeter wave
This weekend we published a report on the 12GHz band (see report HERE). This was on our list of possible candidates to be repurposed, but we hadn’t thought about is much until seeing some ex partes and speaking to some of the owners in the past couple of weeks.
This is 500MHz used primarily by DBS companies in the US. There are terrestrial licenses for the band that are mostly held by DISH; however, terrestrial use is limited to point-to-multipoint communications with strict power limits. The owners of the terrestrial licenses are pushing to have the limits eased, so that the band can be used by carriers for terrestrial mobile.
The band sits between 3.5GHz and millimeter wave. It propagates twice and far and covers at least 4x the area of 24GHz; however, like 24GHz and above, it requires line of sight (LOS). If the band can be repurposed it could be substantially more value than millimeter wave, given the improved reach. We won’t know its value until the utility of millimeter wave is proven at scale in the real world.
Dish has terrestrial licenses covering 73% of the country. This could be a valuable band for them. They have a tremendous portfolio spanning 600MHz to 2.1GHz; however, they have very little high frequency spectrum. In our recent report on Dish, we argue that their competitive advantage hinges on having a lower cost per GB, which will require them to keep adding new bands of spectrum as they become available (see detailed Dish report HERE).
If the band is perfected, its utility proven, and Dish decides to clean it up, the holders of terrestrial licenses not held by Dish could do quite nicely.
The L-Band could finally be on the move again
This week the FCC sent on order on the L-Band to NTIA for review earlier this week (we wrote about it HERE). This is the Ligado spectrum that has been in limbo since the GPS community objected to plans to repurpose it for terrestrial use in 2011. The proposal covers 30MHz of spectrum, currently configured as two uplinks and one downlink; Ligado also has access to another 5MHz that does not require further FCC action, and is working on another 5MHz in a separate process that, taken together, could produce a second downlink (or third uplink) of 10MHz.
This spectrum will have tight CBRS-like power limits[i], but these may not limit its utility in dense markets where it is most valuable, and they may not limit its utility for certain users, like cable (given dense fiber infrastructure cable companies don’t need the power and propagation that national carriers need). It sits just below the most widely deployed spectrum bands, including AWS1, AWS3, AWS4, and PCS.
If the FCC order is adopted, this band could be deployed for LTE capacity additions long before the C-Band is deployable. It contains a decent amount of spectrum, with 10x20MHz available at the outset, and another 10MHz that may take longer. Ligado has been working on some interesting use cases that would pair the L-Band uplinks with higher frequency downlinks to extend the reach of those bands[ii]. If these prove compelling, they could give the band a unique value by increasing the value of bands like the C-Band and 12GHz.
Verizon has the greatest need for additional spectrum (though T-Mobile will be close on their heels if their deal is blocked). Selfishly, we would like to see the spectrum go to Dish. It would further feed our cost advantage thesis (which we wrote about HERE).
CBRS, the overlooked disruptor
We recently wrote about Cable’s ability to use CBRS to transform their wireless product offering and its economics (see comment HERE). This came on the heels of a longer-range thought piece where we laid out our vision for a converged communications market in which all networks are fiber-based, and all devices connect to them wirelessly (see comment HERE).
When we initially laid out this thesis, we thought it could take years to materialize; however, Altice stirred things up with the launch of their wireless offering at $20 for unlimited service for their broadband customers. We think demand for this product will be strong – at least 50% greater than what Comcast and Charter have reported with their wireless offerings. We wrote a detail report highlighting the disruptive potential (HERE).
Our work on Altice highlights how much more disruptive the Cable companies could be if they had better economics. They could do similar deals with Sprint, but the quality of the Sprint network is a detractor, even with Altice’s help densifying it (we cover this in the report too). The most likely way for them to get Altice-like economics that would allow them to unleash Altice-like spectrum, would be for them to acquire and deploy spectrum. We don’t think it would cost much.
Charter has been very focused on the opportunity in CBRS and C-Band for some time. We weren’t sure how focused Comcast was on the opportunity; however, they made clear on their last earnings call that they are just as focused on it[iii].
Controversy and the C-Band
The C-Band gets all the attention, at the expense of all those mentioned above. With good reason. We think the band could be worth $50BN, and we think investors in Intelsat could be well rewarded for what has been a choppy ride over the last year (see our detailed report laying out the valuation case for the C-Band and Intelsat HERE).
There were two important ex partes that moved the process forward on the band last week: one from the CBA itself (we touched on this briefly HERE) and one from the CBA in conjunction with the carriers (HERE). These collectively give the FCC the market-based solution it has been waiting for, with 300MHz of spectrum and a more traditional auction structure that the carriers can support.
There has been no shortage of controversy, with Senator Kennedy calling Trump to complain about the proceeds that the satellite companies might reap, and Congressional Democrats pushing a bill to have the FCC reclaim and auction the spectrum. Blair covers the risk of these initiatives in his most recent weekend note (HERE).
A new paradigm for thinking about spectrum demand and value
In our work on Dish we discovered that they could have a tremendous cost advantage over the incumbent national carriers, because they have comparable spectrum but with a much lower fixed cost (assuming they build the network they are talking about). Dish could make a 50% margin at prices that are half of the incumbents’ cash costs. This paves the way for real disruption (see our detailed report on this thesis HERE).
We realized that this cost advantage depends on Dish keeping pace with the other carriers when new spectrum becomes available. We realized T-Mobile will have the same advantage, if they acquire Sprint, and they will need to acquire their fair share of new spectrum to maintain this advantage too. This realization is part of what fed our view of the value of the C-Band, and other bands discussed above.
We think that if the regulators understood the cost advantages these companies will have, and the disruption that it will surely drive, they would be taking a very different view of T-Mobile’s acquisition of Sprint (we vent some of our frustrations with the potential missed opportunity HERE).
Lessons from Europe
Finally, our partners in Europe have been working on similar themes, and their work has implications for the US carriers.
United Internet in Germany and Fastweb in Italy are pairing national roaming with the deployment of their own network, much as we expect the US Cable operators to do. Moreover, they are using the same band to do it (3.5GHz), albeit with slightly different licensing rules. We wrote about that HERE.
We are constantly asked about the reverse threat from the wireless carriers entering the home broadband market using 5G. We wrote about the Verizon threat using millimeter wave (HERE), and the T-Mobile threat using Sprint’s spectrum (HERE). Hutchison isn’t just talking about it; they are doing it in the UK. We cover the impact of their deployment (HERE).
[i] Of the 30MHz under consideration, only the lower 10MHz downlink has CBRS-like power limits; uplink power limits are not an issue for CBRS or L-Band.
[ii] Propagation is mostly limited by the uplink because the signal from the phone to the tower is transmitted under lower power.
[iii] Comcast Cable CEO Dave Watson on spectrum purchases in CBRS, C-Band, or mmWave (LINK): “We'll always be opportunistic. We'll evaluate every option. Nothing more really to cover on that, but we always look at different options. And to my earlier point, we're actively looking at models that may work in terms of leveraging our infrastructure”