Analysts Question Verizon 5G Spectrum Strategy: Company Needs Mid-Band Spectrum, But Where Will It Come From?

Verizon needs mid-band spectrum for 5G, but could have difficulty obtaining it, argues a new research note from telecom financial analysts at MoffettNathanson. Verizon 5G spectrum strategy has emphasized high-frequency millimeter wave spectrum for both fixed and mobile services, but according to the analysts, “millimeter wave spectrum is suited for a supporting, not a starring role.”

AT&T, Sprint and Verizon have all said they plan to use a combination of millimeter wave and lower-frequency spectrum to support 5G, but Verizon executives on numerous occasions have emphasized the benefits of the millimeter wave band, which is expected to support the highest 5G speeds but over relatively short distances.

Distance limitation are expected to increase deployment costs in that band — although Verizon has downplayed those concerns, arguing that it will be able to use much of its existing wireless network infrastructure to support 5G in the millimeter wave band. Verizon Chairman and CEO Hans Vestberg reiterated that view on today’s fourth quarter earnings call.

According to an earnings call transcript from The Motley Fool, Vestberg said the millimeter wave band “has lived up to our expectation on performance.” He also argued that dynamic spectrum sharing, expected next year, will enable the company to deploy 5G without having to allocate specific spectrum to it, suggesting that the company could deploy 5G in bands already in use for earlier-generation technology.

Mid-Band Spectrum Availability
MoffettNathanson has been a vocal critical of the Verizon 5G spectrum strategy. Just a few week ago, the research firm issued a research note arguing that Verizon’s use of millimeter wave spectrum for its 5G fixed wireless service  was making it difficult for the company to earn a profit on the service.

In today’s research note, the analysts point to Verizon’s initial mobile 5G launch earlier this month as an example of the difficulties of using millimeter wave spectrum. That launch included only portions of the markets in which service was launched.

According to the MoffettNathanson researchers, Verizon doesn’t have much mid-band spectrum that it could use for 5G and could have difficulty obtaining what it would need to support 5G nationwide. The researchers review the options, which include:

• The C-band between 3.7 and 4.2 GHz, which is currently in the hands of satellite operators, who use it largely for video content distribution. The future of that band is currently the subject of heated debate, as the satellite operators seek permission to sell the spectrum, while others argue that the FCC should auction it. According to MoffettNathanson, another concern is whether the FCC might limit the amount of C-band spectrum that Verizon could own.
• AWS-4 spectrum currently licensed to Dish Networks. The researchers question whether Dish would sell, however. And here, too, they question whether the FCC would allow Verizon to own the spectrum.
• Spectrum in the 1.6 GHz band owned by Ligado, formerly known as LightSquared, the company that originally planned to use the spectrum to build a 4G network but had its plans derailed when initial trials caused problems with global positioning systems. It might be possible for Verizon or another operator to use a portion of the spectrum for 5G. According to the researchers “We’ve heard that resolution could be close.” They add, though, that “then again we’ve heard that resolution could be close many (many) times before. Who knows when and if it will EVER be resolved?”
• Sprint spectrum in the 2.5 GHz band could be for sale if that company is not allowed to merge with T-Mobile. But that spectrum would seem to be just as critical for Sprint as the researchers argue it would be to Verizon.

The researchers also question whether Verizon has the balance sheet for a big spectrum transaction, which they say could cost more than $20 billion.

I don’t see MoffettNathanson’s list of possible mid-band spectrum sources as an exhaustive one. For example, the list doesn’t include the CBRS band between 3.55 and 3.7 GHz – a band that will include both licensed and unlicensed spectrum. The researchers also didn’t review Verizon’s existing mid-band holdings, even though, according to Vestberg, they can be used to support 5G alongside existing earlier-generation services.

Nevertheless, the research note is interesting in that it highlights an apparent change in industry thinking about which spectrum bands have the most value. That thinking seems to shift every few years or so, depending on what’s happening on the technology front, which carriers have money to spend on spectrum, what happened in the last auction, what’s happening on the M&A front and other factors. The 2017 auction of low-band 600 MHz spectrum, for example, generated less money than expected, just a few years after the 700 MHz low-band auction generated strong returns.

We may be seeing a similar dynamic with regard to millimeter wave spectrum, as the initial results of the auction of millimeter wave spectrum in the 24 GHz band appear to be lower than expected, suggesting that industry thinking about the value of that spectrum is shifting.