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8 September 2020

Verizon digs deep to reach 5G midband sweet spot, spending $1.9bn in CBRS

Verizon has spent more than any other bidder on spectrum in the USA’s latest auction, in which priority access licences (PALs) for the CBRS band around 3.5 GHz were sold. The process ended almost two weeks ago and the FCC has now announced the identities of the successful companies, and their bids, with Verizon leading the table with total spend of almost $1.9bn – almost half of the total proceeds of $4.6bn.

The investment was driven by the need to reach the midband sweet spot that combines reasonable coverage with a significant hike in average bit rates over 4G. Verizon has been very short of midband spectrum and forced to launch its first 5G services (fixed-only) in millimeter wave frequencies, while it will start to deploy 5G in its 4G spectrum this year using dynamic spectrum sharing (DSS).

However, it clearly hopes to transform its midband spectrum position for 5G by 2021, by bidding heavily in the CBRS PAL auction and, presumably, in the C-band auction to follow late this year. Prices in that spectrum are expected to be far higher than in CBRS, because there will be more spectrum on offer, with longer licence periods and larger geographies than in the PALs, and so more suited to the conventional MNO model. By contrast, the relatively small (county-sized) and short term (three-year) PALs, combined with the unlicensed portion of CBRS, should be well suited to enable more localized build-outs, such as private or city networks, some by non-traditional operators.

For now, Verizon has secured the biggest share of the coveted 3.5 GHz band so far, especially as AT&T chose not to take part. Its licences cover about 46% of the US population, and it has an average of 34 MHz of spectrum in the band. It had been expected to target near-national midband coverage but in fact, its bidding pattern suggests that it was actually focused on augmenting 4G spectrum in markets where it has limited capacity, such as Fort Myers, Florida; Tulsa, Oklahoma; and Grand Rapids, Michigan. This looks like an LTE capacity augmentation strategy rather than a 5G-focused play, with Verizon likely to wait for the C-band to aim for nationwide 5G midband assets.

Analysts at Wall Street firm LightShed Partners wrote in a client note: “There were two surprises from the CBRS auction. The first was that Verizon did not secure a nationwide CBRS spectrum position and the second was that Dish did.”

AT&T has rather more midband spectrum than its rival, though much of it is in unusual bands such as 2.3 GHz (WCS) or will require DSS to support coexistence with 4G. It can be assumed that AT&T is keeping its powder dry to make a big play for C-band assets.

After Verizon in the successful bid stakes came four companies which may – individually or collectively – mount a major challenge to the MNOs in the 5G service market in future. These were Dish Network, the new 5G entrant, and three cable operators, Charter, Comcast and Cox.

Dish’s bids came in second behind Verizon’s $1.89bn, though were only about half the amount in total, at $912.9m. The three cablecos committed $464m, $458m and $212m, respectively.

Auction 105 offered 70 MHz in the 3550-3650 MHz band and the highest number of spectrum licences ever in a single FCC auction.

In terms of the numbers of licences won, Dish was the winner, indicating that Verizon went for higher-priced assets in key markets. Dish won 5,492 PALs. With an average of 20 MHz across the widest range of markets, it surprised Wall Street analysts, which had expected the firm to keep most of its resources for the C-band auction, especially as it has significant reserves of spectrum in other bands.

However, analysts at Cowen & Co were positive, writing in a client note: “Dish spent wisely, going for breadth and not depth. This was a solid strategy to in-fill nationwide coverage of upper midband spectrum ideal for Dish’s wholesale/enterprise IoT network. Dish already had the ‘supermarket’ of untapped spectrum, and continues to augment its portfolio further still. As Dish looks for strategic partners (Uber, Amazon, drones, IoT), they did themselves a favor by augmenting the portfolio with CBRS.”

Other investment analysts were also convinced that Dish was accumulating spectrum that might be attractive to future enterprise or wholesale clients, since many of the licences, because of their size and location, will be appropriate for industrial deployments. Though others pointed out that Dish also regards spectrum as a valuable tradeable asset and tends to participate very actively in almost all auctions. “Yet again, Dish spent heavily at yet another public spectrum auction, proving that Charlie Ergen [Dish’s chairman] never saw a megahertz he didn’t like,” wrote the Cowen analysts.

Dish was followed by some of the midrange bidders, many of them WISPs, which were after large numbers of PALs, but mainly in rural or other locations that attracted less fierce bidding competition than the urban places. Some winners are likely to be spectrum dealers, which will then lease or sell on their assets on the secondary market, which is expected to flourish in CBRS because of the unusual and fragmented structure of the PAL tier.

After Dish came SAL Spectrum, with 1,569 PALs; AMG Technology Investment Group, which owns fixed broadband wireless operator Nextlink, with 1,072; and Windstream Services with 1,014. Comcast, under the name XF Wireless Investment, was fifth with 830 PALs. Verizon won 557 PALs in 157 counties.

T-Mobile made only a token showing in the auction, winning eight PALs in six counties, at a cost of $5.58m. It is in a superior spectrum position to that of its main rivals following its acquisition of Sprint, which has plentiful 2.5 GHz airwaves to complement TMO’s 600 MHz and mmWave assets.

The hefty bidding by cablecos reinforces the idea that they aim to launch full 5G services, at least in selected areas, rather than remaining reliant only on their MVNO deals with Verizon or TMO. Combined with their huge network of WiFi hotspots and homespots, which will be progressively upgraded to WiFi 6, the cablecos should be in a strong position not only to add 5G to the multiplay bundles for their broadband/TV subscribers, but also to go after enterprise, private and city network business, armed with geographically targeted spectrum and their own cable infrastructure to support small cell backhaul.

Some industrial and enterprise players which won licences included Chevron with 26 PALs, at a cost of over $1m; tractor supplier Deere & Company, which paid $545,999 for five licences; Texas A&M University, which gained one licence for $39,000; and Shenandoah Cable Television, which paid $16m for 262 PALs.