T-MobileA “source familiar with the matter” told Reuters yesterday that T-Mobile was considering the purchase of Verizon Wireless’s 700 MHz A-block spectrum.

Neither company has confirmed the rumor. But the move would not be surprising.

T-Mobile is heavily loaded with high-frequency spectrum in the 1900 MHZ and AWS-1 bands. High-frequency spectrum is widely viewed as less desirable than lower-frequency spectrum such as Verizon’s A-block holdings because lower-frequency spectrum has better propagation. (The AWS-1 band includes spectrum at 1710-1755 MHz and 2110-2155 MHz.)

According to a recent report from telecom financial analyst firm Moffett Nathanson Research, signals in the 700 MHz spectrum band cover 12.3 times as much area as signals in the 2500 MHz band and seven times the area of 1900 MHz signals. That means considerably fewer cellsites are required to build out a 700 MHz network. 700 MHz signals also do a better job of penetrating walls and other objects.

A-block appeal enhanced
Initially the 700 MHz lower A-block was not valued as highly as other 700 MHz blocks because of concerns about interference in markets with a TV station operating on Channel 51. Although that only includes about 30 of the more than 200 broadcast markets in the U.S., it scared off both AT&T, which deliberately avoided acquiring A-block spectrum and apparently Verizon, which held off on A-block deployments.

Without a major carrier using that spectrum block, other licensees – including C Spire, U.S. Cellular, and numerous small rural carriers — had difficulty obtaining devices to operate in the A-block at reasonable prices.

The A-block should be more attractive now, however, because AT&T recently agreed to use devices that would operate in the A-block and to allow those devices to roam onto its network.

Additionally, interference issues in Channel 51 markets are expected to be resolved when TV broadcast spectrum is repurposed for cellular use in the upcoming voluntary spectrum auction.

A credible rumor
The rumor that T-Mobile might be interested in Verizon’s A-block holdings appears credible for several reasons.

T-Mobile just this week revealed plans to issue bonds in order to raise $2 billion for spectrum purchases. l The company also said recently that it doesn’t plan to participate in the upcoming H-block auction, which also includes high-frequency spectrum.

Meanwhile, a Verizon executive said at a recent financial conference that the company would be open to selling its A-block spectrum if it could get a good price.

There are several reasons why Verizon may not be eager to use the spectrum itself.

One is that the company already has deployed LTE in the 700 MHz upper C-block, a wide low-frequency spectrum band that the company holds throughout almost all of the U.S. The company also has begun or will soon begin building out its AWS spectrum holdings – a strategy that would appear to make sense for the carrier as a means of boosting capacity in urban areas. The upside of higher-frequency bands is that they can be located closer together, making them well suited to areas where large capacity is needed.

Another issue is that Verizon’s A-block holdings do not cover anything close to the entire country — although they do include numerous major metro markets, including New York and Los Angeles.

In addition, using the A-block would require Verizon to obtain handsets supporting that band as well as the upper-C block, the AWS block, and the company’s 3G spectrum – and that would increase handset costs.

What other choices does T-Mobile have?
T-Mobile would face most of the same issues as Verizon if it were to buy the A-block spectrum – although it might have more wiggle room on the number of spectrum bands its handsets would have to support.

The company doesn’t have many other choices when it comes to obtaining low-frequency spectrum, however – unless it wants to wait for the TV broadcast spectrum auction. And there is no guarantee it would win spectrum in that auction.

Indeed some observers have questioned whether that auction will succeed, as it relies on a sufficient number of broadcasters being willing to relinquish spectrum for the price wireless carriers are willing to pay.





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