Spectrum Auction

Posted on by Roger Entner

5G fixed wireless access (FWA) is transforming how Americans are accessing the internet. In less than three years, 7.9 million customers signed up with FWA as their preferred internet solution. Recon Analytics interviewed more than 40,000 home internet customers in the first 12 weeks of the year and the results are clear: FWA customers are happier with their service than with service through any other technology. The only thing standing in the way of greater success is more capacity, which is why mobile operators are clamoring for more licensed full-power spectrum.

Chart 1:

FWA is the clear winner across the board

The ranking in Chart 1 makes sense, but is surprising at the same time. The mobile network operators built a very robust offering. FWA is not the fastest service, but under the current usage parameters it satisfies its customers not only on the traditional product side such as easy and convenient installation, a superior router experience, delivering an easy-to-understand bill, and online self-help customer service that people actually like, but also on the service side, ranging from the internet usage categories, to support over the phone and, most importantly, value for money.

It is important to keep in mind that there is a double bias going on with FWA customers. First, the vast majority of FWA customers have the same provider for their mobile service. Customers who are unhappy with their mobile service do not select the same provider and network for their home internet service. Second, there is a survivorship bias. Customers who sign up with FWA typically do this while they are still using a previous service with which they are unhappy. It is very easy and convenient to install and, if necessary, to return the FWA router and cancel the service, so prospective customers give it a try and take advantage of the cancellation poicy if it doesn’t work. We have a hard time finding  customers who try the service and are unhappy with it, but have not returned it yet.

Customer service and connectivity

Chart 1 also reiterates what we have known for a long time: cable companies have poor customer service and need to improve. Telecom providers who are phasing out DSL networks and focusing on fiber provide substantially better customer service. What might surprise people is the strong performance of satellite service. This is mostly driven by Starlink, which is getting successively better over time, as a provider of last resort for many of its customers.

Recon Analytics also asks its home internet respondents every week what kind of issues they experienced with their internet connection. Chart 2 is ordered top to bottom with how often respondents experienced an outage. The most common issue, which was internet connection going down, is at the bottom. Furthermore, it is also ordered from left to right by how often they experienced their internet connection going down.

Chart 2:

As we can see in Chart 2, most of the issues are in one of two groups: internet connection going down or slowing down, and router issues forcing people to reset their router or having devices disconnect from the network.

Cable providers had the most issues in all four categories. Up to 43% of respondents reported that their internet connection has been interrupted, while fiber and FWA customers reported the least problems in this category. The newer, better routers provided by fiber and FWA providers also caused fewer problems compared to the routers from cable companies and DSL providers. One fiber and DSL provider told me that once they went away from sourcing the cheapest router to providing an excellent router, it was a game changer for them. The change reduced customer service calls and churn and improved customer satisfaction, more than offsetting the cost of the better router.

How to create more and better home internet choices

As of right now, the Congress and the FCC have created meaningful competition through up to three new providers with up to four brands in the markets where mobile network operators have been able to launch their service. It is incredible that even though we have seen network speeds for some providers decrease from 200 and more Mbps to low 100s Mbps, cNPS scores have not declined. MNOs still have enough capacity to provide their customers with sufficient bandwidth for what customers describe as a superior experience. Verizon and T-Mobile said that they have enough capacity for 5 and 7 million customers respectively with their initial FWA build. They are two thirds to that goal and will probably reach it by the end of 2024. After that, it will become more difficult and expensive to find the necessary capacity to compete with cable and DSL providers as vigorously as they do today. FWA is the fastest growing segment of the home internet market, while cable subscriptions are decreasing.

The government has three options, but the choice is pretty clear: It can spend $80 billion on various fiber incentive programs (BEAD, RDOF, etc) to bring another provider to markets where there is no provider offering more than 100 Mbps speed. It can take $80 billion from the wireless carriers for more spectrum (C-Band Auction for 240 MHz yielded $81 billion) and get three new broadband competitors in the form of FWA providers. Or, it can do both and create more and better home internet choices for Americans with a net zero cost.

Posted on by Roger Entner

AST Spacemobile (AST) and AT&T just completed the first call between a regular smartphones using just the electronics and antennas that are common for decades in mobile devices using a satellite as the cell site. AST has talked about its technology for years, laid out its plans to investors and received only the scantest of interests. Unlike Apple’s technology that uses special chips in Apple’s new iPhone 14 smartphones to send text messages through a satellite connection the AST solution works with any phone. While T-Mobile and SpaceX’s announcement last year of bringing satellite connectivity to any phone was a vision statement, AT&T and AST’s call was the proof of concept. We know now that it works not only on paper but also in the field.

The first part of the feasibility study was the reverse of the actual proof of concept. AST put a cell phone on a satellite and built a base station on the ground. With this ingenious way, AST could exactly dimension the size of the antennas, the strength of the signal amplifiers, processing power requirements and the power consumption that the satellite would have in order to work in space and make the connections to smartphones from there. It is much easier to tinker with and faster to interate the hardware when it is on the ground than hundreds of miles in space.

The hard work begins now. Until now, the FCC has been a lot less accommodating to AST than the other innovative satellite providers. The FCC needs to allow AST to use regular terrestrial frequencies that have been exclusive to mobile service also for satellite service. Historically, the FCC has been very accommodating to satellite providers like Lightsquared to use their satellite frequencies for terrestrial communications, but this resulted in basically no usage for several reasons. The satellite to mobile spectrum conversion players forgot for the longest time to include their spectrum in mobile standards. If you are not in the standard, nobody will build devices that have your band in them. The next hurdle is to get devices that include a band that nobody is yet using for mobile communications as it costs money to include a new frequency band. This problem does not exist with the AST solution as all devices that have a cellular connection can connect to the satellite. What is needed from the FCC to move from a proof of concept to mass adopted reality is the permission to use regular cellular frequencies with satellites and the permission for AST to launch enough satellites. Then AST has to raise more money to build and launch the satellites.

Where AST and AT&T differentiate themselves is the data throughput they promise: Speeds of up to 50 Mbit/s and the ability for streaming video. While this is certainly handy when fighting wild fires in a remote part of a state or recovering victims from a plane crash in a remote part of the state, it becomes down right indispensable for people documenting on a live stream when they have climbed a mountain and then call first responders because they are too tired to climb back down.

While initially mentioned that the smartphone to satellite connections would be used just for FirstNet, it is almost inconceivable to stay restricted to first responders. The ability to eliminate outdoor dead spots and to provide full geographic coverage is huge. Based on our Recon Analytics Mobile Pulse data the ability to “make a calls anywhere” is the third most important purchase decision factor based on 161,976 respondents. From May 2022 to end of March 2023, 10.9% of respondents ranked it their most important decision factor choosing a mobile provider, 10.5% chose it number 2 and 10.9% as their third most important factor.

AT&T has a very promising solution on its hand. Bring ubiquitous outdoor coverage to first responders everywhere in the United States, something that has not been done before. But not only with text messaging with a long time delay like Apple does now and got a lot of accolades for, but with streaming video. This is a real game changer for first responders. It is also a game changer for consumers in areas with low signal strength or coverage holes outdoors. With AST’s technology they are gone. Consumers will still have to content with issues when being indoors as they do not have direct line of sight to the satellite and the buildings they are in are potentially interfering with the signal.

Now that we know this is possible, how quickly will regulators pull out all the stop signs that are preventing the real world application for it? How quickly can these satellite get into space and who will be the first to deliver ubiquitous outdoor coverage to first responders and consumers with what real world speeds?

Posted on by Roger Entner

In case you are just tuning in, Verizon has been going through a rough time for about two years now. In fall 2021, it replaced Ronan Dunne as CEO of Verizon’s Consumer Group (VCG) as it struggled before filling the position with Manon Brouillette. It would be difficult to say that things have improved.

We live in peculiar times. For a long time, financial analysts wanted to convince us that when a mobile network operator (MNO) has a larger size than its competitors, the size advantage gives them a substantial edge in the market. Now, other financial analysts want to convince us that Verizon, because it is the largest provider in the market, is destined to lose customers for the foreseeable future. I disagree with both positions but would point to having a good plan, the ability to rapidly adapt to new circumstances, and superior execution to being the only sustainable competitive advantage in the market. 

Verizon has traditionally differentiated itself as the premium provider in the market based on superior network performance. Taking network leadership to heart, Verizon charged ahead in 2G, 3G and 4G and created the fastest and largest network for at least the first three to four years of what is generally a seven-year technology era. The shock and awe of the early, rapid build created a nimbus of permanent network superiority even though, at least in urban markets, by year five, we had network parity. In contrast, in rural markets the network superiority persisted.

For the last decade, Verizon has internally fretted about what it should do if and when this trick would no longer work and its network superiority nimbus would be diminished, or even worse, large swaths of customers would perceive network parity or, even worse, someone else to have the better network.

Several poor decisions and outcomes around spectrum auctions weakened the strong network foundation. Verizon seems to have then tried to replace the internal differentiation of being the provider of the undisputedly best network with having the best streaming bundle and differentiating around that.

Replacing an internally generated differentiation with an externally acquired differentiation, especially when it is so easily replicable, is a dangerous gamble. To make this decision even more puzzling, Verizon engaged in the content-differentiation strategy at the same time when AT&T exited the content bundling with wireless.

AT&T and T-Mobile having seen the 2G, 3G and 4G outcomes decided they didn’t want to live through the same experience with 5G and put a lot more emphasis on network performance. While in Recon Analytics Data weekly net promoter score data, Verizon still leads in the network performance categories, the gap has undoubtedly diminished. Metered speed tests show Verizon being behind, but how much does it matter? In our purchase decision factor ranking, speed is a solid second out of nine metrics.

Especially T-Mobile, powered by Sprint’s spectrum and a greater network focus with various firsts has given Verizon’s network team a run for its money. AT&T has been more judicious in spectrum expenditures and build-out pace betting that speed test results alone don’t win customers and aligning its build-out more with customer and technical capabilities and usage. The slower build-out has not hurt AT&T’s success in the marketplace because it was able to execute on other purchase factors that existing and prospective customers find important.

Verizon’s recent promotion

On May 22, 2022, Verizon launched an online promotion where single-line customers would get $15 off, two-line customers $12.50 per line off, and three-line customers got $5 per line off. Since Verizon did not issue a press release around it, it was largely unreported.

We took it as an opportunity to test Verizon’s value proposition of all plans – 5G Start, 5G Play More, 5G Do More, and 5G Get More – against what the customers of the other providers, ranging from T-Mobile and AT&T to Google Fi and Mint Mobile, were willing to pay for the different plans for a different number of lines. This gave our clients one week later a read if they should worry, to what degree, and about what part of Verizon’s promotion they should be worried about.

Below is how just T-Mobile customers were viewing Verizon’s single-line plans and for what price they would switch to the plan. While this is no sophisticated conjoint pricing analysis, it nevertheless gives some interesting insights. It also does not consider larger long-term pricing strategies that a company like Verizon would have to consider when making pricing decisions. The yellow shading represents the take rate at a given price point, while the magenta line represents the revenue that would be realized.

With the promotion, Verizon charged for a single line $55 for 5G Start, $65 for 5G Play More, or 5G Do More, and $75 for 5G Get More. As a reference point, Verizon just launched Welcome Unlimited for $65 for a single line for a skinnier offer than 5G Start.

T-Mobile customers’ highest revenue price point was $40 with a 64% take rate for 5G Start vis-à-vis Verizon’s $55 promotion. 5G Play More and 5G Do More were valued at $50 with 55% and 64% take rates respectively while Verizon was charging $65. Verizon 5G Get More plan discounted to $75 during the promotion was also valued at $50 with a 73% take rate.

Analyzing the data as in the above example vis-à-vis T-Mobile, it became apparent that in the one-line segment, the Verizon promotion would not save Verizon’s quarter. The numbers for the other providers for single-line customers were roughly similar to those of T-Mobile customers.

Interestingly, despite being the least generous, the three-line offer was the most competitive for several of Verizon’s offers. This brings us back to Verizon’s new Welcome Unlimited plan. It looks like a significant uphill battle to convince single-line customers to spend $65 per month when only two months ago, at least T-Mobile customers thought it was only $40 worth.

As I mentioned before, customers of different mobile service providers and for different line counts value Verizon’s plans differently, but in the one- and two-line part of the market a similar picture emerged.

Verizon isn’t suffering from a large size that dooms its progress; it suffers from a value positioning, value perception, and long-term pricing strategy issue.

Posted on by Roger Entner

The bidding for licenses in the C-Band auction has ended with bids of $81 billion for 280 MHz, surprising most observers. The C-Band auction exceeded the previous record holder, the 2015 AWS-3 auction, which yielded $44.9 billion. While C-band raised almost twice as much as AWS-3, one of the things to consider is that different amounts of spectrum were for sale: 280 MHz in the C-Band auction versus 65 MHz in the AWS-3 auction. In terms of dollars per MHz of Population covered ($/MHz Pop), the metric by which we compare different amounts of spectrum and population coverage, the AWS-3 auction is still the most expensive auction in US history.

What are the drivers for spectrum prices? Looking at some of the most important auctions over the last 15 years gives us some important pointers, both when comparing prices within an auction and from auction to auction.

AuctionYearMHzMhzResult$/MHz PopNotes
C-Band20213700280$80.9b$0.94Unincumbered spectrum
CBRS2020350070$4.6b$0.22Maximum 30 MHz & combined with unlicensed, limited power
600 MHz201760070$19.6$0.88AT&T & Verizon mostly ineligible to bid
AWS-3 paired20151700/210050$42.5b$2.71Unincumbered spectrum
AWS-3 unpaired2015170015$2.4b$0.52Unpaired spectrum
700 MHz B Block200870012$9.06b$2.24Unincumbered spectrum
700 MHz A Block200870012$3.87b$1.17Needed filters
700 MHz C Block200870022$4.75b$0.76Net Neutrality
700 MHz E Block20087006$1.26$0.74Unpaired spectrum

Conducted in 2008, the 700 MHz auction sold four different blocks of spectrum. A Block had significant interference issues because some broadcasters were still operating in the spectrum at that time and handsets required filters in order to work properly. However, none of the handsets in the time had those filters. The B Block was clean and ready to use spectrum. The C Block comes with net neutrality provisions attached to it because Google promised the FCC to bid on the spectrum. The FCC at the time was very eager to incentivize a new entrant into the US wireless market and the FCC interpreted from what Google had told them that Google would win the C Block auction and become a mobile network operator. Finally, E Block is a sliver of unpaired spectrum.

To no surprise B Block, the clean, ready to use spectrum, sold for the highest price. The problem A Block sold for half the price of the B Block. The C Block sold for one third of the A Block after Google bid once in the first round, Verizon topped it in the second round, and nobody else bid on it in the next 222 rounds of the auction. The smaller E Block of unpaired spectrum sold for a tiny bit less than the C Block because at the time, nobody really knew what to do with it as the technology to use it was not mainstream yet.

In the 2015 AWS-3 Auction, clean paired spectrum again sold for substantially more than unpaired spectrum. This time, it was more than five times the amount: $2.71 per MHz Pop compared to $0.52. Since the AWS-3 block laid next to the AWS-1 block which mobile operators had already deployed, it was very easy and cheap to use the spectrum without incurring infrastructure cost as the same equipment could be used. Basically, roughly the amount of the cost of the infrastructure went into the auction and drove up the price for the spectrum since operators calculate their total ownership cost of spectrum plus the cost to deploy in their budgeting process.

Prior to the 2017 600 MHz Broadcast Incentive Auction, T-Mobile and regional operators argued that AT&T and Verizon had too much low band spectrum in the market for others to be competitive, and therefore should not be allowed to bid on the 600 MHz auction. T-Mobile argued that it had no 700 MHz spectrum and therefore it was at a disadvantage, omitting that it chose at the time not to bid in the 700 MHz auction. Long story short, AT&T and Verizon were excluded from bidding on the vast majority of license. T-Mobile won more than half of the spectrum on bid for the auction (37 Mhz of 70 MHz) for one third of the price ($0.88 per MHz Pop) of what spectrum went for at the AWS-3 ($2.71 per MHz Pop) and 700 MHz ($2.24 per MHz Pop) auction since the regional operators did not have the financial resources to effectively compete with T-Mobile and Sprint chose not to participate.

Fast forward three years: T-Mobile buys Sprint for $26 billion. Sprint owned between 160 and 194 MHz of 2.5 GHz spectrum in the Top 100 markets with a nationwide average of 137 MHz plus 37 MHz in the 800 MHz, PCS, AWS bands and the Department of Justice and the FCC only require T-Mobile to divest 14 MHz of 800 MHz spectrum to Dish for $3.6 billion. Suddenly, T-Mobile has three times the low- and mid-band spectrum of Verizon and two times that of AT&T. Well played, T-Mobile, well played!

In 2020, the FCC auctioned off 70 MHz of 150 MHz CBRS spectrum. In the CBRS band, the 70 MHz CBRS auction winners could buy up to three 10 MHz Priority Access Licenses (PAL) and use them exclusively in addition to the 80 MHz General Authorized Access Licenses (GAA) licenses. Wherever PAL licenses were not sold, these licenses became GAA and could also be used by anyone. This novel approach of combining shared access with a licensing approach created an auction totaling $4.6 billion for the US Treasury or $0.22 per MHz Pop. This is by far the lowest amount per MHz Pop of all the auctions. One quarter of the 600 MHz Auction and one tenth of 700 MHz and one twelfth of the AWS-3 auction.

A few months after the CBRS auction concluded, the C-Band auction took place. The two spectrum bands are adjacent to each other and have identical propagation characteristics. The same spectrum at the same time could one lead to believe that the prices for the two bands would be very similar. The C-Band auction, which is clean, unincumbered spectrum yielded more than four times the price per MHz Pop than the CBRS Auction with its sharing characteristics. Furthermore, CBRS licenses were auctioned on a per county level whereas C-Band was auctioned on a Partial Economic Area basis, which are much larger.

Comparing the different prices, the following drivers of spectrum proceeds become obvious and should be considered by the FCC when designing upcoming spectrum auctions. After all, it’s the taxpayer’s money:

  1. Exclusivity and larger license areas: Exclusive use in larger license areas has a 4x premium over shared use – C-Band versus CBRS (427%)
  2. Clean spectrum: Cleared spectrum without incumbents sharing the spectrum is up to 2x as valuable – A Block versus 700 B Block (191%)
  3. No bidder restrictions: Allowing everyone to participate in an auction increases spectrum value by up to 3x – AWS-3 paired versus 600 MHz (307%) or 700 MHz B Block versus 600 MHz (254%)
  4. No restrictions on business models: Lack of business model restrictions increases spectrum value by 3x – 700 MHz B Block compared to 700 MHz C Block (294%)
  5. Propagation characteristics: Unrestricted low band spectrum in 3x as valuable as mid band spectrum – AWS-3 paired compared to C-Band (288%)
  6. Paired and unpaired spectrum no longer matters: The historic 3x difference between paired and unpaired spectrum does not have a technical reason anymore as 5G works better on unpaired spectrum.