No 5G spectrum famine – US carriers start to stitch their new patchwork

The US carriers’ land grab for fiber and fixed wireless assets continues. Verizon has completed its acquisition of fiber provider XO Communications, which also brings it access to high frequency 5G spectrum, while AT&T has made its own acquisition, of FiberTower. Meanwhile Dish, which remains the dark horse in the US wireless and quad play race, has taken control of important fiber and spectrum assets from its sister company EchoStar. And Google is expanding its fixed wireless footprint, courtesy of its WebPass acquisition, as well as conducting tests in high band spectrum.

For now at least, this is not about cutting edge 5G use cases. It is a continuation of the old game of getting spectrum on the cheap – sewing a patchwork of airwaves bought from bankruptcy courts and spectrum speculators in order to achieve coverage and capacity at low cost. The US mobile network was built this way, back in the days of Craig McCaw and Nextel, and the US regulatory framework allows it to continue, giving operators spectrum options which are not available in all markets. Of course US MNOs have overpaid, like everyone else, in ‘beachfront’ spectrum auctions like 700 MHz. But they have never really faced a spectrum ‘famine’ – except in their regulatory filings to put pressure on the FCC – as some of their counterparts elsewhere have. There is plenty of underused spectrum in the US, and increasingly there are technologies – from millimeter wave radios to flexible carrier aggregation – which allow operators to harness non-beachfront bands, and to stitch together odd or fragmented spectrum more effectively in the past. This is becoming more and more valuable as the deployment priorities shift from coverage to high capacity, for 4G and dense 5G. Hence the low interest in the 600 MHz auction, contrasted with the rush for undervalued capacity-focused airwaves between 24 GHz and 39 GHz.

The two leading telcos’ deals highlight the ‘back to the future’ nature of the US’s initial steps towards 5G. Their respective acquisitions both have their roots in the fixed wireless bubble of the end of the last century. Three companies – NextLink, Winstar and Teligent – attracted major investment from big players like Microsoft, with plans to deploy broadband wireless in the 28 GHz LMDS and 39 GHz bands. They all fell victim to the 2000 telecoms crash and to poorly conceived business models, and went into bankruptcy protection, but all of them survived, to be acquired by companies which combined their spectrum assets with fiber – now the magic combination for 5G.

5G will rely on good wireline holdings as much as on high speed wireless links, for Cloud-RAN backhaul, fixed/mobile convergence and dense small cell backhaul. Hence the attractiveness of these forgotten wireless players. They were acquired at knockdown prices from out of Chapter XI – First Avenue Networks bought Teligent and used this as the basis of a new backhaul business model, under the company’s newer name FiberTower; while XO Communications snapped up NextLink and added it to its fiber portfolio.

These two will now become part of AT&T and Verizon respectively. Smaller carriers are also getting in on the act – CenturyLink emerged as the surprise buyer of fiber provider Level 3 last year, a dowry which will also include LMDS spectrum which Level 3 acquired along with another early broadband wireless player, Telcove.

FiberTower could be a strong strategic win for AT&T. The deal continues a strong US tradition of major players acquiring smaller companies with valuable spectrum for which they have failed to find a business model. The US market and regulatory structure is not kind to smaller wireless providers, and just as Dish laid the foundations of its spectrum play by purchasing two bankrupt mobile satellite operators, so AT&T is taking advantage of the troubles of FiberTower to boost its own arsenal.

The smaller company demonstrated some innovative thinking in its earlier years, but was somewhat ahead of its time in foreseeing a world where carriers would rely heavily on third party fiber and broadband wireless to boost their densification plans. It struggled to generate enough revenue from its assets, and in 2012 filed for bankruptcy protection. Its restructuring plan was approved in early 2014 and a new company formed, but in May of that year, the FCC decided to cancel 689 licences for failure to meet build-out requirements (because of the period in Chapter XI). Those licences could not be transferred to the new entity, though the new FiberTower retained 46 licences.

However, despite these ups and downs, AT&T still gains 8.1bn MHz POPS in the 39 GHz band and 374m in the 24 GHz band, according to calculations by AllNet. Its coverage will enable AT&T to move outside its wireline territory in some areas. Key markets where FiberTower has spectrum include New York City, Los Angeles, Washington DC, San Francisco, Denver, Miami, Atlanta, Chicago, Philadelphia, Seattle and Kansas City, among many others.

With Verizon securing leasing rights (and future buying rights) to millimeter wave spectrum via its purchase of XO, the two leaders are placing a significant bet on the value of these high frequencies to boost capacity, initially in fixed wireless and later to support other use cases such as dense mobile zones or Internet of Things services. There is plenty of gamble in this – Verizon is even investing in a pre-standard 5G radio to be able to harness these high frequencies at an early stage, even though it may need to do a significant tweak to bring it into line with future standards. And despite the US carriers’ enthusiasm for millimeter wave, in most other parts of the world, high frequencies are definitely seen as a second-wave priority, with most of the operators, and the device and equipment players, focusing their near term efforts on sub-6 GHz.

However, Verizon and AT&T, having placed their bet, are moving aggressively to raise the barriers to others. Wells Fargo senior analyst Jennifer Fritzsche wrote in a client note last week: “While TMUS has some 28 GHz spectrum, VZ will have by far the most of this spectrum following the XO close. XO brings 188bn MHz POPs of this high band spectrum (over 23x what FiberTower brings). That said, by making this move, AT&T now has an asset to point to and can be a part of the ultra-high band spectrum ‘conversation’.”

As well as its wireline and spectrum assets, it invested last June in millimeter wave and 5G technology company PHAZR, which could bring some valuable intelligence and innovation to AT&T’s plans to trial fixed (and later mobile) connectivity in 28 GHz from this year. PHAZR has been developing an antenna array for mobile and fixed access ‘5G’ system, to run in bands from 24 GHz to 39 GHz. This is due to be commercially ready this year and its inventors claim it will deliver peak data rates of 16Gbps per cell in a 200 MHz channel block. Its founder is Farooq Khan, formerly head of Samsung Research America and holder of over 200 patents. FiberTower is the start-up’s biggest investor.

Of course, the main attraction of FiberTower for its new parent will be its infrastructure assets to support early 5G. And FiberTower’s executives should take some comfort from the fact that the market has caught up with the firm’s thinking at last. FiberTower spotted the US wireless backhaul boom early and was founded in 2005 with backing from three major cell tower owners – Crown Castle, SpectraSite and American Tower- plus venture capitalists. And it saw the potential to turn LMDS frequencies to mobile backhaul use, acquiring Teligent/First Avenue in 2006. It devised a backhaul-as-a-service proposition for towercos, leveraging its spectrum, and later pushed into small cells too, with a business model that is now emerging into the mainstream, but was perhaps too new and unproven a decade ago.

With XO, FiberTower and Level 3 now all snapped up, attention is sure to shift to the other major casualty of the 2000 broadband wireless crash, Winstar. This was acquired by IDT, which then then spun the spectrum assets off into Straight Path in 2013. The latter’s significant stash of 28 GHz and 39 GHz spectrum will be keenly eyed by would-be 5G players this year, after the FCC ordered the company, last month, to offload its airwaves or face a huge fine.

The FCC had been investigating allegations of fraud, with an anonymous plaintiff claiming Straight Path won a renewal of its 39 GHz licences by claiming to have constructed systems which were never built. The FCC ruled that the equipment had been deployed, but only for a short time. The company has agreed to pay $15m over the next nine months and return 93 of its 39 GHz licences to the FCC. It must also offload all its remaining licences within 12 months, or it will have to pay a deferred fine of $85m, or surrender all its spectrum holdings.

This looks like an example of the established US practice of spectrum squatting, which has delayed roll-out of competitive wireless services in many bands and geographies over the years. “Squatting on spectrum licences without any meaningful effort to put them to good use in a timely manner is fundamentally inconsistent with the public good,” Travis LeBlanc, chief of the FCC’s Enforcement Bureau, said.

Legal action against squatting results, from time to time, in a golden nugget of spectrum becoming available suddenly. This happened with NextWave Wireless, which languished in Chapter XI for years after acquiring, but failing to use, PCS licences and substantial assets in 2.5 GHz and 2.3 GHz bands. The latter was a classic example of a neglected band, hampered by limited devices and a peculiar US band plan, but AT&T acquired it (together with other 2.3 GHz licences from Sprint) and now plans to use it for new revenue streams such as smart grid systems.

So some Straight Path spectrum will be available from the FCC, but the company still owns 735 licences in the 28 GHz and 39 GHz bands and an average of 620 MHz in the top 30 US markets. It claims to hold about 95% of the commercially available 39 GHz spectrum and a significant portion of available 28 GHz.

Straight Path has also been engaged in a spat with Boeing about the latter’s plans to launch broadband services based on a constellation of low earth orbit (LEO) satellites – highlighting yet another aspect of the US race to 5G, the role of satellite for backhaul and access.
While AT&T and Verizon amass their fixed wireless assets, Dish is also carrying on the grand tradition of US spectrum patchwork quiltmaking. In an asset swap with its sister company, satellite services provider EchoStar, it has acquired 28 GHz spectrum in four markets, as well as a managed fiber backhaul network (plus other jewels such as EchoStar’s uplink business, and full control of Sling TV).

“It is unclear how much spectrum EchoStar owns in this band but the transaction today seems like another round of spectrum acquisitions by Dish, now with a focus on 5G,” wrote analysts at Barclays in a client note.

Of course, Dish has never followed through on its pledge to build a 4G network in its variety of spectrum bands, and opinions differ on whether it ever intended to do so – and was just thwarted by the regulatory process of getting its mobile satellite bands approved for terrestrial-only use – or whether it is purely buying spectrum as a tradeable asset. In either case, its interest must now shift to 5G.

Indeed, many observers expect Dish to seek a wireless operator, for a merger or deep partnership, once the ‘quiet period’ surrounding the ongoing 600 MHz incentive auction is over. Dish has previously tried to acquire Sprint and has been linked to T-Mobile – it has increasingly valuable capacity-oriented spectrum to bring to the table, but has admitted it would require an infrastructure partner in order to build out a mobile network cost-effectively for its own quad play purposes – and if it ventured into mobile-only services, it would certainly need a partner’s brand and reach to climb the high barriers to entry. Alternatively, it might just sell its spectrum, probably to Verizon, but the EchoStar transaction might suggest that this is not its preferred route.

Barclays analysts wrote in their client note: “We believe Dish is likely one of the companies that could feel the greatest degree of urgency in trying to combine with a wireless network owner, post the conclusion of the auction. With the asset swap today, Dish appears to be concentrating its wireless assets into one entity along with technology assets that can potentially help with video offerings like DTV Now. In case Dish does contemplate a transaction with a wireless operator, this mix of assets could further help the overall strategic positioning of a potential combination.”

Dish’s timing is off though. Had it been able and willing to build a national LTE network when it first acquired mobile satellite spectrum, it could have had a disruptive effect by supporting wholesale customers on a large scale (to supplement its own quad play needs), as Clearwire once intended to do, before it was bought by Sprint, and then LightSquared, before it spent its period in Chapter XI. But at the dawn of 5G, the big disruptors are likely to be players which harness virtualized networks, cloud infrastructure and services, and a flexible on-demand model to support wholesale clients. That model will be best pursued by the cloud giants like Google and Amazon, and can rely heavily on unlicensed or shared spectrum, without the need to invest in old-fashioned licences.

Google itself, having pulled back from its fiber ventures, is showing its own interest in fixed wireless as a prelude to 5G. It now has six fixed wireless markets in its Google Fiber footprint, following its acquisition of Webpass last year, and started advertising these to customers last week. Webpass offers broadband services in Boston, Chicago, Miami, Oakland, San Diego and San Francisco, partly on fixed wireless connections in a range of licensed and unlicensed bands from 6 GHz all the way to 80 GHz.

For now, this is a lower cost way than fiber build-out to offer broadband access services. Google will target consumers in buildings with at least 10 apartments and with Ethernet cabling. Dennis Kish, president of Google Fiber, wrote in a blog post: “Copper Ethernet wiring can allow for blazing gigabit speeds, making them an affordable alternative for building owners to install vs. coaxial cable or even fiber.”

But the longer term aim must be to use either fiber or fixed wireless not to build a telco business, but to stir up the market. With Webpass and its spectrum, Google can provoke a reaction out of competitors in these markets (at lower cost than with fiber); experiment with proto-5G technologies and with various indirect business models; and encourage overall usage of the web and, therefore, its services.

With Facebook and Amazon likely to make their own moves to shake up the established order, there will be even greater urgency for the major operators to grasp headstarts in 5G and wireline/wireless broadband, and to increase their scale and their range of services through acquisition. Hotly tipped as the next big deal is a Verizon acquisition of a cableco, probably Charter Communications, to bolster its fiber holdings and its broadband footprint; and it might also bid for Dish’s spectrum in valuable midrange bands like AWS-3, AWS-4 and PCS H Block. Dish might reopen the wooing of T-Mobile or Sprint, or Softbank might hope for a friendlier regulatory climate, under a new administration, in which to revive its dreams of merging with TMO.

Google and Nokia call for more fixed wireless spectrum:

Fixed wireless in the US is not just about millimeter wave. Google, for instance, has a range of spectrum in use at Webpass, and has been a leading light in the bid to open up the 3.5 GHz band (now available for shared use under the Citizens Band Radio Service plan).

Now Google Fiber and Nokia are among the bighitters behind a petition to the FCC, under the auspices of the Fixed Wireless Communications Coalition (FWCC), aiming for greater terrestrial use of the 3.7-4.2 GHz band.

The FWCC, a coalition of companies in the terrestrial fixed microwave space, asks the regulator to update the rules for the band so that more of the spectrum can be used for terrestrial applications. It argues that current rules for coexistence of fixed wireless and fixed satellite services (FSS) in the band are outdated, and have a major negative impact on terrestrial stations attempting to coordinate, but none on FSS, the latter’s uplinks and downlinks are in different frequencies.

Of course, it is opposed by the satellite industry, which responded saying that the new petition just reiterates “unsupported allegations” that were brought up in an earlier motion, back in 1999, about the “supposed adverse effect of full-band, full-arc licensing of fixed-satellite satellite service (FSS) earth stations on the terrestrial fixed service (FS)”.

The Satellite Industry Association (SIA) told the FCC that the new petition provides no evidence that current regulations are harmful to fixed terrestrial networks.

In an FSS downlink band, full-band, full-arc coordination bars an FS applicant from every frequency in the band over a wide area, even if the earth station is not receiving on those frequencies and has no plans to, according to FWCC. In the 3.7-4.2 GHz downlink band, registered earth stations are so numerous as to make any FS coordination impossible in most of the country, yet many of those earth stations each access just one transponder on one satellite, it added.

Google Fiber, in its filing in support of the petition, pointed to the increasing importance of spectrum for last mile broadband connectivity. “Lack of usable spectrum presents a major obstacle to broadband deployments. Reliable fixed wireless broadband demands relatively low frequencies that are resistant to environmental degradation, such as attenuation caused by foliage and buildings,” Google Fiber wrote. “While there are lower-frequency bands nominally available for fixed service operations, they are either fully occupied by auctioned licenses (for example, the Broadband Personal Communications Service band at 1850-1990 MHz and the Broadband Radio Service/Educational Broadband Service band at 2496-2690), or have insufficient available bandwidth (for example, the Private Operational Fixed Microwave Service band at 952-960 MHz).”

Nokia added its own comments, arguing that the US should stop granting satellite operators the right to force valuable spectrum, which they never intend to use, to lay fallow. “Indeed, adoption of the FWCC proposal would simply even the playing field for coordination between FSS and FS—co-equal services,” Nokia stated. “Further, grant of the rule change would harmonize US FSS licensing practices with those of other countries like Canada, which, in Nokia’s experience, do not afford FSS such broad coordination privileges.”