The force behind this likely acceleration in what promises to be the far-reaching impact of 4G is competition. To appreciate what’s in store one need only recall how the transition to LTE by mobile market leaders Verizon Wireless and AT&T was accelerated by the competitive threat posed by Sprint’s and Clearwire’s efforts to get out ahead with WiMAX infrastructure in 2010.
That seminal development was cited as one of Clearwire’s accomplishments by CEO Erik Prusch in a conference call with analysts in mid December following announcement of Sprint’s deal to acquire the 49.55 percent of Clearwire shares it didn’t already own. “Since we first launched 4G in 2009 Clearwire has been an industry disrupter,” Pusch said. “We launched the first large-scale 4G network in the U.S., which in turn pressured large carriers to accelerate their 4G deployments.”
Now, with the improved positions of the third and fourth ranked stakeholders Sprint and T-Mobile in a reconfigured market, competitive pressures will be far greater as the market leaders and their pursuers do everything they can to secure long-term advantage. Whether by virtue of faster buildouts targeting higher levels of bandwidth, more aggressive pricing or support for greater service and app innovations tied to expanded device options, their efforts could have a great impact sooner than later on the choices consumers make with respect to where they go for information and entertainment and how advertisers and e-commerce suppliers go about capturing their attention.
The biggest source of pressure on the two leading players is shaping up with the entry of Japan’s SoftBank into the U.S. market through its planned acquisition of a 70 percent stake in Sprint, which the companies expect will be completed following regulatory approval by mid 2013. The anticipated infusion of $8 billion in capital on top of the $12.1 billion Softbank is spending on acquiring Sprint shares allowed Sprint to negotiate the takeover of Clearwire and its valuable spectrum, also with the goal of closing on the acquisition by mid year.
Commenting on the impact SoftBank intends to have on the U.S. market, company chairman and CEO Masayoshi Son called the deal a “constructive beginning toward creating a more competitive American wireless market.” That was a mild way of saying he expects a repeat in the U.S. of Softbank Mobile’s successful assault on the KDDI/NTT Docomo mobile duopoly in Japan. “As we have proven in Japan, we have achieved a v-shaped earnings recovery in the acquired mobile business and grown dramatically by introducing differentiated products to an incumbent-led market,” Son said.
Already, of course, manufacturers are flooding the U.S. market with LTE devices, and carriers are stepping up previously announced network upgrade schedules. As previously reported , AT&T is taking LTE to the next level with plans to use it as a fixed-line access supplement across 20 percent of its wireline service territories in the year ahead. Verizon, which already covers 250 million POPs with its LTE network, said in November that it is stepping up the pace of deployments with plans to cover the complete 300-million POP 3G footprint by mid 2013, six months ahead of its previous schedule.
Assuming regulators approve the latest deal proposals these two carriers will soon be joined in the LTE race on a more even spectrum playing field by Sprint and T-Mobile, which is in the process of acquiring MetroPCS, the country’s fifth largest mobile provider. In fact, Sprint will become the dominant spectrum holder with acquisition of Clearwire, which will add 130 MHz in the 2.5 GHz band to the 70 MHz Sprint already holds in the 800 MHz and 1.9 GHz blocks.
Of course, all this air space includes spectrum that must be used to support earlier generations of technology. But, with an emphasis on phasing out WiMAX and deployment of new technology that shares spectrum among 3G and 4G users, Sprint will have the lion’s share of 200 MHz to work with as it builds out its LTE infrastructure.
Other carriers, too, plan to maximize spectrum availability for LTE as they phase out dedicated uses of spectrum for earlier generations. Noted Verizon CFO Fran Shammo during a Goldman Sachs conference in September, “With the launch of the LTE iPhone, usage on 3G will start to decline, so we will be able to re-appropriate that spectrum over to 4G.”
But no one at this point has what Sprint has. According to a recent assessment by UBS analyst John Hodulik, Verizon has about 68 MHz available on average in the top 100 markets for LTE, with another 37 MHz or so in use for other platforms. AT&T, having gained 20 MHz of new Wireless Communications Spectrum and possibly another 10 MHz pending further FCC action, will have up to 73 MHz to work with for LTE in the near term and eventually 118 MHz once it phases out older generation platforms, starting with the planned elimination of 2G GSM in 2017.
T-Mobile, with its acquisition of MetroPCS, will be in the spectrum ballpark with the top two players. With complementary blocks in the 1.7 GHz and 2.1 GHz AWS (Advanced Wireless Services) and 1.9 GHz PCS tiers, the combined entity will have an average of 72 MHz to work with in each of the top 100 markets, according to figures the two companies’ leaders presented to the investment community.
In their merger filing with the FCC, T-Mobile and MetroPCS stressed what the combination could mean to the competitive strength of T-Mobile. “The proposed transaction will actually increase competition nationally by strengthening the smallest of what the commission has described as ‘nationwide’ carriers [T-Mobile] and better enabling [the combined company] to be a more effective and disruptive force,” the companies said.
Adding fuel to the LTE juggernaut is new spectrum now available for 4G use as a result of the FCC’s decision to allow DISH Network to use 40 MHz of its satellite spectrum in the AWS band for mobile service. DISH was reported by the Wall Street Journal to be in discussions with Google about a possible mobile broadband partnership, but Google is not the only potential partner DISH CEO Charlie Ergen is interested in.
In fact, Ergen told WSJ he would prefer to partner with a wireless carrier with an existing network. He has also said he would welcome a chance to merge with DirecTV, but analysts deem that unlikely in the current regulatory climate, especially as a proposed merger between the two DBS providers was shot down in 2002.
In approving the DISH spectrum use the FCC also said it would auction the AWS H Block, which will unleash another 10 MHz of spectrum that will soon be coming on the market for LTE. The commission also has pending proposals for additional AWS auctions in the future, based on carving out more spectrum in relatively small blocks of 10-20 MHz for what is known as AWS-2, 3 and 4.
By sometime in 2014 the commission also intends to proceed with auctioning for mobile use a large share of the spectrum it will obtain from TV broadcasters in a proposed reverse auction. Up to 120 MHz will be targeted in the reverse auction, as described in a notice of proposed rulemaking issued in late September, although there’s no certainty as to how much of that spectrum will be acquired from broadcasters through the voluntary selloff.
The 100 Mbps Challenge
How soon anyone will get to the 100 Mbps throughput originally designated by the ITU as defining 4G remains to be seen, but they all have a long way to go. Presently, by various accounts, AT&T LTE infrastructure, now operating in more than 100 cities, is delivering data to customers at anywhere from 8 to 20 Mbps, depending on usage contention levels. Adding 30 MHz of spectrum would raise those rates by about 34 percent.
Verizon, in its initial LTE rollouts has been delivering 4G at 5 to 12 mbps in the 700 MHz C Block. In the year ahead as the carrier introduces LTE devices compatible with the 1700 MHz AWS tier it acquired from cable companies and other sources, it will be able to start adding subscribers within each AWS block at approximately the same data rates it’s currently supporting in the 700 MHz tier. Sometime in 2014 a new spectrum aggregation technology is expected to enable sharing of bandwidth across all tiers, which will get Verizon a lot closer to 100 mbps.
It should be noted, however, that for all these carriers the expectations on LTE data rates aren’t simply a matter of linear bits-per-MHz calculations. Instead, the real measure of average throughput experienced by users will depend on how each carrier goes about subdividing current coverage areas to reduce the number of users contending at any given moment for available bandwidth.
In AT&T’s case, for example, the carrier’s recently announced Velocity IP (VIP) infrastructure expansion plan envisions deployment of 10,000+ new macro sites, 1,000+ distributed antenna systems and 40,000+ small cells nationwide over the next three years. Macro sites will largely go to completing the buildout from the current 150 million POPs to the targeted 300 million LTE POPs by year-end 2014, but the small cells represent a major step toward increasing data rates for individual users.
Speaking at a Wells Fargo Securities Technology conference in November, Verizon’s Shammo suggested that with the expanding footprint it’s likely the carrier will be able to add more 00spectrum for LTE, eve0n though he asserted the company’s current holdings put it in a very strong position for the next five years. “When spectrum comes up for sale it’s a once-in-a-lifetime chance to buy or not to buy,” he said. “We’re not going to be out of the market for five years.”
One interesting way to look at the relative spectrum strengths of the top players is an analysis offered by Roger Entner, founder and analyst at Recon Analytics. In a blog written following announcement of the Sprint-Clearwire deal, Entner noted that, according to the National Broadband Plan, there is now 547 MHz of spectrum available for licensed wireless use in the U.S., which means that Sprint, with 200 MHz following the Clearwire acquisition would have about 37 percent of the total.
The advantage goes beyond the raw spectrum number when one looks at the number of subscribers each carrier will have competing for use of that spectrum, Entner noted. Sprint, with about half as many subscribers as Verizon and AT&T, at 112 million and 105 million, respectively, will have twice as much spectrum, T-Mobile, with the same amount of spectrum as the two leaders, will have only 42.5 million subscribers.
“More spectrum means faster speeds, more capacity and a stronger competitive position,” Entner said. “Sprint will have far more flexibility to develop its network and business plans to compete with Verizon and AT&T than even T-Mobile. With so much idle spectrum, Sprint can build an LTE advanced network the right way, as it has considerably less traffic on its network.”
The Sprint Strategy
Much has been made in some quarters over the fact that propagation characteristics at 2.5 GHz are not as good as they are at lower frequencies. But, when it comes to the technical capabilities devised for LTE, these concerns may be overblown.
David Dixon, senior vice president at FBR Capital Markets, noted during the Sprint-Clearwire analysts conference that his group is “seeing solid evidence that LTE at 2.5 GHz creates about a 2X coverage benefit versus WiMAX.” One source of confirmation on this “better-than-expected spectrum characteristic” is Rogers Communications’ rollout of LTE at 2.5 GHz in a dual-band deployment in Canada, he noted.
In any event, with spectrum to work with at the 800 and 1.9 GHz tiers as part of a layered and fully integrated LTE architecture, Sprint will be able to exploit the operational benefits of all tiers to maximum advantage, said Sprint CEO Dan Hesse. “Because of the propagation limitations of 2.5 GHz spectrum, it’s hard to utilize on its own,” Hesse said. “It needs to be complemented by lower frequencies.”
Describing how the carrier’s multimode Network Vision architecture “enables us to integrate the 2.5 spectrum band into our future build and deployment plans,” Hesse said Sprint will use its “core LTE-FD coverage in capacity at our 1.9 GHz PCS spectrum, enhanced propagation and coverage with our repurposed 800 MHz band from [the Nextel iDEN service], which will utilize LTE-FD in the future, augmented with the complementary depth and capacity available that we plan to bring to market using LTE-TD on the 2.5 GHz band.”
The references to FD (frequency division duplex) and TD (time division duplex) bring up another challenge for Sprint. FD, using separate spectrum channels for downstream and upstream signals, is now the universal mode of delivering mobile services, but TD, which uses the same channel to deliver signals in both directions, represents a more efficient use of bandwidth. The problem is there are practically no TD devices available for use at 2.5 GHz, or any other level, for that matter.
Hesse acknowledged the timing of availability of devices capable of communicating over the 2.5 GHz band in LTE-TD mode will be a gating factor in Sprint’s ability to execute on this strategy. Asked whether the carrier might be able to bring the LTE-TD element of its service into play next year, he said, “It depends on when devices are available that could utilize the 2.5 on TD LTE as well as the speed of deployment of the Clearwire network….[F]or your planning purposes in terms of a significant offload of capacity you should be thinking of 2014, and it really has to do with device availability.”
Device availability as well as mastering use of LTE-TD at 2.5 GHz will be greatly facilitated by SoftBank’s agenda in Japan, Hesse noted. “We believe there will be additional efficiencies and scale economics because of SoftBank’s activities in the area of 2.5 and 2.5 LTE-TD,” he said.
Not only is Son giving device manufacturers a bigger incentive to supply the devices he needs in Japan by virtue of the LTE-TD footprint he’s facilitating in the U.S. China Mobile, the world’s largest mobile carrier with over 700 million subscribers, has announced it, too, has begun building a 2.5 GHz LTE-TD network.