Until the FCC releases the names of the winning bidders in the Citizens Broadband Radio Service (CBRS) 3.5 GHz auction, it’s all a guessing game, although it's a safe bet to say Verizon was an aggressive participant.
Analysts at LightShed Partners are putting a number on it, saying they believe Verizon was “highly incentivized” to buy 40 MHz of CBRS spectrum in the auction that concluded on Tuesday.
Verizon has been pinning much of its 5G strategy on millimeter wave (mmWave) spectrum, which means it’s mostly targeting dense areas of major metro areas. It will use dynamic spectrum sharing (DSS) for a lower-band 5G spectrum layer, but where it’s most deficient is in mid-band, which T-Mobile just acquired a bunch of with its Sprint merger.
“A 40 MHz CBRS spectrum purchase by Verizon would understandably fuel questions about the role of mmWave spectrum in Verizon’s network,” wrote LightShed analysts Walter Piecyk and Joe Galone. “We believe Verizon can use CBRS, rather than mmWave, as a primary (but not sole) source of spectrum in its small cell deployments. We believe these small cell CBRS products already exist and that Verizon has likely already begun some deployments.”
Based on the auction results, they estimate a 40 MHz pseudo-nationwide purchase of CBRS spectrum by Verizon would imply high bids of ~$2.7 billion, which represents less than 1% of the wireless service revenue they expect Verizon to report over the next five years. LightShed estimates Verizon will spend $30 billion on mid-band spectrum over the next 12 months.
They also note CBRS can outperform mmWave coverage and building penetration despite its power limitations. “Therefore, CBRS might offer a better solution than mmWave for Verizon’s home broadband aspirations, whether deployed on a small cell or on a macro tower in order to hit more homes,” the analysts wrote. “To validate this point, CBRS appears to be suitable spectrum for its cable competitors to expand their wired footprint for home broadband applications.”
The CBRS band is already open for business in the General Authorized Access (GAA) portion of the band, which is unlicensed. Verizon and other companies are already using that. In fact, earlier this summer, data from RootMetrics suggested Verizon was deploying in the GAA portion of the 3.5 GHz band at a faster clip than prior to COVID-19.
The LightShed analysts said that based on data provided by Opensignal and field engineers, they believe Verizon has been deploying CBRS spectrum on macro towers. They also noted that in capacity constrained areas, Verizon’s ability to access the shared GAA CBRS spectrum could be challenging.
The auction that ended this week involved the Priority Access Licenses (PAL). Qualified participants included Verizon, AT&T and T-Mobile, as well as cable rivals, universities and enterprises like Chevron and Deere & Company, but the FCC didn’t release the names of the actual winners. That’s supposed to happen in a few days, the FCC said on Tuesday.
The next big opportunity for buying mid-band spectrum licenses for 5G is the C-band auction, which starts in December and offers up more spectrum that’s considered less encumbered than the CBRS spectrum.
The LightShed analysts said 60-100 MHz of incremental spectrum depth from the C-band auction would enable legitimate standalone 5G network performance, but it doesn’t provide Verizon with the depth of spectrum that T-Mobile controls. “In addition, C-Band is higher up on the spectrum chart, which could challenge the speed and cost of its 5G buildout,” they said.
“Most importantly, Verizon services 120 million wireless customers with near 60% margins and plans to attack the $50 billion home broadband market. There is no company that can better leverage incremental spectrum purchases,” they added. “For these reasons we believe 40 MHz is the right amount for Verizon to purchase and we will be incrementally concerned if AT&T and T-Mobile captured a portion of that at these auction prices.”