Shared spectrum is a double-edged sword for MNOs. It allows them to increase their capacity and quality of service at lower cost than acquiring more licences, but it also opens them up to competition from other providers. Their ambivalence was first seen in WiFi, but now their own cellular technologies are running in shared spectrum too, and MNOs must act decisively to ensure they monetize that new capacity, not an emerging rival.
The stand-off is best seen in the US, which has pioneered work on a new shared spectrum approach – the multi-tiered access scheme in the 3.5 GHz CBRS band – and on MulteFire, which allows LTE to run in unlicensed frequencies without a licensed spectrum host network (unlike the more established technology, LTE-LAA).
Last week, statements from an established MNO, T-Mobile USA, and a challenger, Comcast, highlighted many of the issues surrounding shared spectrum, and why the mobile operators need to beware of the disruption it may cause to their markets, especially in areas where they have limited entrenched power, such as the IoT or the broadband home.
The benefits of unlicensed spectrum to the MNO business model were touted by TMO, whose CTO Neville Ray said he had seen network speeds increase by five to 10 times in areas where LAA was in place, which include New York. The operator started deploying LTE-LAA in 5 GHz spectrum in the fourth quarter of 2017. Last week, Ray tweeted: “We launched LAA in 4Q 17 and have seen material impacts in speed performance – increasing speeds 5-10x.”
Ray also said, during TMO’s fourth quarter earnings call, that LAA performance was “very, very promising”, and that the operator would be “driving LAA very hard” this year. In particular, it is upgrading existing small cells and installing a new single-touch modular solution. The relatively high frequency and power limitations in 5 GHz make this inherently a densification band, providing supplemental capacity for the host LTE network in licensed spectrum.
Other US operators are also deploying the technology. Verizon has said it will implement it on a market-by-market basis depending on demand, while AT&T launched LAA in downtown Indianapolis last year and plans to extent that to about 25 additional metro markets this year. Sprint, which has more plentiful capacity-oriented spectrum than its rivals thanks to its large 2.5 GHz holdings, has said LAA was on its longer term roadmap, but has trialled the technology and achieved speeds up to 140Mbps. In those tests, it used LAA for supplemental downlink alongside LTE in its 1.9 GHz PCS spectrum, using a small cell solution from Spidercloud.
Meanwhile, cableco Comcast is adding wireless services to its multiplay offerings, initially through WiFi and an MVNO deal with Verizon. However, it has also talked about deploying its own local or in-home small cells running in shared spectrum, particularly CBRS. It said last week that it would conduct the tests in Philadelphia, where it is headquartered, soon.
“Comcast will conduct outdoor and indoor fixed and mobile testing in a small targeted portion of the Philadelphia, Pennsylvania, market within its service territory. Specifically, testing will be conducted within a 7km radius,” the company in its application to the FCC to be allowed to run the tests. “The field test will evaluate coverage, throughput, and mobility of equipment and facilities operating in the CBRS band to obtain data and advance Comcast’s understanding of the full potential of the technology and equipment utilized in these experimental operations. The field testing will also evaluate the performance of pre-commercial equipment in the CBRS band.”
Comcast is partnering with another cableco, Charter Communication to develop and market mobile services, and the two are likely to collaborate on any CBRS sub-net scheme too. Charter has also carried out tests in the band and said recently that it had achieved speeds of 25Mbps in a fixed wireless environment at “significant distances.”.
Charter has also been trialling 3.5 GHz small cells in Charlotte, North Carolina and Tampa, Florida. These trials involve eight small cell vendors (four in each market), covering a total of 400 sites. Charter is testing mobile hand-off within and between single-vendor clusters but the eventual aim is to support multivendor small cell networks, which would significantly improve the economics of the subnets.
Craig Cowden, its SVP of wireless technology, has said that, in future, Charter will also integrate small cells into fiber node sites. These are densifying at a similar rate to that envisaged by MNOs for areas of high usage such as downtown city areas and business campuses. The US cablecos predict at least an eightfold increase in nodes over the next few years, while MNOs believe they will need at least 10 times more cell sites in urban areas. There is a clear collision of interests here, which could lead to the cable operators holding a significant place in the mobile value chain by providing site and neutral host services to MNOs and other network deployers – or by harnessing them to become major mobile players in their own right.
In the first four months of its Xfinity Mobile launch, Comcast added 250,000 wireless subscribers, and analysts expect Charter to take an additional 500,000 to 750,000 wireless subscribers a year when it launches its own offering in the coming months. But the US is almost saturated and there are concerns about the number of wireless services the market can sustain, and the costs of poaching users from other MNOs.
Comcast may be on track to add more than one million wireless subscribers this year, but analyst Walter Piecyk of BTIG calculates that may be costing the company over $1,200 per head in customer acquisition costs.
Piecyk wrote in a research note: “The real concern for wireless investors is … whether cable operators will reverse the downward trend of record low wireless churn and induce price cuts by the wireless operators. The first indication that Comcast was not having a material impact on the wireless industry is when operators did not increase their phone promotions with the launch of the iPhone 8 and X. More recently, prices have been on the rise.”
He went on: “If Comcast added more than 325,000 subscribers in a quarter, we believe it would merit more attention. However, we don’t think its current level of growth, which was only 187,000 in Q4, will evoke a response from the incumbent wireless operators, especially as growth appeared to have moderated since the initial launch.”
He also feels that the mobile service is weighing too heavily on the cableco’s already thin margins and on its EBITDA losses. On its earnings call, Comcast said that it had paid $480m to date for its wireless customers, equivalent to $1,260 per gross addition (including one-time start-up costs). BTIG thinks Comcast’s wireless cash EBITDA losses could top $1bn in 2018 if the company accounts for handset financing in the same way that incumbent MNOs do.
“When the wireless business was first launched, Comcast indicated that it could leverage its existing cost structure, limiting the incremental impact to EBITDA. What is the incremental costs for customer care or billing to add a wireless subscriber that would result in EBITDA losses of that size?” Piecyk wrote. “If we excluded this non-cash benefit to reported EBITDA, as we do for wireless operators…it would imply an expected cash EBITDA loss of nearly $1bn for Comcast in 2018 for its wireless business, representing nearly $1,000 per gross addition and based on expectation of 1m gross additions.”