Note: This article was originally published in The 2011 Official Show Guide of the Wireless Infrastructure Show – click here to view the full show guide in digital format.
The domestic mobile space is hip-deep into the initial round of “4G” build out plans, with just about every operator either rapidly expanding coverage or deep into network trials. And with those plans, comes some steep investments.
According to a recent Deloitte L.P. report, the domestic mobile industry could invest up to $53 billion into their next-generation networks between 2012 and 2016, an investment that could contribute up to $151 billion in gross domestic product growth and create up to 771,000 jobs.
“Investment in such a powerful form of communication contributes to the economic recovery and provides a job-creating engine for the future,” said Phil Asmundson, vice chairman and U.S. media and telecommunications sector leader at Deloitte. “The key to harnessing the potential benefits of 4G technology lies in America’s market-driven wireless sector, which encourages the emergence of innovative applications that spur productivity and could produce the same surge of innovation and demand we experienced during the 3G era.”
The firm added that the growth in 3G services was driven by entrepreneurial innovation that was unleashed following the auction of spectrum assets and the removal of spectrum caps that allowed carriers to further support the rollout of robust 3G services. Those same factors could be coming into play again as the Federal Communications Commission is looking to expand the availability of spectrum, though demand is expected to continue to outstrip supply.
Taking the lead
As the nation’s largest operator, Verizon Wireless has taken a leadership role in rolling out LTE technology, which just about everyone sees as the basis for next-generation networks. The carrier originally began rolling out its LTE services late last year with an initial 39 markets and 100 million potential customers covered. Since then Verizon Wireless has rapidly expanded service, announcing recently surpassing 160 million pops covered across 117 markets across the country. The carrier said it remains on track to surpass 185 million pops covered by the end of the year.
In support of that launch, Verizon Wireless has spent a majority of its capital expenditures on its LTE services, both in deploying network assets as well as bolstering its backhaul capabilities. The company noted that across its wireless and wireline operations it increased capex from $7.6 billion during the first half of 2010 to $8.9 billion this year, though full-year capex is expected to remain flat at around $16.5 billion.
“[Capex] has been running ahead and [Verizon Wireless] had sufficient capacity in 3G and 4G deployment ahead of schedule,” noted Wells Fargo Securities L.L.C. on the carrier’s expense plans. “Expect wireless [capex] down in [second half] and consolidated [capex] flat for the year at $16.5B.”
While Verizon Wireless has spent most of the year expanding commercial LTE services, rival AT&T Mobility has had a more diversified approach to its network. Most of the carrier’s efforts have been in bolstering its 3G-based HSPA network with greater capabilities, and sticking the “4G” tag on those enhancements. In addition to updating cell sites, AT&T Mobility has been busy expanding backhaul capabilities to those sites in order to handle a smartphone-heavy customer base.
Through the first half of the year, AT&T Mobility said it had spent $9.5 billion on capex across its operations, with wireless capex up $1 billion compared with the first half of 2010. For the full year, AT&T said it expects capex to total $20 billion, noting specifically increased spend to support growing wireless demand.
Some of that spend will also be going towards the carrier’s LTE build. There has been no official word on when AT&T Mobility will begin rolling out its LTE network, though it has begun to seed the market with devices compatible with the technology. AT&T Mobility has said it plans to launch LTE services in five markets – Atlanta, Chicago, Dallas, Houston and San Antonio – later this summer, with plans to cover 70 million potential customers in 15 markets by the end of the year.
Keeping up
One potential long-term snag for AT&T Mobility’s network plans is its pending acquisition of smaller rival T-Mobile USA Inc. The carrier has said that a major reason for the acquisition is to pick up additional spectrum assets in support of increased consumer need.
Those plans provide a shadow over what T-Mobile USA has planned for its network. The carrier to this point has aggressively updated its current HSPA network with higher-speed capabilities, initially with 21 megabits per second speeds, and more recently with a 42 Mbps update. The carrier has said its 21 Mbps capabilities now cover more than 200 million potential customers, while its 42 Mbps service is available across 152 markets and 170 million pops. (It should be noted that those speed claims are theoretical maximum download speeds and that with the 42 Mbps capabilities customers are seeing average download speeds of around 10 Mbps. Also, there is currently only one wireless modem compatible with the 42 Mbps service.)
Perhaps highlighting the confusion in regards to its potential acquisition, T-Mobile USA noted that capital expenditures were down year-over-year from $749 million during the second quarter of 2010 to $688 million this year, though were up slightly from the $682 million spent during the first three months of the year.
While the carrier has talked in the past about an eventual migration to LTE technology, T-Mobile USA currently lacks sufficient spectrum assets for such a build. The carrier spent more than $4 billion on spectrum in the 1.7/2.1 GHz band for its 3G build, but does not have enough the cupboard to support the clean spectrum needed for the next evolution. However, with its future still in doubt, that might not be an issue for current management.
Clear vision
Another carrier in a bit of a quandary is Sprint Nextel Corp. The carrier announced late last year plans for its Network Vision initiative that will see Sprint Nextel basically overhaul all of its 60,000 cell sites – both CDMA and iDEN – including the decommissioning of approximately 20,000 of those sites. As part of that upgrade, Sprint Nextel will be using some of its 800 MHz spectrum assets current devoted to its iDEN network for CDMA services. The move should provide better coverage compared with the 1.9 GHz spectrum used for its CDMA services due to superior propagation characteristics as well as better in-building coverage.
The move to 800 MHz spectrum will also the carrier to cut approximately one-third of its towers without suffering deterioration of coverage.
As for its next-generation plans, the Network Vision initiative will allow for the support of LTE technologies across various spectrum bands, though Sprint Nextel has not yet officially said it will deploy LTE itself. The carrier does have some spectrum assets in the 1.9 GHz band, the so-called G Band, that it received through a spectrum rebanding effort in the 800 MHz band, though that would not likely be sufficient for a true LTE deployment.
Sprint Nextel’s plans are also intricately tied to those of Clearwire Corp., which continues to tout its current WiMAX-based services, but has said it was looking to begin rolling out LTE if it can secure funding. Sprint Nextel is currently a majority shareholder in Clearwire, with rumors circulating recently that it was looking to invest further into the venture.
Clearwire’s ace-in-the-hole is its deep spectrum footprint in the 2.5 GHz band that it is currently using for its WiMAX network that covers nearly 130 million pops. The network is also the basis for Sprint Nextel’s “4G” service offering.
However, Clearwire recently said that it will not likely expand WiMAX coverage past its current deployment, and will instead look to overlay LTE technology across its current footprint and for possible expansion. Those plans are dependent on the carrier securing at least $600 million just for its overlay plans.
Clearwire’s SVP and CTO John Saw recently noted that Clearwire would be able to re-use much of its WiMAX infrastructure for the LTE overlay, including backhaul, network core, site switches, site controllers and batteries at the cell sites. He did note that there might need to be some upgrades to select backhaul links to support the additional capacity and that equipment in markets launched before 2010, including Portland, might require additional upgrades at the cell site. In addition Shaw said that Clearwire’s current 27 swithcing centers can all be reused, including the routers from Cisco Systems Inc. and Juniper Networks, though LTE specific EPC boxes would need to be added at the switching centers.
As for timing of a LTE deployment, Clearwire has indicated that it did not expect to begin booking revenues from an LTE network until at least 2013.
“Clearwire admits that it has yet to secure any funding for the LTE deployment and has no immediate plans to expand its overall network footprint,” noted William Ho, VP of Consumer Services at Current Analysis. “Without these factors in place, it is impossible to know when a national Clearwire 4G network will be realized.”
Further muddying the plans between Sprint Nextel and Clearwire was the recent deal signed with LightSquared that would see Sprint Nextel “host” LightSquared’s contentious spectrum holdings on its network.
The deal calls for Sprint Nextel to host LightSquared’s L-band spectrum assets in the 1.6 GHz band across the carrier’s enhanced network. LightSquared has said it plans to offer LTE services across its spectrum holdings, though that plan is currently on hold as the Federal Communications Commission decides what to do about interference issues caused by the proposed LTE services and commercial GPS offerings. And in fact, this whole deal is predicated on LightSquared finding a solution to its spectrum/interference issue.
Sprint Nextel will also provide a nationwide 3G roaming agreement to LightSquared, which can be offered to potential customers for LightSquared’s wholesale business model. Sprint Nextel in turn will have the option to purchase nationwide LTE services from LightSquared. This is tied up in the financial aspects of the plan, which call for LightSquared to pay Sprint Nextel $9 billion over an 11-year period for the spectrum hosting and network services as well as approximately $4.5 billion in credits for LTE and satellite wholesale usage. Sprint Nextel will also have the option to purchase up to 50% of LightSquared’s L-band capacity.
While the financial outlay is significant for LightSquared, which was still trying to piece together funding for its initial $7 billion network build out plan, the company said the new arrangement to lower network capital and operating expenses by more than $13 billion over the next eight years. LightSquared’s CEO Sanjiv Ahuja said earlier this year that the company would need up to $14 billion in funding to support its operations through the end of the decade.
In addition, LightSquared said the deal will allow the carrier to take a year off the FCC’s mandate that the carrier’s services cover 260 million potential customers by the end of 2015. This time improvement is significant as LightSquared has moved back its initial market launch plans to next year from its original plans to begin turning on markets by the end of this year.
For Sprint Nextel the deal provides a tenant on its network that can help offset the $5 billion the carrier expects to pay for the Network Vision initiative, as well as broadens its options for offering next-generation services.
“We believe that this network hosting and sharing deal sets the stage for additional hosting opportunities for Sprint, and that it could serve as a benchmark for future business model innovations in the wireless industry worldwide,” said Dan Hays, partner at PRTM.
Smaller scale
On a regional level, wireless operators are also investing heavily into their next-generation plans.
–MetroPCS Communications Inc. has been very aggressive in rolling out its own LTE service, having in fact been the first domestic carrier to launch services last year. The carrier currently offers LTE services to its customers across all 14 markets in addition to its 2G-based CDMA services.
–Regional rival Leap Wireless International Inc. has taken a more cautious approach to LTE, saying it plans to begin trialing services later this year. Leap said it expects to spend up to $475 million on capital expenditures in 2011 to support continued growth of its current network capabilities as well as to lay the groundwork for its planned LTE deployment. The carrier said it expects to roll out LTE across two-thirds of its current footprint over the next three years at a cost of less than $10 per covered pop, or approximately $600 million.
Leap has also signed a LTE roaming agreement with LightSquared that should allow it to provide coverage outside of its home markets without having to spend the capital on building out a network.
–U.S. Cellular Corp. said it plans to begin offering its first LTE-equipped devices in November, ahead of an expected commercial network launch. The carrier announced earlier this year that it planned to launch LTE services by the end of the year, with coverage across more than 25% of its current CDMA footprint. The initial launch would include 24 markets in parts of Iowa, Wisconsin, Maine, North Carolina, Texas and Oklahoma.
U.S. Cellular, working with bidding partner King Street Wireless, picked up 152 A and B Block licenses during the Federal Communications Commission’s 700 MHz spectrum auction in 2008. Those licenses, which cost $401 million, included 12 megahertz of spectrum for each license.
For smaller players, the move to 4G is dependent on spectrum assets. Those operators that managed to snare spectrum during recent government auctions are looking to build out their own networks, while others are looking to partner with potential wholesalers like Clearwire and LightSquared, or with Verizon Wireless’ LTE in Rural America program.
Another option for rural operators was provided by NetAmerica Alliance L.L.C., which is offering to pool the resources of 700 MHz license owners into a larger collective able to generate better pricing on equipment. In addition to that pooling of resources, NetAmerica is also offering to own and operate the core of an LTE network for clients, which would allow them to focus on the actual network infrastructure components.
Overall, the domestic mobile space is indeed overwhelmed with next-generation network plans. As has been witnessed over the past 12 months, the mobile broadband space evolves rapidly, setting up an interesting scenario as to where the space will be 12 months from now.
