If you ask the analysts at the Wall Street firm New Street Research who’s winning the race to “real 5G,” it’s pretty clear that it’s T-Mobile. Of course, Verizon could always come up with some surprises, but AT&T isn’t even in the game.
That was one take-away during a conference call the analysts held Thursday. The firm rates T-Mobile shares as a “buy,” with a target price of $250; it’s currently trading at around $130.
Verizon and AT&T dominated the U.S. wireless landscape for much of the last two and a half decades, largely built on their spectrum advantage, noted New Street analyst Jonathan Chaplin. They had all of the low-band spectrum, which gave them better coverage at a lower cost. After T-Mobile acquired and deployed more spectrum, including 700 MHz, it gained share and the gap narrowed.
Flash forward, and today T-Mobile has the lead on low-band 5G deployments, covering 287 million people across 1.6 million square miles, compared with Verizon and AT&T, each with a little more than 230 million POPs.
However, it’s becoming increasingly apparent that the performance of 5G on lower-band frequencies isn’t materially different from 4G; consumers may not even notice the difference on lower frequencies.
Where consumers see the big speed advantages of 5G are in the higher spectrum bands. That’s what Verizon is gunning for with its millimeter wave (mmWave) deployments, although coverage is spotty. What the analysts focused on Thursday is Verizon’s upcoming C-band deployment compared with T-Mobile’s current and future 2.5 GHz deployment. New Street calls deployments on 2.5 GHz and 3.7 GHz the “fast 5G,” because they promise a 10-fold increase in speeds.
“T-Mobile has a strong lead on fast 5G,” Chaplin said, noting it’s now at about 120 million POPs with 2.5 GHz and growing every day. Verizon and AT&T haven’t launched C-band services yet; they have to wait until the first batch of that 3.7 GHz spectrum is available at the end of this year.
Still, “Verizon is moving as fast as humanly possible with C-band deployment,” so as soon as the spectrum becomes available, they can light up a significant portion of the country, getting to 100 million POPs by the first quarter of 2022, he said.
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AT&T will get access to C-band licenses at the same time; it bought 40 MHz of Category A licenses that are available first but will get to 100 million POPs in early 2023 – a year behind Verizon and more than two years behind T-Mobile. “We’re surprised that they aren’t moving with greater urgency,” Chaplin said. “It almost seems like AT&T is walking off the field.”
In a report published earlier this week, the analysts argued that three things will drive mid-band 5G performance: POP coverage; quality of coverage within covered markets; and capacity. T-Mobile has a strong lead on all three measures, which should drive share gains. T-Mobile is also priced at a 20-30% discount, whereas Verizon and AT&T’s ARPU may not be sustainable, the analysts said.
One big controversy
The analysts spent a good deal of time sorting out one of the most controversial areas as of late: How C-band stacks up against T-Mobile’s 2.5 GHz and vice versa. The New Street analysts dug into the question of whether 2.5 GHz offers a propagation advantage over the C-band’s 3.7 GHz and concluded that 2.5 GHz may have an advantage.
T-Mobile argues that C-band requires 1.5 times more sites than 2.5 GHz and 2 times more sites than AWS or PCS spectrum. Verizon disputes that claim, saying the number of sites required at 2.5 GHz and C-band are roughly the same. Verizon also told the analysts it has an EIRP and antenna gain advantage in C-band that overcomes the free space disadvantage relative to 2.5 GHz.
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“In trying to resolve this debate, we went back and forth between the companies,” presenting the arguments of one to the other, to get their response, Chaplin said. “Both companies became extremely irate by what they regarded as the false claims of the other, and by our questioning of their engineering prowess.”
The analysts enlisted the help of outside equipment vendors, consultants and global carriers to get some answers. “What we discovered is that it isn’t simple to resolve, in large part because both companies are making guesses” about the performance of deployments that haven’t yet been tested.
The analysts said their analysis doesn’t take into account the 3.45 GHz or additional 2.5 GHz spectrum that will be going up for auction; T-Mobile is expected to gain even more in those two separate events. One benefit of C-band that Verizon touts is its contiguous channels, versus the disjointed 2.5 GHz spectrum.