Wireless Industry Poised for Major Change
Wireless is poised for its fourth cycle of major change in the industry’s 30+ year history. Three major new factors will drive this change. The most important catalyst is the gargantuan amount of new spectrum that will become available over the next several years. The second factor is an industry realignment caused by all this new spectrum, resulting in the emergence of some new players, and an evolving new framework for how networks are built are deployed. Third is the emergence of 5G, whose adoption and new use cases will be tepid initially but will start accelerating in 2-3 years. The rest of this column delves into these three megatrends in greater detail.
The history of the wireless industry actually fits quite neatly into decade-long cycles. The ‘cellular industry’ was born in the mid-1980s, but was not really seen as a major consumer mobility market until the advent of the portable phone in the early 1990s. The 1990s was really about expanding coverage, greater capacity due to digital, and the gradual displacement of voice landlines. The 2000s witnessed the advent of wireless data, beginning with SMS (text messaging), and, later, mobile e-mail services and the first real smartphones, initially led by Blackberry. During this decade, the mobile operators held most of the power, deciding which ring tones and games would be on the carrier ‘deck’. The 2010s was the smartphone decade, defined by a succession of continually improving devices, the emergence of native apps (and the App Store) as the new business framework, and the introduction of true mobile broadband networks in the shape of LTE.
True to form, the wireless industry is poised for major change as it enters its fourth decade. Three interrelated factors will drive this change.
From Spectrum Scarcity to Spectrum Abundance
Earlier this year, I wrote a Techpinions column titled Spectrum-Palooza, whose key theme is that after 30 years of ‘spectrum scarcity’ in wireless, we will be moving to one of ‘spectrum abundance’. This will drive an industry realignment, a different business framework, and exciting new uses, with 5G at the center.
Six months into the year, this theme is coming dramatically into focus: More spectrum will become available for commercial wireless use in the next 3-4 than the cumulative total that’s in use today. The first of four major ‘spectrum events’, the mmWave auctions, were completed earlier this year. All of the [now] Big Three operators emerged with strong mmWave holdings in the major markets. mmWave will act as a sort of ‘Super Wi-Fi’, offering very fast speeds but over short distances.
The next swath of spectrum to become available is in the very important mid-band. We’re two weeks into the first of these auctions, the CBRS PAL auctions at 3.5 GHz. Some 70 MHz of spectrum is being auctioned, on top of the 80 MHz already made available late last year through the GAA ‘spectrum sharing’ layer. So far, the auction is exceeding expectations, with $3 billion raised and all of the major players participating (so far). On the heels of the 3.5 GHz auction is the critical C-band auction, scheduled to start December 8, where 280 MHz of spectrum (not a typo) will be auctioned in the 3.7-4.2 GHz band, raising potentially $100+ billion, according to some Wall Street analysts. This auction is especially critical for AT&T and Verizon, who both need more mid-band spectrum in order to remain competitive. Finally, the FCC added icing to the spectrum cake with the announcement earlier this week that 100 MHz of spectrum in the 3.1-3.55 GHz band, historically used by the military, will be made available for commercial wireless use. That auction could be held in late 2021.
There are two areas of impact from this spectrum-palooza. First, since so much spectrum is being made available, any dramatic imbalance in operators’ post-auction spectrum position will cause major share shifts and potential M&A. Second, the capacity increase will result in significant drops in the price of providing wireless data, which will lead to price changes, new use cases, and new business models, including a more vibrant wholesale market. This is also pivotal to the types of network performance improvements and new market opportunities envisioned for 5G.
In addition to a raft of spectrum activity, 2020 also began with a change in the competitive landscape, with the approval of the T-Mobile/Sprint deal. In fact, as of the second quarter, T-Mobile overtook AT&T in terms of the number of branded wireless subscribers. The New T-Mobile is in a particularly strong position compared to AT&T and especially Verizon in terms of spectrum capacity per subscriber, particularly in the mid-band, where T-Mobile inherited 150 MHz of 2.5 GHz spectrum from Sprint. If T-Mobile puts this spectrum to work quickly, it could gain a substantial early lead in 5G performance, while AT&T and Verizon need to spend big in the other mid-band auctions to catch up. The chink in T-Mobile’s armor is the enterprise space, where T-Mobile’s capabilities, and share, lag significantly behind AT&T and Verizon.
The other major new factor in the industry is DISH. The company has been amassing, and sitting on, a treasure trove of spectrum for years, which it is finally putting to use by promising (and being required) to build a greenfield 5G network. DISH is already getting its retail wireless training wheels by virtue of the 9 million Boost Mobile prepaid subscribers the company inherited as spoils from the T-Mobile/Sprint deal. On the heels of that, DISH recently acquired 271,000 Ting Mobile subscribers, and is likely to shake up some of the prepaid industry’s more antiquated practices. DISH is active in the CBRS auction, and is likely to participate in the C-band auction as well. DISH could be an innovator and industry disruptor. For example, DISH is embracing a Rakuten-like approach of building a wireless network using an Open RAN approach, employing a new breed of vendors rather than the usual wireless network equipment troika. I also believe that DISH will establish a substantial wholesale business, perhaps with Amazon or some other Big Tech player as anchor tenants.
And what about Cable and Big Tech? Cable companies, mainly Comcast and Charter, have quietly grown to 4+ million mobile subscribers between them. They’re participating in the mid-band spectrum auctions, but might get priced out by the big guys. Even so, they will have more palatable wholesale options — potentially ironically from DISH — with all the new spectrum becoming available. As for Big Tech, they’re likelier to take advantage of wholesale opportunities than spend big on spectrum.
The third big theme of the 2020s for wireless will, of course, be 5G. My one word of advice: be patient. We are in the very early innings of 5G and it’s likely to get off to a slow start. Even though AT&T and T-Mobile both boast ‘nationwide 5G’ availability, this is 5G of the ‘4G+’ variety, not of the ‘game-changing’ speeds/latency variety. Really fast 5G (mmWave, or T-Mobile’s 2.5 GHz) is only available in parts of certain markets. That, combined with a challenging economy and the lack of compelling use cases for 5G other than faster speeds, are likely to depress 5G adoption, at least initially.
It will be 2022-23 before 5G, in terms of the hyped performance improvements and the incremental opportunities driven by new types of uses in the enterprise, really kick into gear. For that, we need the combination of new spectrum to be commercially deployed, 3GPP Release 16 enhancements such as Ultra Low Latency (URLLC) to become available, a new generation of devices, and new business models — especially for enterprise 5G deployments. We also need to see enterprises shift some of their spending toward mobile for the operators to realize some of the incremental revenue potential from 5G that will justify the heavy spectrum auction and capex spend. The pandemic will be a factor here. On the one hand, some of the 5G catalysts such as remote work and new frameworks in health care and education have accelerated. On the other hand, enterprise budgets will be tight, so any spending on 5G ‘experiments’ will have to be justified.
For most of the past 2-3 years, most developments in mobile were of the internecine variety, with hype about the ‘5G Future’ and endless discussions about industry structure. But the deals are done, the spectrum auctions are in full force, and 5G networks are being deployed. Time to strap on your seatbelts.