09.08.25
Posted in AST SpaceMobile, Echostar, Globalstar, LightSquared, Operators, Regulatory, SpaceX, Spectrum, T-Mobile, Thuraya, Verizon, ViaSat at 5:47 am by timfarrar
My post last week on the potential scenarios for EchoStar assumed that the buyer of EchoStar’s spectrum would be a terrestrial player, because only using the spectrum terrestrially could produce a return that justified paying Charlie Ergen’s asking price. 12 months ago that was true when the rumors were that SpaceX was only willing to pay a few billion dollars for access to EchoStar’s AWS-4 spectrum.
With Deutsche Telekom apparently getting cold feet about buying spectrum for D2D, and Verizon not yet at the table, that meant the most likely scenario was for EchoStar to continue moving forward with its own constellation, in order to keep control of the whole AWS-4 block and significantly constrain Starlink’s D2D capacity in the US (while having the opportunity to monetize the spectrum in urban areas through leases to a wireless operator like Verizon).
But ROI has never been the primary determinant of SpaceX’s decisions, when the opportunity presents itself to dominate an industry and force competitors out. That’s why we are seeing aggressive actions from Starlink in the satellite broadband market, lowering prices for hardware and service in both the consumer and professional markets to make Amazon Kuiper’s entry harder (including a new unlimited maritime plan for merchant vessels at only $2500 per month, which will also undermine Viasat’s NexusWave).
And in this case, by spending $17B, SpaceX has not only persuaded EchoStar to give up its D2D plans but has now made it much harder for any competitor to move forward when they can’t possibly compete with SpaceX’s speed in bringing new satellites to market. That was evident in the article published by The Information in May, where Apple staff working on the D2D project with Globalstar expressed concerns that their bosses would cancel the effort and decide to partner with SpaceX instead. And we’ve seen more on that front in recent months, as Globalstar’s new satellites have been delayed, and Apple was apparently forced to support Starlink on the iPhone 13 in order to secure a new launch slot.
It shouldn’t be ignored that just like in fall 2022, the SpaceX announcement comes right before Apple’s own event tomorrow to announce its new iPhone. So while this might not be on the agenda tomorrow, decisions about the future of the Apple-Globalstar partnership and the new C-3 constellation will be on everyone’s minds. The cancellation of the EchoStar D2D constellation was already a major blow for MDA, but any decision by Apple to pull back from the C-3 constellation would be even more devastating.
SpaceX especially wants Apple to cooperate instead of pursuing the C-3 constellation because the H-block and AWS-4 spectrum, that SpaceX is now acquiring from EchoStar, is not supported by any current phones (EchoStar’s Band 66 and Band 70 used different frequency pairings). Thus support from device manufacturers will be needed to get the new capabilities enabled by this spectrum into consumers’ hands in the near term. Of course if Apple doesn’t come around, then there’s always the possibility that SpaceX will announce a “Starlink phone” as Apple executives worried about in the May article.
In recent years, Musk has also plotted the ultimate challenge to Apple, said a person with direct knowledge of his thinking: building his own phone to get around Apple’s gatekeeper position in the market. Musk has discussed Tesla building the phone and providing satellite connectivity through Starlink, the person said.
Musk hasn’t kept his openness to making a smartphone secret. He has publicly toyed with the idea on social media at times, but he has also made it clear he doesn’t want to deal with the headaches of such a monumental effort.
“The idea of making a phone makes me want to die,” Musk said at a Trump rally in Philadelphia last October. “If we have to make a phone, we will. But we will aspire not to make a phone.”
And as far as other competitors go, AST is already struggling with enormous delays, which are now even worse than the company indicated in mid August, after the FM1 satellite wasn’t ready to ship at the end of August as promised during AST’s Q2 results. And AST needs to raise over $400M in the next few weeks to make the $420M payment due to Viasat at the end of October. The one good piece of news for AST from this deal is that it very likely means EchoStar won’t retain its EU 2GHz license (though there will undoubtedly be litigation if it is cancelled), leaving AST/Vodafone in competition with SES/Lynk for what will presumably by a paired 10MHz license (assuming Viasat retains its own paired 15MHz license).
It’s also unclear what Viasat will do next, as the company hoped to secure financial backing from UAE-based Space42 to build its own LEO L-band network. While I don’t think a formal deal was likely to be announced next week in Paris, this announcement probably gives Space42 further pause about whether it makes sense to challenge Starlink in the D2D market, especially as the expectation was for Space42 and the UAE government to put up most of the funding.
Finally, I think we can now look to EchoStar to gradually wind down the rest of its operations and sell off its remaining spectrum. The remaining major block is AWS-3, which Verizon might pick up in the next few months, potentially at a discount to the $10B EchoStar paid, especially if Verizon takes on the AWS-3 reauction obligations. And then it would be reasonable to assume that DISH DBS would merge with DirecTV and Hughes could eventually be sold (perhaps to a private equity buyer?).
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08.31.25
Posted in AT&T, Echostar, Financials, Operators, Regulatory, SpaceX, Spectrum, T-Mobile, Verizon at 9:15 am by timfarrar
Last week, EchoStar and AT&T announced a landmark spectrum deal, under which EchoStar will sell all of its 3.45GHz and 600MHz spectrum holdings to AT&T for $22.65B. But many analysts think “this is just the first step and the process is not yet complete“, not least because EchoStar CEO Akhavan commented that “We continue to evaluate strategic opportunities for our remaining spectrum portfolio in partnership with the U.S. government and wireless industry participants”.
The big prize now is EchoStar’s collection of midband assets in the AWS-3, H-block and AWS-4 bands, which could collectively be valued at as much as $30B. Semafor suggested that a three-way deal between AT&T, T-Mobile and EchoStar had been discussed under which AT&T and T-Mobile “would have swapped some of their own spectrum holdings”, but later indicated that “T-Mobile’s ultimate owners, Deutsche Telekom, tapped the brakes”.
This has caused speculation to focus on Starlink and even Kuiper as potential buyers of these assets, but what many articles are getting wrong is the suggestion that this is because (as Semafor put it) Starlink “wants its own network to provide cell coverage, something that would disrupt the stranglehold that AT&T, Verizon, and T-Mobile have on the US market”.
That’s a complete misunderstanding of the Direct-to-Device (D2D) business, which (despite the nonsense promulgated by some AST SpaceMobile investors) is limited to much slower speeds and far less capacity than terrestrial networks. It’s a simple matter of physics that communicating from your smartphone to a satellite hundreds of miles up in space will be less efficient than communicating with a cell tower a mile or two away and that means D2D is not a true substitute for terrestrial cellular service.
The consequence of this lower throughput and capacity is that D2D can’t generate the same revenue from each MHz of spectrum in space as a terrestrial operator on the ground, and so D2D operators can’t afford to pay as much to acquire spectrum. That’s why we’ve seen increased interest in cheaper MSS spectrum, both from Apple investing in Globalstar and more recently AST SpaceMobile bidding for Ligado’s spectrum.
But EchoStar’s mooted $30B price tag is only achievable by buying this spectrum for use in a terrestrial network, which is why Starlink has been trying to persuade the FCC to award it some of EchoStar’s spectrum for free. If that doesn’t work out then Starlink needs T-Mobile to pay the vast majority (if not all) of the $30B that EchoStar is demanding. So if T-Mobile steps back and we see FCC Chairman Carr accepting EchoStar’s offer to sell spectrum (and canceling the idea of a 2GHz MSS NPRM that might open up the band for sharing with Starlink), there’s no realistic prospect of Starlink and EchoStar agreeing on price.
We’d guess that Deutsche Telekom might want to wait for more evidence of the success or otherwise of T-Mobile’s D2D collaboration with Starlink before paying tens of billions for spectrum that they don’t really need, mainly so Starlink can improve the capacity of its D2D network. But if T-Mobile did in the end decide to bid, then either Starlink could buy the H-block (which cost EchoStar only $1.5B) and extend its existing G-block SCS network from 5x5MHz to 10x10MHz, or T-Mobile could offer Starlink access to some of the AWS-4 spectrum in rural areas for D2D.
However, there’s also an alternative path for T-Mobile and AT&T to just swap the 600MHz holdings that AT&T has now agreed to buy from EchoStar, for T-Mobile’s C-band spectrum assets, and not do any further deal with EchoStar.
If T-Mobile did buy all of EchoStar’s midband spectrum, then of course EchoStar’s planned D2D constellation would be abandoned. But there’s no reason to treat that as the default outcome. If instead Verizon puts in a bid for EchoStar’s midband holdings, then it isn’t allied with Starlink and wouldn’t want to risk the possibility that the FCC grants Starlink access to the 2GHz MSS band for D2D and impairs Verizon’s terrestrial usage plans.
So the best way forward would be for EchoStar to go ahead with its own proposed D2D constellation in order to keep exclusive access to the 2GHz MSS band in the US. Then Verizon could buy EchoStar’s AWS-3 and H-block holdings and lease AWS-4 from EchoStar in urban areas, while EchoStar coordinates D2D usage in rural and remote areas outside the reach of Verizon’s towers.
And finally if neither T-Mobile nor Verizon show up with an acceptable bid, then EchoStar will still want to preserve its MSS spectrum rights (and the associated terrestrial spectrum value in the US) by going ahead with the planned D2D constellation. Thus there are four possible scenarios and only in the first of them would EchoStar’s D2D constellation be abandoned:
1) T-Mobile buys all of EchoStar’s midband spectrum (and shares some with Starlink)
2) T-Mobile just does a swap with AT&T (600MHz for C-band)
3) Verizon buys EchoStar’s AWS-3 spectrum and leases AWS-4 in urban areas
4) No one shows up with $30B to meet EchoStar’s asking price.
On balance, assuming FCC Chairman Carr accepts the current EchoStar-AT&T deal, it therefore seems more likely than not that at least the first stage of EchoStar’s constellation will be built. And analysts who assume it won’t be and that Charlie Ergen is simply planning to sell up and retire might instead find themselves watching this show for many more years to come.
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07.25.25
Posted in AST SpaceMobile, AT&T, Operators, Regulatory, T-Mobile at 8:58 am by timfarrar
It’s been obvious for a long time that the quality of AST’s regulatory submissions has been poor, which has led to considerable delays in gaining FCC approval, as was evident when it took more than four years from the time AST’s initial petition for market access was submitted in April 2020 before approval was granted in August 2024 for launch of five BlueBird-1 satellites. I heard complaints on more than one occasion that more professionalism was needed from AST, with contrasts drawn to the high quality and intense focus of SpaceX’s regulatory team working on SCS. And the company seemed to have acknowledged this concern by hiring Jennifer Manner in May 2025.
But over the last month, AST and its partner AT&T have taken it upon themselves to go to a whole new level in causing annoyance to FCC staff. On July 1, AST “urge[d] the Commission to approve the [FM1] Application by July 11 to allow safe shipment of FM1 for its scheduled August launch on time. Failure to do so will place our ability to launch in August at significant risk.” The irritation of FCC staff was clear in a July 2 email noting that “due to substantial changes in the technical parameters of your S-band request, we will need to coordinate new spot frequencies with NTIA. This will restart the coordination timeline with NTIA”. Nevertheless, the NTIA and FCC pushed this through and granted the FM1 approval on July 11 as requested. But then AST didn’t ship the FM1 satellite the next day, and has now revealed that in fact the satellite won’t be shipped to India until August. So why did the FCC and NTIA have to put in all that work over the July 4 holiday?
AT&T’s actions this week have been even more egregious, with an announcement on July 23 (timed to try and counter T-Mobile’s launch of Starlink D2D satellite service that day) stating that “On Monday, July 21, AT&T and AST SpaceMobile successfully completed the first-ever native voice call (VoLTE) and text (SMS) made directly through AST’s Block 1 satellites with a standard cell phone using AT&T spectrum and passing through the AT&T core network.” But AST’s license for testing with AT&T expired on May 30 and the request for renewal has not yet been granted. So if AT&T did conduct a “call and text [which] utilized AT&T’s spectrum and commercial network” on July 21, that was clearly outside the licensed testing period.
As an aside, it’s also worth noting that AT&T has now pulled back on prior claims that AST will support broadband data services including video calls, modifying the website from the original version to indicate only that “One day [the satellite service] may also support video services”. AT&T also shifted from claiming that “Our customers will have access to a satellite-based cellular network with a standard smartphone – no special device is needed” to indicating that “More information on eligible devices and service requirements will be shared closer to launch”.
One potential reason for the delay in the FCC renewing AST’s applications for continued testing is that AST has also simply ignored the conditions of its test licenses, which required the company to “submit a test report in the ELS license file for this grant within 150 days reporting on activities occurring during the first 90 days of the license”. So for the AT&T testing license granted on January 23 (the grant letter erroneously says 2024 but it was actually granted on January 23, 2025), the initial test report would have been due by no later than June 22. However, to date, no test reports have been filed for any of AST’s BlueBird-1 experimental license grants.
The FCC has been accommodating of AST’s regulatory failings to date, and put the company’s June 2025 modification submission on public notice with regard to the feeder links and TT&C. That might even allow for approval of satellite launches later this year if the recent submission of an SCS agreement with FirstNet is deemed compliant. But before getting to that point, the FCC will also need to decide whether to overlook AST and AT&T’s recent violations of AST’s experimental license conditions.
EDIT (7/25): Well it seems like I ruined somebody’s Friday evening dinner plans, because a few hours after this post was published, AST submitted the delinquent 90 day test report for its experimental testing with AT&T and Verizon. Presumably the other missing test reports for the UK and Turkey will be filed soon as well.
EDIT (7/26): If the FCC was mildly annoyed with AST’s incompetence before, they must now be completely furious after AST submitted a new letter on Friday evening, characterized as a response to the Space Bureau’s request for additional information. And I can only conclude that the company’s engineers are total idiots. This letter completely contradicts itself, with the answer to question 1 stating that FM1-FM23 “will be deorbited from 520km through atmospheric drag” while AST’s “additional clarification” at the end indicates that after FM1 and FM2 (which is now clearly intended to be launched on a dedicated Falcon 9 rocket at huge cost), of the “up to 20 satellites” that AST “anticipates launching…through the end of this year…the remaining 18 satellites will operate at an altitude of 690km”.
And if this “additional clarification” is taken at face value, then the current public notice and comment period has just been invalidated, since the comments received on July 21 were based on AST’s June 12 submission, which claimed that FM1-FM23 would orbit at 520km and that these satellites would only carry 20kg of fuel. I’m left wondering if the paragraph on “planned upcoming satellite launches” was simply inserted by company management at the last minute to try and pump up the share price, and no one checked for compatibility with the rest of the document or AST’s prior submissions.
Of course if FM3-FM23 were at 690km then that’s not compatible with AST’s claim today (in response to question 5) that “The nominal deorbit plan is powered deorbit to below 530km”. And incidentally it also makes no sense for AST to suggest in response to question 4 that “During the disposal phase, the spacecraft will randomly tumble due to its shape and mass distribution throughout its descent, except for collision avoidance maneuvers during which the spacecraft will operate with an edge-on orientation” when AST indicates in question 1 that only “approximately 1kg of Xenon will remain available on FM1-FM23 for collision avoidance maneuvers throughout the mission-life and post-mission phases” since that’s certainly not going to be sufficient to stabilize such a huge spacecraft within a few hours and perform collision avoidance. Is AST instead suggesting that after FM2 it will move straight to launching FM24 and defer FM3-FM23 until later? Or is AST intending to use direct injection to 690km? It’s impossible to tell…
This continues AST’s prior incompetence in engineering submissions that was so evident during the review of FM1, when the company claimed that the mass in the Orbital Debris Assessment Report didn’t add up because of “quantity errors in the input” and “omissions” of various components. Then AST just added in suspiciously round numbers of 5000 fasteners (each weighing exactly 10g) and 100 brackets (each weighing exactly 500g) and still couldn’t make the mass of the phased array on FM1 and FM2 add up to 2863kg (an error of 117kg which has been carried over to the June 12 modification application).
It’s now hard to see how anyone can prepare reply comments based on this new nonsensical AST submission. So unless and until these issues are clarified, I suspect the FCC will either have to extend the reply timeline or even restart the whole process from scratch.
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02.05.23
Posted in Globalstar, Handheld, Iridium, Operators, Regulatory, Services, SpaceX, Spectrum, T-Mobile at 9:42 pm by timfarrar
There’s been plenty of hype about the Direct-to-Device (D2D) market for satellite to smartphone connectivity in the last couple of years, and that has only intensified in the wake of recent announcements about Apple’s partnership with Globalstar and Qualcomm’s partnership with Iridium. Some analysts have even gone so far as to suggest that D2D represents the “largest opportunity in Satcom’s history“.
But the reality is that going beyond basic messaging presents significant technical challenges, and the messaging market will remain modest in size, anchored as it is by the size of Apple’s deal with Globalstar, which costs Apple little more than $100M per year for both global coverage and the ability to support tens of billions of messages per year. Regulatory challenges are still significant, with some regulators going so far as to ban systems that plan to use terrestrial spectrum from operating anywhere near their territory.
Nevertheless, D2D is becoming the next opportunity that SpaceX can hype, beyond its core fixed broadband market, as it looks for additional increases in the company’s valuation so it can keep raising money to keep developing Starship, while putting even more distance between Starlink and broadband competitors like OneWeb and Kuiper. And just as SpaceX has scared away potential investors in nascent LEO broadband systems like Telesat’s Lightspeed, we expect SpaceX to crowd out many of the other players in the D2D market, now that funding for speculative space projects is becoming more scarce.
Unfortunately, the perspectives of some investors and commentators have been skewed by the unrealistic D2D projections that were made during the SPAC boom, and they have failed to look at relevant benchmarks such as current levels of spending on international roaming. Our new 70+ page report on the D2D satellite smartphone communications opportunity, which has just been released, looks in detail at the regulatory constraints and technical limits to system performance, and projects revenue growth in both the messaging segment and in the voice and data segment over the next decade.
Our conclusion is that while D2D messaging is likely to deliver meaningful upside for existing MSS networks like Globalstar and Iridium, it will be much more difficult to gain global consensus on use of terrestrial spectrum. As a result, SpaceX is likely to hedge its bets and pursue a twin-track strategy of seeking access to both terrestrial and satellite spectrum, and potentially follow up its 2021 acquisition of Swarm with further deals to buy satellite operators and their spectrum licenses.
Then, as Starlink moves beyond its initial D2D messaging capabilities later this decade, and perhaps even amplifies the hype still further by suggesting that the next step will be to build a SpaceX smartphone, Starlink is likely to gain a majority share of the D2D market. Even so we project the potential market size to remain far smaller than Starlink’s fixed broadband opportunity and it is not at all clear that it will be possible to make an economic return on these D2D investments.
If you’d like to order a copy of the report then an order form is available here. And you can hear me speak about many of these issues this coming week at the SmallSat Symposium in Mountain View, CA.
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02.09.19
Posted in AT&T, Financials, Intelsat, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 2:02 pm by timfarrar
It’s now just over a year since I first wrote about the possibility of a “pioneering market-based transfer of [C-band] spectrum to higher value uses” which could allow satellite operators to sell part of the C-band to boost Verizon’s 5G network capacity. In that time, the process has moved forward significantly, with the FCC issuing an NPRM in July, to which comments and reply comments were received late last year.
Opposition from the cable companies has been growing, as they’ve become scared by the prospect of new wireless broadband competition, with Verizon, T-Mobile and AT&T all admitting that they have no better plan than to use the huge amounts of capacity that their new 5G networks will create, to compete in the fixed broadband market.
But it was truly ironic to see New America and Google team up with the cable industry last week to claim that the plan put forward in the NPRM for a private market transaction represents “The Great Airwaves Robbery” because satellite operators rather than the Treasury will receive the proceeds. Not only are these very odd bedfellows, but Google has traditionally been on the side of freeing up more spectrum and encouraging broadband competition, rather than trying to block such an effort.
However, it now seems that if Google can’t get what it wants in the C-band (meaning essentially free access to the band on a shared basis), it will seek to derail the plan for a market-based approach. While one reason for Google to mount this effort is to prevent C-band from undermining interest in the CBRS band in which has invested a lot of time and resources, a cynic might also say that Google would prefer a “Political Spectrum” where the FCC would be able to insert policy provisions that suit Google, especially since an FCC-run auction wouldn’t take place until after the next Presidential election in November 2020.
That’s certainly been the case in the past, when Google persuaded (Republican) FCC Chair Kevin Martin to include Open Access provisions covering the upper C-block into the rules for the 700MHz auction in 2008. Of course, despite the fact that the Open Access conditions ultimately proved to have no effect on the wireless market, Google didn’t care that these provisions meant that the C-block spectrum sold (to Verizon) for less than half the price of the unrestricted paired A and B blocks, costing the Treasury something like $6B in auction proceeds.
Nevertheless, it is clear that the various sides of the C-band debate appear to want to capture all of the benefits for themselves, without looking for a compromise solution. This includes the satellite operators, where Preston Padden of the C-band Alliance (CBA) has claimed that there is “no alternative” to the CBA Plan, which gives all of the control and sale proceeds to the satellite operators. In fact there is a fairly simple compromise option, which follows the traditional FCC model of splitting the baby, so everyone gets something out of the process. That was followed back in 2003, when the initial approval of Ancillary Terrestrial Component (ATC) flexibility for MSS operators was given in exchange for 30MHz of the 70MHz of 2GHz band MSS spectrum being reallocated to terrestrial services (this ultimately became the G block and H block spectrum).
So a relatively simple solution at this point would be to allow the satellite operators to sell the 180MHz of spectrum at the bottom of the C-band, and keep the proceeds (part of which would be used to pay for new satellites and filters to enable continuation of video delivery in the remaining 300MHz of spectrum), while the FCC conducted an overlay auction of terrestrial mobile licenses in the rest of the band (excluding a modest guardband of perhaps 50-100MHz below 4200MHz to preserve key services and protect aeronautical users in the 4200-4400MHz band). Purchasers of the overlay licenses (which would cost considerably less than the spectrum being sold by the CBA) would then be able to pay C-band earth station owners to move their earth stations away from major cities or migrate them to fiber, in order to clear the spectrum in high demand areas, with no additional compensation due to the satellite operators (since the satellite operators would already be receiving a windfall from the spectrum they sold).
All parties could then be compensated: the satellite operators would receive proceeds from selling 180MHz of spectrum (potentially worth $11B-$18B at $0.20-$0.30/MHzPOP), the Treasury would receive proceeds from the overlay auction (potentially worth $4B-$5B from selling 270MHz at $0.05/MHzPOP) and the earth station operators would receive compensation if they decided to migrate to fiber or relocate their earth stations to clear the overlay spectrum. And both the FCC and the wireless operators would be happy, with T-Mobile’s demand for 300MHz+ to be made available being met if they bought the overlay licenses and paid to clear the spectrum in the areas where they needed spectrum, while Verizon and AT&T could get the spectrum they need in the near term by agreeing a deal with the CBA. Even Google could acquire spectrum in the overlay auction, if they really did want to buy spectrum, rather than just prevent others from getting hold of it.
Of course the cable operators might not be happy with the additional competition for their broadband business, but they would also have the option to acquire spectrum in the overlay auction, and compete in the wireless market themselves, especially since they would have an easier time clearing their own earth stations out of the band. And if they didn’t want to do that, they could hold out for compensation from the holders of the overlay licenses.
Will the CTIA and the wireless operators now be prepared to push for such a compromise? Will the satellite operators accept that they can’t have it all? And will the cable operators and Google accept that blocking the reallocation of C-band spectrum to terrestrial is an unacceptable outcome? That depends on whether the FCC is willing to rule that none of the parties should get all of what they want, but everyone can get something.
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01.29.18
Posted in AT&T, DISH, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 5:40 am by timfarrar
Before yesterday’s Axios article suggesting that President Trump’s National Security Council has set its sights on using the 3.7-4.2GHz satellite C-band downlink spectrum for a national 5G network, it was clear that analysts were underestimating the importance of this spectrum band for the US wireless industry. For example, Morgan Stanley’s January 17 downgrade of DISH Network identified Verizon as the “only suitor” for DISH’s spectrum but only suggested the CBRS auction as an alternative option for Verizon to acquire more spectrum.
It seems few people have read the reply comments filed by wireless operators in the FCC’s mid-band spectrum proceeding last November, where Verizon suggested there should be a a near term NPRM with market-based clearance mechanisms, rather than FCC-run auctions for this band. In contrast, AT&T asked for “substantial record development, including additional analysis and modeling” before the FCC moves forward with an NPRM, and T-Mobile said the FCC should reject Intelsats proposal and instead take control of the auction process, with a defined post-auction band plan and payments to incumbents from the auction proceeds, part of which would fund the clearance of existing users.
A logical conclusion is that Verizon believes it could be the sole player to acquire spectrum rights in this band (to supplement its 5G mmWave buildout plans) via a deal with Intelsat, while AT&T has relatively little interest due to its focus on the 700MHz FirstNet buildout and securing additional mmWave spectrum allocations, and T-Mobile is trying to ensure that Verizon is unable to monopolize this spectrum band by asking for a more open auction process.
One important consideration is that the power restrictions that will apply to the CBRS band to permit spectrum sharing may not be necessary above 3.7GHz and therefore with MIMO this band could be deployed for urban coverage on approximately the same cell grid used for PCS and AWS spectrum, as Qualcomm and Nokia have indicated, and as is planned in Europe, where the 3.4-3.8GHz band is being auctioned.
Since the reply comments were filed, Intelsat has continued to push hard for a near-term NPRM and given the difficulties that the FCC would encounter in defining how a “market-based” transaction should occur, it is entirely plausible that an exclusive spectrum deal between Intelsat and Verizon could be struck shortly after a draft NPRM was issued. By selling say 100MHz of spectrum to Verizon, Intelsat would establish a benchmark valuation for its C-band spectrum assets, while being able to maintain existing video distribution services within the remaining 400MHz of spectrum. Of course, Verizon would also presumably be happy to see Charlie Ergen left at the altar without his “only suitor”.
The Trump NSC memo only serves to increase the pressure to execute such a transaction, and pre-empt any (still remote) possibility of the spectrum being “nationalized”. Verizon could certainly promise to build a 5G network using this spectrum within 3 years, without government intervention, and gain an even more concrete lead in 5G network superiority. Meanwhile Intelsat (and other satellite operators including SES) could keep providing their existing C-band video distribution services and receive billions in cash plus additional billions in attributed spectrum value for the remaining 400MHz of spectrum, and the FCC could achieve a pioneering market-based transfer of spectrum to higher value uses. What’s not to like about that deal (unless you are AT&T, T-Mobile or DISH)?
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04.27.17
Posted in DISH, Financials, Operators, Regulatory, Spectrum, T-Mobile at 6:58 am by timfarrar
“Goodbye Seattle…next stop Denver, Colorado!” as John Legere wrote yesterday, perhaps in preparation for a meeting when the incentive auction quiet period ends at 4pm MT this afternoon. That could seem like just more speculation about the supposed M&A negotiations frenzy that many expect now the incentive auction is over. However, it is possible that the outlines of a deal might already have been formulated a year ago, which led to DISH’s perplexing decision to bid for 20MHz of spectrum in the auction.
What is certain is that DISH didn’t accidentally end up with 20MHz of spectrum, but instead went into the auction with a bidding strategy which virtually guaranteed DISH would end up with that much spectrum, unless AT&T and Verizon both wanted a large national block. So Ergen must have had a plan for what to do with that spectrum, and that plan couldn’t be that he simply expected Verizon to turn up and buy DISH, because his position is now more stretched financially and he owns a block of spectrum that neither Verizon nor AT&T appear to want. However, this national block of low band spectrum would be ideal for a new entrant buildout.
So I think the only plausible conclusion is that Ergen already has (at least in outline) a deal in his back pocket to provide spectrum for a new competitive national network. There’s a lot of history here that has never been in public view before, and I only know about 60% of what happened, so there may be some errors below, but I believe that the overall big picture storyline of what happened in 2015 and 2016 is broadly correct.
Back in second half of 2015, DISH, T-Mobile and Google discussed a huge three way deal to build out a national LTE Advanced network that would have used DISH’s spectrum, Google’s money (plus technology developed by ATAP) and T-Mobile’s network as host. Each of the three parties would have received wholesale capacity in exchange for their contribution, similar to the LightSquared-Sprint agreement back in 2011, allowing T-Mobile to augment its network capacity and DISH and Google to offer MVNO services, such as streaming Sling TV.
Ergen made a lot of trips to Silicon Valley that fall (I was told his jet was a regular visitor at Moffett Field) but he ultimately declined to do a deal because he considered the valuation being put on his spectrum ($15B was the number mentioned to me) was insufficient. By spring 2016 Ergen had changed his mind, but Google then decided against it, after hiring Rick Osterloh and deciding to focus on the Pixel phone (which required partnerships with existing wireless operators such as Verizon).
Google has now pretty much given up on its Access projects, including Google Fiber, and no longer seems plausible as a provider of funds for the new network. That leaves two possible players with the balance sheet and potential interest to fund the plan, namely Amazon and Apple, and its pretty remarkable that John Legere mentioned Amazon twice (but not Apple) in connection with deals like this during his Q1 results call on Monday:
“…we should be clear that there are strategic possibilities between wireless companies, cable players, adjacent industries, Amazon, Internet players, that should be thought about, because they drive great value for shareholders and also new opportunities for customers.”
“Now I do feel that the old lore of the four wireless player market, it’s dead. It’s gone. So did Comcast enter or not? How long are we going to play that game? Is Google in or not? Will Amazon come in at some point in the day?”
A three way partnership between DISH, Amazon and T-Mobile therefore seems to me to be the single most likely deal to emerge in the next few weeks. T-Mobile has emphasized its desire for a rapid build out of its large block of new spectrum, and it could easily include a buildout of DISH’s incentive auction spectrum at the same time. Amazon could use the capacity not only for in-home services such as Echo, but also to support other activities such as drone deliveries, while DISH could provide wireless service built around Sling TV, as well as fixed wireless broadband if desired.
In contrast, Verizon and AT&T have their sights set on mmWave spectrum and 5G, so neither seems like a potential buyer of DISH’s spectrum, while Comcast appears determined to rely on its MVNO deal with Verizon after only buying 5x5MHz of spectrum in the incentive auction. Most importantly, attempting a merger of T-Mobile and Sprint, would still carry significant regulatory risk and would be far less attractive for T-Mobile than an agreement to host a differentiated new entrant (as Legere points out that can “drive great value for shareholders”). And as far as DISH is concerned, I’m simply amazed that no one appears to be writing about this as one of Ergen’s “options“.
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04.13.17
Posted in AT&T, DISH, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 7:18 pm by timfarrar
The FCC incentive auction results were published earlier today, and to everyone’s surprise, DISH ended up spending $6.2B to acquire a near national 10x10MHz footprint. T-Mobile spent $8.0B (which was only slightly above the predicted figure), but Verizon didn’t bid, and AT&T ended up with even less spectrum than predicted, spending only $900M. Comcast spent $1.7B, while two hedge fund-backed spectrum speculators, Bluewater and Channel 51, spent $568M and $860M respectively (after each receiving a $150M discount for being “small” businesses).
Some parts of this outcome (notably T-Mobile’s substantial purchases and AT&T’s bluff in bidding for a large amount of spectrum before dropping bids) are similar to my predictions, but I had expected Comcast rather than DISH to be the other large bidder. My assessment that DISH might have been pushed out of the bidding in Stage 1 was based on an assessment that DISH would initially focus on major cities to force up the price for others (as happened in AWS-3), but instead DISH played the role of a more regular bidder (presumably as a double-bluff to hide its intentions), and spread its bids fairly uniformly across a large number of licenses. In fact Comcast started with this drastically more concentrated strategy and then tried to drop bids, while AT&T also began to drop most of its bids before the end of Stage 1, with both Comcast and AT&T responsible for the dramatic falls in overall bidding eligibility from Round 24 onwards.
What did go as I predicted was that AT&T largely dictated the pace of the auction, reaching a maximum commitment of $7.4B in Stage 1 Round 21, before dropping eligibility rapidly in the latter part of Stage 1 and attempting to exit from all of its bids in Stage 2 and beyond. AT&T was only prevented from achieving this goal because Comcast apparently also got cold feet about being stranded after reaching a maximum commitment of $5.9B in Stage 1 Round 22 (based largely on concentrated bids within the largest PEAs in addition to its more modest bids for a single 5x5MHz block elsewhere).
It is unclear exactly what Comcast’s objective was, but Comcast may have been making these concentrated bids to push up the overall price to reach the reserve (which is measured on average across the top PEAs) in areas which it didn’t want, so that the price in areas it did want would be lower. However, Comcast didn’t want to be stranded and so when AT&T started dropping bids, I assume Comcast panicked and decided that it also needed to get out of those concentrated bids.
So in summary, despite its high exposure during Stage 1, I doubt Comcast really wanted to spend $6B+ on spectrum – instead it just wanted to get a limited 5x5MHz block of spectrum within its cable footprint at the lowest possible cost. AT&T apparently wanted to use its financial resources to game the auction and strand others (Verizon or DISH) with spectrum that they might struggle to put to use. T-Mobile was trying to get at least 10x10MHz of spectrum on a national basis, and succeeded, albeit with no other wireless operators now present to help ensure a quick transition of broadcasters out of the band. DISH also seems to have set out from the beginning to buy a national 10x10MHz block, with Ergen going all in on spectrum, presumably because he believed this spectrum would be cheap and could provide leverage for a subsequent deal. And finally, several speculators decided to acquire a more limited set of licenses that they hoped they could sell on to AT&T or Verizon at a later date, which now looks like a rather unwise bet.
Of course the most important, and puzzling, question is why did DISH set out to buy another 20MHz of spectrum when it already has a huge amount of spectrum that it has not yet put to use (and DISH’s current plan for that spectrum is a low cost IOT network to minimize the cost of meeting its March 2020 buildout deadline)? It seems Ergen concluded that this spectrum would either sell for a low price because of the sheer amount of spectrum available or (if AT&T and Verizon both turned up and wanted 20MHz+ of spectrum) then he could push up the price and make life difficult for T-Mobile just as in the AWS-3 auction. It turned out to be the former, but Ergen may not have expected AT&T to drop its bids at the end of Stage 1, which has resulted in both AT&T and Verizon likely having no long term interest in acquiring spectrum in this band (and potentially even an opportunity to push out the time period over which this spectrum is put to widespread use).
That leaves DISH with less leverage rather than more, because now DISH has spent so much on spectrum it can’t credibly play the role of disruptor in upcoming industry consolidation (either by building or buying) and instead Ergen has to wait for operators to come to him to buy or lease his spectrum. DISH may now want to shift into the role of neutral lessor of spectrum to all comers, but it seems unlikely that AT&T and Verizon will be prepared to enable that, while T-Mobile and Sprint now both have plenty of their own spectrum to deploy.
Instead it seems probable that Ergen might end up attempting to find other potential partners outside the wireless industry, but with cable companies are unlikely to deploy a network from scratch, he may have to return to Silicon Valley. However, with Google already having said no to a deal with DISH, the list of possibilities there is also pretty short. So yet again, we may end up with DISH on the sidelines, overshadowing, but ultimately not having much influence on the wireless dealmaking to come, whether that is a merger between a cable company and a wireless operator, or an attempt to get approval for a merger of T-Mobile and Sprint.
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02.26.17
Posted in AT&T, DISH, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 10:29 pm by timfarrar
Back in December, I suggested that AT&T could end up being the winner of the FCC’s incentive auction, by “dropping the licenses it held at the end of Stage 1 until broadcasters are forced to accept a tiny fraction of their originally expected receipts, leave T-Mobile (plus a bunch of spectrum speculators in various DEs) holding most of the spectrum…and screw DISH by setting a new national benchmark of ~$0.90/MHzPOP for low band spectrum.”
Broadcasters were certainly forced to accept a tiny fraction of their originally expected receipts, when the reverse auction ended Stage 4 with a total clearing cost of only $12B, and the auction has concluded with a national average price of just over $0.90/MHzPOP. However, by the beginning of this month, the clues to the incentive auction outcome derived from the splitting of reserved and unreserved licenses also suggested that T-Mobile might not have bid as aggressively as expected on licenses such as Los Angeles and San Diego, because only 1 license in these areas was classified as reserved.
Despite this, AT&T’s recently filed 10-K confirms that:
“In February 2017, aggregate bids exceeded the level required to clear Auction 1000. This auction, including the assignment phase, is expected to conclude in the first half of 2017. Our commitment to purchase 600 MHz spectrum licenses for which we submitted bids is expected to be more than satisfied by the deposits made to the FCC in the third quarter of 2016.”
The deposits made by AT&T totaled $2.4B, and commitments below this level indicate that AT&T has purchased no more than 5x5MHz on average across the US. That also suggests that AT&T very likely was responsible for dropping bids in Stages 2, 3 and 4, as I guessed back in December. But if both AT&T and T-Mobile did not bid as aggressively as expected in the auction, Verizon did not put down any material deposit and Sprint did not show up at all, that certainly raises the question of who is left standing as a winning bidder for over $19B of spectrum?
T-Mobile could well have bid somewhat more aggressively outside the southwestern US, and therefore may still be holding $5B-$8B of bids in total. It was also clear from the auction results that one or more designated entities are holding just over $2B of spectrum. But Comcast must certainly have winning bids for upwards of $5B, likely in the form of a national 10x10MHz license (and perhaps more in some markets), and it is even conceivable that DISH is still holding some licenses, despite the bidding patterns suggesting that DISH most likely dropped out in Stage 1.
But taken as a whole, the limited participation by AT&T and the lack of interest shown by Verizon could well have serious implications for the prospects of a rapid standardization and transition in this band. As I noted in December, AT&T could strand T-Mobile, Comcast and the various spectrum speculators by supporting the broadcasters in their efforts to delay the transition and ensuring that this spectrum remains non-standard because AT&T and Verizon won’t bother supporting the band any time soon.
Moreover, this outcome once again raises the question of how much AT&T and Verizon really need spectrum in the near term, or if they can instead make do with their current holdings until small cell networks based on 3.5GHz, 5GHz LTE-U and eventually mmWave spectrum create a new era of spectrum abundance and support vast increases in network capacity. Thus its somewhat ironic to see analysts speculating that Verizon is now more likely to buy DISH.
In fact, Charlie Ergen seemed to be hinting on DISH’s Q4 results call that Verizon and AT&T are no longer the most plausible partner when he stated that “I’m sure there will be discussions among any number of parties that are in the wireless business today and people who maybe are not in the wireless business today. And, I would imagine that we’re not the biggest company, we’re not going to drive that process, but obviously, many of the assets that we hold could be involved in that mix.” However, it remains to be seen if any Silicon Valley companies are still interested in getting into the wireless business (most plausibly via the renewal of DISH’s previously mooted tie-up with Google and T-Mobile) or if something even more surprising like a reconciliation with Sprint and Softbank could be a possibility.
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02.05.17
Posted in AT&T, DISH, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 11:42 am by timfarrar
As the FCC’s incentive auction draws to a close, some further clues emerged about the bidding when the FCC split licenses between reserved and unreserved spectrum. What stood out was that in Los Angeles, San Diego and another 10 smaller licenses (incidentally all located in the southwestern US), only 1 license is classified as reserved. That means there is only 1 bidder that has designated itself as reserve-eligible when bidding for these licenses and that bidder only wants a single 5x5MHz block of spectrum. In contrast, in LA there are five 5x5MHz blocks going to non-reserved bidders (and 1 block spare).
This leads me to believe that T-Mobile may not be holding quite as much spectrum as anticipated, at least in that part of the country, while some potentially reserve-eligible bidders (i.e. entities other than Verizon and AT&T) have not designated themselves as reserve-eligible. That election can be made on a PEA-by-PEA basis, but it would be very odd for a major bidder like Comcast not to designate itself as reserve-eligible. On the other hand, speculators whose intention is to sell their spectrum to Verizon or AT&T, very likely would not want to be reserve-eligible, since that could cause additional problems in a future sale transaction.
A plausible conclusion is that if T-Mobile’s bidding is more constrained, then Comcast may be bidding more aggressively than expected, but is primarily focused on areas where it already has cable infrastructure (i.e. not Los Angeles, San Diego, etc.), and T-Mobile, AT&T and Comcast may all end up with an average of roughly 10x10MHz of spectrum on a near-national basis. We already know that one or more speculators are bidding aggressively, due to the gap between gross and net bids (note that the FCC reports this gap without regard to the $150M cap on DE discounts so it could be a single aggressive player with $2B+ in exposure) and thus the balance of the 70MHz of spectrum being sold would then be held by other players (but with these holdings likely skewed towards more saleable larger markets, including Los Angeles).
Its interesting to note that speculation is now revving up about the transactions to come after the auction is complete, with most attention focused on whether Verizon is serious about a bid for Charter, or if this is a head fake to bring DISH to the table for a spectrum-focused deal, after Verizon apparently sat out the incentive auction. Incidentally, Verizon’s expressed interest in Charter would also tend to support the notion that Verizon believes Comcast may want to play a bigger role in the wireless market, by acquiring a significant amount of spectrum in the incentive auction and perhaps even buying a wireless operator at a later date.
However, when you look at Sprint’s recent spectrum sale-leaseback deal, which was widely highlighted for the extraordinarily high valuation that it put on the 2.5GHz spectrum band, Verizon’s need for a near term spectrum transaction is far from compelling. I’m told that the appraisal analysis estimated the cost of new cellsites that Verizon would need to build with and without additional 2.5GHz spectrum, but that either way, there is no need for Verizon to engage in an effort to add substantial numbers of macrocells until 2020 or beyond, given its current spectrum holdings and the efficiency benefits accruing from the latest LTE technology. And if mmWave spectrum and massive MIMO are successful, then Verizon’s need for spectrum declines considerably.
So it seems there is little reason for Verizon to cave now, and pay Ergen’s (presumably high) asking price, when it does not need to start building until after the March 2020 buildout deadline for DISH’s AWS-4 licenses. It would not be a surprise if Verizon were willing to pay the same price as is achieved in the incentive auction (i.e. less than $1/MHzPOP), but the question is whether Ergen will be prepared to accept that.
Of course, DISH bulls suggest that the FCC will be happy to simply extend this deadline indefinitely, even if DISH makes little or no effort to offer a commercial service before 2020. The most important data point on that issue will come in early March 2017, when DISH passes its initial 4 year buildout deadline without making any effort to build out a network. Will the FCC take this opportunity to highlight the need for a large scale buildout that DISH promised in 2012 and the FCC noted in its AWS-4 order? Certainly that would appear to be good politics at this point in time.
“…we observe that the incumbent 2 GHz MSS licensees generally support our seven year end-of-term build-out benchmark and have committed to “aggressively build-out a broadband network” if they receives terrestrial authority to operate in the AWS-4 band. We expect this commitment to be met and, to ensure that it is, adopt performance requirements and associated penalties for failure to build-out, specifically designed to result in the spectrum being put to use for the benefit of the public interest.”
“In the event a licensee fails to meet the AWS-4 Final Build-out Requirement in any EA, we adopt the proposal in the AWS-4 NPRM that the licensees terrestrial authority for each such area shall terminate automatically without Commission action…We believe these penalties are necessary to ensure that licensees utilize the spectrum in the public interest. As explained above, the Nation needs additional spectrum supply. Failure by licensees to meet the build-out requirements would not address this need.”
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