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5G

The quiet brilliance of T-Mobile's 5G spectrum strategy

T-Mobile executives have been loudly touting the importance of the operator's 5G spectrum holdings for years. The company will take a leading position in the US 5G industry because of the vast network capacity it can engineer from those holdings, according to its leadership team.

But the true genius of T-Mobile's spectrum strategy for 5G is only now coming into focus. It's a strategy built mostly on spectrum ignored or unwanted by other companies.

Specifically, T-Mobile is poised to gain additional valuable 2.5GHz midband spectrum for next to nothing. The FCC's auction of the spectrum should end next month, but current bids are far below initial expectations. That means T-Mobile is likely facing little to no opposition in the auction, which should help the company significantly flesh out its midband 5G spectrum holdings without spending much.

Further, T-Mobile appears to be using the savings to pounce on some lowband 600MHz spectrum that it wasn't able to purchase in 2017. The company announced this week that it will pay Columbia Capital $3.5 billion for 600MHz spectrum licenses covering around 100 million people in major markets like Boston and Los Angeles.

Although T-Mobile is paying handsomely for the 600MHz spectrum licenses, the transaction helps to underscore the simplicity and cleverness of its overall strategy regarding 5G spectrum.

Accumulating lowband and midband

T-Mobile's approach to 5G spectrum starts in the lowband, which is ideal for broad geographic reach and indoor coverage. Indeed, T-Mobile has been calling lowband spectrum the cornerstone of its 5G strategy since unveiling its spectrum "layer cake" in 2018.

T-Mobile spent heavily in the FCC's 600MHz spectrum auction in 2017, while AT&T and Verizon mostly sat on the sidelines. Then T-Mobile allocated all its 600MHz winnings exclusively to 5G. Today the operator covers 320 million people with that lowband 5G network.

(Source: T-Mobile)
(Source: T-Mobile)

AT&T and Verizon have been forced to use a technology called dynamic spectrum sharing (DSS) to shoehorn 5G into their own lowband spectrum holdings. DSS allows 4G and 5G signals to travel in the same band, but it's a relatively new technology that can be somewhat inefficient.

But 5G in lowband spectrum isn't very exciting because of the slow speeds. So, to get midband spectrum, T-Mobile paid $26 billion to acquire Sprint and its vast 2.5GHz midband spectrum holdings.

That price might seem excessive, but compared with the roughly $50 billion Verizon spent on similar midband spectrum in the FCC's C-band spectrum auction last year, it's looking like a good deal now.

Today T-Mobile covers 235 million people with its 2.5GHz midband 5G network, and the company expects to cover 300 million by the end of next year.

From renter to owner

During an investor event Tuesday, T-Mobile CFO Peter Osvaldik said the company purchased as much lowband 600MHz spectrum in 2017 as it could. This week, the company essentially purchased much of the rest of the spectrum initially released in that auction.

AT&T and Columbia Capital were the fourth and fifth biggest bidders in the FCC's 2017 auction, spending a combined $1.8 billion on 600MHz licenses. Columbia subsequently purchased AT&T's licenses in 2018.

T-Mobile then inked a three-year leasing deal with Columbia Capital to use the 600MHz spectrum in the T-Mobile 5G network. As noted by the financial analysts at LightShed Partners, the additional spectrum in some cases doubled T-Mobile's lowband 5G speeds.

T-Mobile is spending heavily to own the spectrum licenses it has been leasing from Columbia Capital, which come in 10MHz-30MHz chunks. According to the financial analysts at New Street Research, T-Mobile paid $2.64 per MHz-POP for Columbia's licenses.

"This is a 111% premium to the $1.25 per MHz-POP price paid for these licenses at auction" in 2017, the analysts wrote in a recent note to investors.

The per MHz-POP calculation is applied to most spectrum transactions and reflects the number of people covered compared with the amount of spectrum available. However, it can be affected by a wide variety of factors.

T-Mobile is also working to transition from spectrum renter to owner in the 2.5GHz band, via deals for individual licenses on the so-called secondary market.

A carefully crafted auction

But when it comes to buying additional 2.5GHz licenses, it doesn't appear that T-Mobile will have to pay a premium.

The FCC started its Auction 108 of 2.5GHz licenses late last month. So far, the auction has generated just $166 million in winning bids. As in prior auctions, the FCC is not identifying bidders and will only do so when the auction is over.

"Based on prior auctions at a similar stage of excess demand, this auction will struggle to reach $300 million," Sasha Javid, chief operating officer for BitPath, said in response to questions from Light Reading. Javid has closely tracked previous FCC auctions and maintains a detailed website for Auction 108.

Javid isn't alone in his pessimistic view of the auction's potential. The analysts at New Street this week lowered their own forecast for the auction from $3.4 billion to a maximum of just $750 million – a cut of about 80%.

More importantly, the New Street analysts pointed out that there's only one bidder for roughly 75% of the 8,000 total licenses up for grabs. That, according to the analysts, implies that T-Mobile is positioned to win almost 22MHz of the full 23.5MHz of spectrum available in the auction.

Perhaps that's not really a surprise. Just like 600MHz, T-Mobile is the only big 5G operator in the US using 2.5GHz for midband 5G.

Mostly ignoring mmWave

T-Mobile's 5G strategy stands in stark contrast to Verizon's approach. Verizon created the 5G Technology Forum (5GTF) in 2015 with partners like Ericsson, Qualcomm, Intel and Samsung, to develop some initial standards for the technology. Then, in 2017, Verizon completed its purchases of Straight Path and XO Communications for millimeter wave (mmWave) spectrum. The operator launched a mmWave 5G service in 2018.

But Verizon has been roundly criticized for its heavy investment into mmWave when such spectrum is only suitable for small coverage areas.

Moreover, Verizon initially used its mmWave holdings to offer fixed wireless access (FWA) services. Verizon is only now working on adding midband spectrum to its FWA play.

Meanwhile, T-Mobile has been pursuing the FWA market with its midband holdings since it closed its purchase of Sprint in 2020. As a result, T-Mobile today counts 1.5 million FWA customers, whereas Verizon only has 384,000.

"T-Mobile will lead the 5G FWA market by the end of 2022, with an estimated 67% share," wrote Counterpoint analyst Tina Lu in a recent release. "It will be followed by Verizon with a 29% share."

T-Mobile also recently announced plans to offer FWA nationwide, albeit capped at 100GB per month for $50.

For its part, T-Mobile has argued that mmWave only makes sense in high-traffic areas like sports stadiums or airports.

"Millimeter wave has its place," T-Mobile networking chief Neville Ray argued in 2020. "But given the economics and physics, you don't build a large-scale 5G network with it."

In fact, late last year T-Mobile debuted a new 5G spectrum "layer cake" that changed the top mmWave layer to a group of candles rather than a full strata.

Toward the future

This year T-Mobile is working to put the finishing touches on its 5G buildout plan. The company is shuttering legacy networks and decommissioning unneeded towers, while snapping up more 2.5GHz spectrum in FCC auctions and in the secondary market. It is also expanding its lowband 5G network and deploying fancy technologies like standalone 5G and carrier aggregation.

But perhaps the most important step in T-Mobile's 5G rollout is growing its midband spectrum layer. T-Mobile has deployed 100MHz of midband spectrum for 5G, but by next year, that figure should increase to 200MHz.

This means that if T-Mobile's midband 5G network were a burger, the operator is in the midst of upgrading it from a Whopper to a Double Whopper.

The addition of extra spectrum is critical. Network capacity is directly related to the amount of spectrum an operator deploys. The more capacity, the better the network. The bigger the burger, the more satiated the consumer.

During his appearance this week at an investor event, Osvaldik reiterated that T-Mobile ultimately expects to increase its network capacity by 14x via its move to 5G. He said the operator is halfway to its goal today.

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

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