As the industry considers impacts from T-Mobile and Sprint’s merger win, some analysts say it's bad news for Verizon.
While Wall Street firm MoffettNathanson pointed to increased competitive and network pressures that both AT&T and Verizon will face from the New T-Mobile, Verizon may be more vulnerable because of its spectrum position.
“Verizon looks to us to be a net loser here,” wrote the MoffettNathanson team led by Craig Moffett, following District Judge Victor Marrero’s Tuesday court decision allowing T-Mobile and Sprint to merge, and rejecting arguments from state attorneys general that the combination would raise prices and harm competition.
Along with T-Mobile acquiring Sprint’s mid-band 2.5 GHz spectrum, merger approval also means Dish Network is now committed to putting its own spectrum holdings to use as it enters the wireless market and looks to build a new nationwide wireless network.
“Approval of the T-Mobile/Sprint deal takes not just one but two spectrum options off the table,” wrote Moffett. “Sprint is now not a seller of 2.5 GHz spectrum, and Dish is not a seller of AWS-4. More than ever, Verizon must now bet on C-band.”
Verizon has bet heavily on a millimeter wave strategy when it comes to 5G, which, as Moffett noted, has left questions about how the carrier will deliver a near-term coverage layer. High-band signals can’t travel far or penetrate easily, and Verizon’s deployments have been limited to small pockets of select cities.
For mid-band, Verizon has long stressed the importance of freeing up C-band spectrum, a process which has seen its share of controversy and delays. Progress was made last week when FCC Chairman Ajit Pai moved forward with a plan that would see a C-band auction start Dec. 8.
Last week analysts at LightShed Partners wrote that if Verizon wins most of the first available tranche of C-band spectrum, it could deploy 60 MHz in 2022 and see capacity and speed benefits starting in 2023.
“With that timeline, C-Band still does not answer the questions of what spectrum Verizon will be using for the next three years,” wrote LightShed’s Walter Piecyk and Joe Galone at the time.
MoffettNathanson on Tuesday also noted that the FCC’s C-band proposal won’t deliver spectrum outside of the top 46 partial economic areas (PEAs) until 2023.
“The narrative that three is better than four is probably true. In the long run. But for the next few years, New T-Mobile really will be a more formidable competitor than either T-Mobile or Sprint would have been on their own,” wrote Moffett.
LightShed also pegged Tuesday’s merger ruling as a negative for Verizon.
“It’s not great news for Verizon, given that it removes Sprint and Dish’s spectrum as an alternative, created a new competitor in Dish, and has empowered T-Mobile with the tools to deliver a superior network experience to consumers,” wrote LightShed.
MoffettNathanson noted that Dish is now all in when it comes to building a wireless network and then “they’ll have to fill it in, even if that means cutting prices to do so.”
New Street Research and MoffettNathanson both pointed to T-Mobile’s access to Sprint’s 2.5 GHz spectrum as a key asset in making it an even more forceful competitor to the two largest carriers.
In a note following news reports that the court would side with T-Mobile and Sprint, New Street analyst Johnathan Chaplin wrote, “T-Mobile will be far more disruptive once they have access to Sprint’s spectrum than they have been until now.”
New Street added that while likely swift, it could still take more than six months to over a year for T-Mobile to redeploy Sprint’s spectrum.
Moffett meanwhile wrote that T-Mobile taking over Sprint’s key 2.5 GHz mid-band holdings, “will allow the New T-Mobile to mount the most credible threat either Verizon’s or AT&T’s network supremacy has every faced."
T-Mobile has been rolling out 600 MHz at a rapid pace, and now covers more than 200 million people and 5,000 cities and towns with 5G. MoffettNathanson noted the operator’s low-band spectrum deployments have already helped T-Mobile to close the coverage gap versus Verizon and AT&T.
AT&T, though, has been busy deploying additional spectrum, both as part of its FirstNet build and to support 5G rollouts. This has seen AT&T increase its amount of deployed spectrum by almost 60%, according to Moffett, which takes “some of the pressure off to respond to New T-Mobile.”
Still, while AT&T may be in a better position on the spectrum front compared to Verizon, it faces the “same competitive dynamics,” Moffett wrote. “For AT&T, the deal is probably a net neutral.”
The firm also expects the New T-Mobile to mount a massive advertising campaign to introduce itself.
“That will buoy net subscriber growth for New T-Mobile, and pressure subscriber growth at Verizon and AT&T,” wrote Moffett.
Verizon for its part has continued to defend its mmWave-focused network strategy, and has said it plans to use dynamic spectrum sharing (DSS) technology in order to tap existing 4G spectrum resources to help deliver broader 5G coverage. Verizon has committed to covering 50% of the U.S. population with 5G by the end of 2020, but remains vague on exactly when DSS will roll out this year.
Last week T-Mobile’s president of technology Neville Ray that it would be a tough year for DSS, citing delays at one top network vendor and technical challenges related to spectrum capacity consumption.
In terms of T-Mobile and Sprint’s merger news, Verizon released the following statement:
“For the past two years, while these companies focused on a merger, Verizon has remained focused on what we’ve done for the past 20 years — providing customers with the nation’s most reliable wireless network. Regardless of what happens when these two companies eventually get together, our customer-focused mission remains the same.”