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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01.18.22
Posted in Aeronautical, AT&T, Operators, Regulatory, Services, Spectrum, Verizon at 10:45 pm by timfarrar
What on earth has gone wrong in the C-band rollout that has led to hundreds if not thousands of planes now being grounded? That’s the question that so far the news reports seem to have failed to get a grip on, given the complex technology and difficulty in interpreting what is going on behind the scenes between the FAA, FCC and wireless companies.
On January 4 a deal was announced between the FAA and the wireless companies to delay the rollout by two weeks in exchange for DoT and FAA agreeing that they “will not seek or demand any further delays of C-Band deployment, in whole or in part”. The FAA also committed that it would “work to issue AMOCs as filed by aviation stakeholders to allow for operation of aircraft to the extent permissible.”
The FAA is issuing two forms of notices to deal with the possibility of interference from 5G. The first of these is the NOTAM (Notice To Air Missions) for a specific airport, which sets out constraints on aircraft operations, such as restrictions on use of particular flight paths during bad weather. The second is the AMOC (Alternative Means Of Compliance) which allows certain altimeters (and therefore the specific aircraft types which carry them) to be exempt from these flight path restrictions if the FAA’s analysis has shown that the altimeter type is “high performing” (i.e. resilient to the possibility of interference).
What appears to have happened in the last two weeks is that the FAA has failed to issue as many AMOCs as had been expected and therefore a very large number of aircraft remain subject to the NOTAM restrictions. As of Tuesday, the FAA had only approved two types of altimeter, which account for “about 45% of the US commercial aircraft fleet” and “include Boeing’s 737, 747, 757, 767, MD-10 and MD-11 and the Airbus A310, A319, A320, A321, A330 and A350.” This leaves more than half of the US fleet subject to restrictions, including most regional and wide body jets, notably Boeing’s 777, 787 and 747 aircraft.
Over the weekend we heard stories, based on FAA briefings, about new constraints on 787 operations because “during the two-week delay in deploying new 5G service, safety experts determined that 5G interference with the aircraft’s radio altimeter could prevent engine and braking systems from transitioning to landing mode, which could prevent an aircraft from stopping on the runway.”
But the FAA appears to have failed to complete its analysis of the 777 and 747 during this period, and in what seems to have been an attempt to force the FAA to address the issue, Boeing released an advisory to airlines on Monday evening covering the 777 and 747-8 which “recommends operators do not operate 777 aircraft on approach and landing to U.S. runways” unless there is an alternative means of compliance. This language presumably means that Boeing believes that these altimeters should be approved through the AMOC process, but the FAA has failed to act. As a result, international airlines are now cancelling flights to the US on Wednesday or rearranging them to use other aircraft including the 787 and A380.
One obvious question (even ignoring the delays in taking action before January 3) is why the FAA has been so slow to make the expected progress over the last two weeks. Is it sheer incompetence? Or did the FAA think it was going to be able to extract a better deal from the wireless carriers, with a new and permanently lower signal level, as some aviation experts think could happen? Certainly the FAA now appears to have abandoned its commitment not to demand “further delays of C-Band deployment” and instead secured an indefinite delay to deployments near additional airports, instead of the maximum of 50 airports agreed to on January 3 (which is essentially a return to the demands from DoT on December 31). And the FAA maintained its hostility to C-Band operations even after signing an agreement not to try and delay them.
No wonder, even FCC Chair Rosenworcel, after keeping quiet during the January 3 negotiations, expressed frustration noting that “the FAA has a process in place to assess altimeter performance in the 5G environment and resolve any remaining concerns. It is essential that the FAA now complete this process with both care and speed.” Conversely, the DoT, who on January 4 celebrated the “the amazing [FAA] team for long hours over the holiday to minimize flight disruptions” are now conspicuously silent about the lack of progress over this most recent holiday weekend, with no commitment from the Secretary of Transportation to move quickly.
So how does this end? Will the FAA issue the AMOC approvals for the 777 and 747-8 on Wednesday before tens of thousands of Americans are stranded overseas, as the airline CEOs predicted on Monday? That seems to be what US airlines are betting on, at least for now. And what about regional jets, which account for most of the remaining aircraft, and whose representatives are complaining they have been left out of the agreement? In that case, disruption may be sporadic, since there is no grounding order and cancellations will be dependent on the weather, so things may not come to a head until the next major winter storm.
None of this looks good for the Administration and it certainly isn’t “great work by all involved” as the White House Chief of Staff suggested. However, it looks like the FAA will have to bear the lion’s share of the blame for what seems highly likely to be substantial disruption in air travel over the next few days and possibly much longer when it comes to regional jets.
UPDATE (Thu Jan 20): After the debacle on Tuesday, with the cancellation of 777 and 747-8 flights by multiple international airlines, it seems the FAA was embarrassed (or forced) into accelerating the issuance of AMOC approvals for additional altimeters, approving the 777 on Wednesday morning, and the number of altimeters approved and percentage of the US fleet covered has now grown very quickly:
Tuesday Jan 18: 2 altimeters and 45% of the US fleet
Wednesday Jan 19: 5 altimeters and 62% of the US fleet
Thursday Jan 20: 13 altimeters and 78% of the US fleet.
The result has been that most disruption has been avoided, although regional jets remain a concern, with some problems resulting from low visibility. However, the rapid pace of approvals, and the expectation from airlines that there won’t be “any material disruption going forward”, further discredits the FAA’s fearmongering over the weekend, not least because an AMOC has now been issued covering all 787 jets, which were supposedly the cause of greatest alarm. Suggestions that airlines would need to “swap out the altimeters” in a process lasting years and costing billions of dollars, also appear to be well wide of the mark.
At this point the consensus seems to be that this has been a crisis created by the FAA’s foot dragging, and the more AMOC approvals that are issued, the more obvious that becomes. So the biggest remaining question is whether and when the Secretary of Transportation will ask for the resignation of the FAA Administrator, who after all is a holdover from the last administration, and therefore will make a convenient scapegoat for this whole episode? However, it also shouldn’t go unnoticed that the reaction of the President (echoed by members of Congress) was to push “as hard as I can to have the 5G folks hold up” rather than calling out the incompetence and delaying tactics of the FAA.
UPDATE (Fri Jan 21): It seems like I was far too confident last night that the 5G problem is on its way to being solved, despite airline executives declaring that the doomsday scenario is over because “The technical experts that are working on it tell us it’s really not that complicated once they all are able to share information and work on it…So they seem encouraged that we’ll be able to address this in a way that allows for full deployment of 5G, including near airports.”
As described by the Regional Airline Association, the tests are conducted by manufacturers and then those plans are “submitted…to the FAA” who issue the AMOC. The airlines appear confident that those manufacturer tests show there will be no problems even after full deployment of 5G.
But the FAA’s statements appear to confirm that they are only issuing AMOCs approving altimeters to operate while the current 5G deployment restrictions remain in place: “The new safety buffer announced Tuesday around airports in the 5G deployment further expanded the number of airports available to planes with previously cleared altimeters to perform low-visibility landings.”
So it is perhaps no wonder Boeing is refusing to comment because they don’t want to get into a public shouting match with the FAA, despite the behind the scenes confrontation over the 777 at the beginning of this week outlined above. But you can be sure that many aviation interests are demanding that the restrictions continue permanently and the FAA is preparing for another showdown on July 5th, when the current six month period of restrictions is set to expire.
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11.15.19
Posted in AT&T, Financials, Intelsat, Operators, Regulatory, SES, Spectrum, Verizon at 2:13 pm by timfarrar
It looks like the CBA’s offer today to make a (not particularly generous) defined contribution to the US Treasury may have come too late to rescue a private auction, with reports that FCC Chairman Pai will shortly lay out a plan for a public auction of the C-band spectrum. That comes after what I’m told was a call to Chairman Pai from President Trump, at the instigation of Sen. Kennedy, who has used increasingly heated rhetoric to demand a public auction in recent weeks.
The irony of that action will not be lost on those who remember Pai’s statement in March 2016 on the prior Commission’s net neutrality decision that “Moving forward, the Commission must recommit itself to being a truly independent agency that makes decisions based on the facts and the law, not on the whims of any White House.”
UPDATE (11/18): Chairman Pai has now announced that the FCC will conduct a public auction before the end of 2020. However, the FCC has also stated that the President “did not express an opinion” in his call to Chairman Pai, and it is “categorically false” that Trump drove the decision on a public auction. A bill to mandate a public auction, with at least 50% of the proceeds going to the Treasury, has also been introduced in the Senate, although it is unclear if it will be taken up expeditiously.
A great backgrounder on the issues involved was laid out by Harold Feld on Wednesday, where he points out that a major issue is that Congressional rules do not permit a “voluntary contribution” to be spent by Congress, unlike the proceeds from an FCC run auction. Moreover, Congress can spend whatever the CBO estimates the proceeds will be, and a ludicrously optimistic $50B-$60B figure is being widely banded about.
As Harold also points out, the FCC does have authority to repurpose the C-band spectrum in the public interest by only paying transition costs to the parties involved. However, he doesn’t note that in recent years Republican policy wonks such as Tom Hazlett have been encouraging private transactions to repurpose spectrum for its “highest and best use”, arguing (correctly) that FCC intervention has often directed spectrum to politically connected players rather than serving the public interest.
What the FCC does not have is authority to share the proceeds of a public auction with the satellite operators, unless it can contort the incentive auction statute (which requires at least two competing bidders) to fit this situation. However, if the FCC cannot share the proceeds with the satellite operators then not only will there be prolonged litigation, but the satellite industry may be plunged into even more of an existential crisis than it already faces from declining revenues and the loss of customers to terrestrial alternatives. Moreover, there will be no incentive for satellite operators to move swiftly to make the spectrum available for terrestrial use within the next three years.
As a result, there is a clear imperative for satellite operators to receive a meaningful proportion of the proceeds, which was recognized by the proposed Matsui bill earlier this summer. That bill would have allowed the satellite operators to keep 75% of the net proceeds if they had cleared 300MHz, as is now on the table (the current CBA offer is less generous to the government, despite specifying a minimum 30% voluntary contribution, because that contribution is “inclusive of all Federal income tax liabilities incurred by the CBA member companies as a direct result of the auction”). However, it is unclear whether any such legislation will be able to pass into law in the current fevered political climate, especially when Sen. Kennedy has railed against giving away “$60 billion that belongs to the people of America to two companies in Luxembourg and one other one in Canada”.
What options does that leave the FCC with? Well the most obvious possibility might be for the FCC to return to the original concept, before the October 2017 offer from Intelsat and Intel, and conduct a public overlay auction for spectrum rights in 300MHz of the C-band before the end of 2020. If the CBA can come up with a agreed, concrete price and timetable for clearing the spectrum for the benefit of the overlay rights holders, set at a level that is acceptable to the cellular operators, then the FCC can claim to have complied with the Congressional (and Presidential) demands to conduct a public auction, without needing new legislation or to work around the language of the incentive auction statute. Of course the public auction would then raise a much more limited amount of money, assuming the CBA is going to receive many billions of dollars for moving out of the spectrum and giving up its rights to this part of the band.
However, it is unclear whether the CBA is capable of agreeing to a specific clearing price in the short time remaining before Chairman Pai has to decide how to move forward. One of the biggest problems in this whole process has been how long it took to come up with a concrete commitment to clear 300MHz and now to publish a specific revenue share for the government. Of course the CBA has been worried that by publishing specific figures it would be bidding against itself. But by allowing the process the drag on for so long, it became possible for Sen. Kennedy and others to consolidate their opposition to a private sale.
Now that Eutelsat is on the sidelines (and has its own interests in worsening Intelsat’s financial position), it may be even more difficult to reach agreement. Investors’ unreasonable expectations about the price that could be realized in an auction, represent another barrier to agreeing a fixed clearing price with AT&T and Verizon. With 280MHz on offer, it is very hard to see how demand could significantly exceed supply, which would be needed for auction prices to rise to $50B or $60B. Verizon and AT&T are unlikely to spend more than $10B each to buy 100MHz per operator, and T-Mobile will not need to participate in a major way if its merger with Sprint goes through. Beyond that there are very few companies who will want to pay billions of dollars for C-band spectrum, because it makes little sense to start in that band as a potential new entrant. So I struggle to see the gross total raised from a C-band spectrum sale getting to more than $30B (~$0.30/MHzPOP).
More importantly, a fixed clearing price certainly could not exceed the amount AT&T and Verizon are collectively prepared to pay for their share of the spectrum (i.e. $20B), since they would be instrumental in negotiating that figure. More likely, AT&T and Verizon would be unwilling to agree to a clearing price above about $15B (if not less), leaving net proceeds after ~$3B of actual costs at roughly $5B each for Intelsat and SES. Compared to where we stood two years ago, when no value was attached to C-band spectrum, that seems like a pretty stunning achievement. But at this point in time, after two years of declines in the core satellite business, it would be unlikely to make Intelsat shareholders happy.
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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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11.29.17
Posted in AT&T, Operators, Regulatory, Services, Spectrum, Verizon at 11:08 am by timfarrar
Over the last week its been frustrating to see what should be a technical debate about the best way to regulate access networks deteriorate into ludicrous hyperbole about how “repealing net neutrality would end the internet as we know it” when in reality it “isn’t the end of the world“.
At its core this is really a debate about whether you can trust businesses in general and ISPs in particular, with Republicans declaring that a free market is the best solution to promote investment, whereas Democrats are saying that regulation is needed due to the lack of competition in access networks. Thus one side says “Net neutrality rules are unnecessary because ISPs will do the right thing” whereas the other side says its “the very laziest of anti-net neutrality tropes [to say] that the wolf hasn’t eaten the sheep yet so let’s trust the wolf.” And of course, once politics are involved, the current climate means that everything gets blown out of proportion.
In reality the right answer probably lies somewhere in the middle, which is what sensible commentators like Ben Thompson and Dean Bubley are trying to feel their way towards. Ben’s commentary in particular has come under criticism because he “assumes public intervention is costly and corrupt, that telecoms are accurate, and that there’s no role for morality” despite there being plenty of evidence of previous regulatory failures in Tom Hazlett’s recent book “The Political Spectrum”. However, its not unreasonable to think that trying a light touch approach backed up by antitrust enforcement is a good idea and that “framing these trade-offs as moral choices” is unhelpful.
Perhaps it is true that the best answer would have been to push harder on unbundling local loops to facilitate service-based competition on telco networks, just as in Europe, but that ship sailed 15 years ago when the CLECs went bankrupt. Instead, going all the way back to the 1996 Telecom Act, the US has focused on infrastructure-based competition between cable and telcos, which unsurprisingly hasn’t produced the same level of competition, due to the cost of maintaining multiple access networks.
Maybe this is a failed model and we now have to be content with regulating the current oligopoly of cable and telcos to ensure they don’t behave badly (and we can certainly debate exactly how much regulation is needed to achieve that). But perhaps wireless broadband will provide some level of new competition for fixed providers. I dismissed that possibility 6 years ago, but now I’m increasingly convinced that the enormous efficiency gains coming from MIMO will provide wireless operators with more capacity than they know what to do with, enabling them to deliver wireless broadband in the home to at least some (meaningful) number of consumers.
Whether that’s ultimately 10% or 30% of households very much depends on how much capital is available to invest in those networks. And how good the performance will be remains to be seen – after all the 13% of adults who are smartphone only internet users are mostly doing it for cost reasons and “often encounter difficulties like accessing and reading content, as well as trouble submitting files and documents.”
But that’s not my primary focus here. One point made by net neutrality proponents such as Barbara van Schewick is that for the last 20 years, the regulation of telecom networks has been backed by both Republican and Democrat administrations and so the current proposal is a radical change in precedent. You can argue with the truth of that prediction, depending on whether you think the FTC will actively enforce antitrust law to deal with future net neutrality problems, but what is interesting to me is that many of the actions cited by van Schewick were taken to support content providers like Netflix or Google when those companies had a lot less power than they do today.
Some of those actions had significant costs, such as (Republican FCC chairman) Kevin Martin’s decision to attach “lifetime net neutrality conditions to parts of the 4G spectrum that [the FCC] auctioned off in 2008″. That action was taken at the behest of Google, but the result was that Verizon acquired 22MHz of upper C-block spectrum for only $0.76/MHzPOP, a 41% discount to the average price in the auction, and a more than 70% discount to the price paid (mainly by AT&T) for the lower B-block. Thus Google’s “net neutrality” lobbying effort potentially cost the government somewhere between $5B and $10B in lost auction proceeds, without having any substantial impact on the wireless services you receive today (are you more likely to choose Verizon because some of its spectrum comes with “open access” conditions?).
Of course net neutrality has not been the only area where Silicon Valley companies have sought or obtained favorable regulatory treatment compared to telcos and cable companies. The last Commission’s set top box proceeding and proposed privacy regulations were both seen as favoring Google, Amazon and Netflix over Verizon and Comcast. The current Commission is tilting the playing field back towards access providers by abandoning these efforts and dismantling the net neutrality rules, and opponents argue that it is going too far, because of the lack of competition in access provision and because they don’t trust the wolves at Comcast, Verizon and AT&T.
But if its now a debate about whether you can trust businesses in general to behave reasonably, can you trust Silicon Valley companies any more than ISPs? Do Google and Netflix need regulatory advantages over ISPs now they are so powerful? Are ISPs any more of a monopoly than Google or Facebook or Twitter, and which of them are more likely to be disrupted in the future? Those are the questions that are now being raised, most explicitly in Chairman Pai’s speech yesterday, where he noted that:
“despite all the talk about the fear that broadband providers could decide what Internet content consumers can see, recent experience shows that so-called edge providers are in fact deciding what content they see. These providers routinely block or discriminate against content they don’t like
…
Nonetheless, these companies want to place much tougher regulations on broadband providers than they are willing to have placed upon themselves. So let’s be clear. They might cloak their advocacy in the public interest, but the real interest of these Internet giants is in using the regulatory process to cement their dominance in the Internet economy.
And here’s the thing: I dont blame them for trying. But the government shouldn’t aid and abet this effort. We have no business picking winners and losers in the marketplace. A level playing field, not regulatory arbitrage, is what best serves consumers and competition.”
In fact a more directly relevant example than speech censorship comes from Netflix itself, which proclaims its support for “strong Net Neutrality” (and is seen as one of the key beneficiaries) but back in September was trying to muscle inflight connectivity providers into zero rating Netflix video content if they wanted access to Netflix’s improved codecs to minimize bandwidth consumption onboard. Ironically enough, inflight connectivity is seen by net neutrality supporters as a good example of what non-neutral networks might look like.
I’ve been warning for a while that Silicon Valley is not well positioned to succeed in building telecom networks (or cars) and so would not be favored under this infrastructure-focused administration. And that’s far from the only cause of a backlash. But now I think there’s good reason for “the entire tech industry [to be] flipping its shit” because tech companies are the most likely losers even if we don’t end up in all-out partisan warfare, but simply remove the regulatory favoritism that Silicon Valley has benefitted from for the last 20 years.
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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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