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2 September 2019

Merger delays and teething troubles pull back Sprint and TMO 5G roll-outs

Delays may be hitting Rakuten in Japan (see previous item) but they are also a risk for other MNOs with particularly ambitious network roadmaps, especially when those roll-out plans are bound up with acquisition uncertainties too. Both Sprint and T-Mobile USA, whose proposed merger is still under regulatory review, are missing deadlines as they wait for clarity on their future position, allowing larger rivals AT&T and Verizon to forge ahead in terms of 5G scale and reach.

The need to rival or better the big two’s 5G spectrum position is one of the drivers behind TMO’s planned acquisition of Sprint from Softbank. While the ‘Uncarrier’ has the best position in coverage-friendly sub-GHz spectrum in the USA, following its purchase of the largest chunk of 600 MHz airwaves in the broadcaster incentive auction, it is less well-placed to deploy significant capacity, necessary for the high bandwidth video and gaming services it is promising its consumers. One of the arguments for the merger with Sprint is that, together they can deliver a better network with better services, including fixed broadband and quad play, for US consumers, improving competition.

This is because TMO would be able to harness Sprint’s extensive 2.5 GHz spectrum holdings. In a market where 3.5 GHz – the main band being used internationally for early 5G capacity-driven roll-outs – is available only on a limited basis via the CBRS scheme, US MNOs are being driven up into the more challenging millimeter wave bands to deliver very high speeds to support services like home video. Sprint is the only major operator with significant chunks of mid-band spectrum, and its 2.5 GHz band, while originally used for 4G, has been designated for 5G also. If TMO can combine 2.5 GHz, 600 MHz, and its own early deployments in mmWave, it will have an ideal mixture of capacity and coverage support.

But TMO has asked contractors to put its 5G purchase orders on hold until 2020, according to reports in Wireless Estimator, because of continued delays in the approval of the Sprint deal. Some of the affected contractors anonymously told the wireless news site that the cancelled or frozen orders were worth millions of dollars – $700,000 for one company alone. One supplier said it had been told that work could continue if billing was delayed for 120 days.

The MNO itself told Mobile World Live: “We are managing capital expenditures as we do every year” and added that TMO was still planning to invest “billions to build out our network aggressively, expanding LTE coverage and performance while simultaneously laying the foundation for broad, nationwide 5G in 2020”.

T-Mobile’s capex in the first half of 2019 totalled $3.72bn. In July, T-Mobile CFO Braxton Carter said on an earnings call the operator expects to close 2019 on the “very high end” of its capex guidance range of $5.8bn to $6.1bn for the full year.

Meanwhile, Sprint has been promising a powerful 5G network based on its 2.5 GHz spectrum, but it has had its own delays, which seem to be connected to teething troubles with the network and trouble getting site approvals, rather than the TMO deal.

There have been reports that Nokia’s equipment has taken longer than expected to be fully launch-ready, both for Sprint and Verizon. Nokia and Ericsson are supplying some markets with 5G equipment for all four national MNOs, while Samsung is also part of the AT&T, Verizon and Sprint roll-outs.

Sprint and Nokia reportedly missed their deadline to switch on 5G services in New York City, Los Angeles, Phoenix, and Washington DC, all of which were supposed to be live by the end of July, and all of which are Nokia-supplied markets. Sprint has launched 5G services in Atlanta, Dallas, Houston, Kansas City and Chicago but these are using equipment from Ericsson and Samsung, according to SDxCentral.

It was with a sense of relief, then, that Sprint at least switched on its biggest market, New York City, last week; and said it was in the final stages of testing with Nokia in the other large markets, where it expects commercial services to be ready in early September.

At the launch event near Times Square, Sprint CEO Michel Combes said it was worth “a few weeks” of delay to provide good 5G coverage. The operator’s CTO, John Saw, said: “It’s probably one of the largest 5G footprints in the world” [with 1.7m people), and there is now Sprint coverage from Central Park to the southern tip of Manhattan.

The MNO is offering three 5G smartphones and a home hub – the 5G One Plus 7 Pro, Samsung S10+ 5G, and LG V50 ThinQ 5G smartphones, plus the HTC 5G Hub.

Will Townsend, senior analyst at Moor Insights & Strategy, commented: “I don’t view this as an ongoing problem, but Nokia continues to struggle relative to competitors such as Ericsson and Samsung Networks with respect to software-defined tool deployment. I believe they will close the gap over time.” However, he warned: “If this becomes a pattern in other geographies in Europe and Asia, it could jeopardize future business. Carriers could pivot away from Nokia fairly easy if there’s a loss of confidence.”

Townsend believes Nokia is the most careful of the operators to ensure that, when a network goes live, it is fully functional. He told SDxCentral: “Nokia is extremely conservative and likely the latest software release did not meet its release requirements. If there are bugs — better they work them out before general availability and not wreck operator networks. Bear in mind the majority of 5G deployments will be non-standalone and they can’t risk cratering LTE.”

As of the end of July, Nokia claimed 45 commercial 5G contracts and nine live networks; Huawei said it had 50 contracts; and Ericsson has announced 24. Nokia CEO Rajeev Suri recently claimed his firm is winning two-thirds of 5G network bids against Ericsson – though in reality, most MNOs will go for a multi-supplier approach, and given the uncertainty in some markets about being able to use Huawei and ZTE, the two Nordic suppliers are likely to find themselves in many of the same carrier networks. Operators are keen to promote open interfaces and designs that will make it easier to deploy multivendor, interoperable networks, boosting price competition and reducing their risk of lock-in. Currently, though many operators use multiple suppliers, they tend to allocate certain regions to each vendor, rather than integrating them completely.

The other company whose roll-out plans cannot be fully confirmed until the Sprint/TMO merger is approved is Dish Network. A condition of approval is that the combined operator divests Sprint’s Boost Mobile operation and customer base, along with some network and spectrum assets, to Dish. That, combined with its existing patchwork of spectrum holdings, will support a full 5G launch.

Analysts at New Street Research, led by Blair Levin, wrote in a client note: “Dish wishes to proceed in a new direction, but the longer it takes the terms of its deals with T-Mobile and the FCC to be finalized, the more difficult it is for Dish to make the investments necessary to succeed in its wireless efforts.”

Dish has already issued a request for proposal (RFP) for its 5G network and has told the FCC that it will deploy a core network and offer 5G services to at least 20% of the US population by 2022.

There are still barriers to the merger being finalized however, despite approval from the Department of Justice, which handles antitrust issues, and FCC chair Ajit Pai recommending approval from the telecoms regulator. The most significant challenge is coming from a group of more than a dozen US states, and the trial to hear their case has now been postponed from October 7 to December 9, though some expect TMO to negotiate an out-of-court settlement before then.

This is also likely to delay auctions of C-Band spectrum and of CBRS Priority Access Licences. New Street wrote: “Can the FCC feel comfortable deciding on certain issues, or whether there can really be any sales process with T-Mobile’s spectrum needs and the fate of 2.5 GHz band uncertain?” TMO has been lobbying for an FCC-led auction of the 3.7-4.2 GHz C-Band spectrum, though this may be less important to it, if it gets Sprint’s 2.5 GHz airwaves.