Recalibrating valuations in the private wireless industry

A utility provider covering Kansas and Missouri just announced plans to deploy its own private wireless LTE network, and it will likely spend tens of millions of dollars on the endeavor.

Importantly, the new effort by utility provider Evergy helps to yet again underscore the potential of private wireless networking, and the money that could eventually flood into the space. It also helps to explain why companies ranging from Ericsson to Rakuten to Microsoft to Verizon have been so interested in positioning themselves as providers for private wireless networks.

However, to understand the implications of Evergy's plan – and why it's important in the broader context of the space – it's necessary to delve into the financial details of the company's announcement Monday.

The per MHz-POP calculation

To build its private wireless network, Evergy said it will lease 900MHz spectrum licenses from Anterix. The licenses cover roughly 3.88 million people in Evergy's service territories in Kansas and Missouri, and Evergy will pay $30.2 million for an initial 20-year license, with two subsequent ten-year renewal options.

According to the financial analysts at Evercore, this price tag translates into a spectrum license valuation of $1.30 per MHz-POP. The per MHz-POP figure indicates the amount of money spent on spectrum, the amount of spectrum available and the number of people that spectrum covers. However, like real estate, the value of spectrum is a bit of a moving target, and therefore comparisons are necessary.

Other comparable spectrum transactions include the 2016 600MHz spectrum auction and the AWS-3 spectrum auction in 2015. According to the Evercore analysts, the 600MHz spectrum licenses in the same area sold for around $0.60 per MHz-POP, while AWS-3 licenses sold for $1.41 per MHz-POP. Meaning, Evergy sees enough value in owning a private wireless network that it's willing to place a relatively high value on Anterix's spectrum licenses in relation to other recent spectrum transactions.

Further, according to the Evercore analysts, Evergy inked its agreement with Anterix without conducting its own networking tests in the spectrum. Instead, it simply relied on testing data obtained by another Anterix customer, Ameren. Moreover, due to complex FCC rules around spectrum licensing, Evergy was really the only company that could have used Anterix's 900MHz spectrum licenses in Kansas and Missouri – and it still agreed to pay $1.30 per MHz-POP.

Finally, Evergy's deal with Anterix only covers the spectrum for a private wireless network and does not include the cost of the radio equipment necessary to actually operate a network. Meaning, Evergy will probably spend millions of additional dollars on LTE equipment and network-management services.

According to FierceWireless, Evergy plans to use its private LTE network for a number of services, ranging from network resilience to monitoring applications.

An increasingly crowded market

And Evergy is just one customer, in one location, in one industry, for such private wireless networking services. Companies like Ericsson and Microsoft are hoping to stir up additional interest from enterprises in a wide range of other industries from agricultural operations to manufacturing facilities. Indeed, Verizon recently disclosed the details of the private wireless network it helped to build at a UK port.

Thus, it's no surprise that a wide range of companies are hoping to cash in on the private wireless networking space. Players in the industry stretch from Microsoft (via its purchases of Metaswitch Networks and Affirmed Networks) to Rakuten (through its new Symphony offering) to Ericsson (via its new private networking business) to Ligado (through its own spectrum-leasing effort).

"We have talked about private wireless for a long time so it is exciting to see the rise in activity, underpinned by new spectrum, an improving device ecosystem, technology improvements, and the emergence of new use cases that require cellular QoS," said analyst Stefan Pongratz with research and consulting firm Dell'Oro Group in a recent release.

It's no wonder that Nokia at one point forecast that the private wireless opportunity might ultimately be twice as big as the commercial wireless opportunity.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano