The proposed merger transaction of T-Mobile and Sprint seems to be in the final innings, although we don’t yet know for sure who’s going to come out as “winner.” But given the amount of ink Sprint’s 2.5 GHz spectrum has inspired over the years, it seems as good a time as any to ponder its fate.
In their May 20 filing (PDF) with the Federal Communications Commission, the two companies talked about their plan for New T-Mobile to become an aggressive new competitor in rural America by leveraging T-Mobile’s 600 MHz deployment and simultaneously deploying midband (2.5 GHz and/or PCS/AWS) radios in rural areas.
In fact, they promised to accelerate the rural deployment, adding a (redacted) number of midband sites within three years of closing of the deal. Within six years of the closing date of the merger, the company promised its midband 5G coverage area will cover at least 66.7% of the rural population. (The low-band coverage area will cover at least 90% of the rural population by that time.)
Sprint for years has boasted about its spectrum position with the 2.5 GHz, and for good reason. It holds nearly 80% of the licenses for 2.5 GHz EBS and BRS spectrum, according to Allnet Insights & Analytics, equating to something north of 100 MHz in the top 100 markets.
Analysts at New Street Research in a note to investors this week suggested a portion of the spectrum could be divested if that makes the folks at the DOJ happy. The analysts considered scenarios of what would happen if the company were required to sell 20 MHz, 40 MHz or 60 MHz, and went into a fair amount of detail. In one scenario, a 40 MHz sale was estimated to generate close to $10 billion in proceeds.
It’s interesting to consider how the spectrum was originally acquired. On the sidelines of the Brooklyn 5G Summit last month, Sprint CTO John Saw acknowledged the spectrum asset was years in the making. He was the second employee at Clearwire, where the team set out to stitch together a 2.5 GHz network, reaching out to schools and other institutions for long-term lease agreements. It was painstakingly difficult talking to every one of these entities, but their efforts eventually paid off.
During the company’s last quarterly earnings call, Saw noted that Sprint now has 2.5 GHz deployed on about 80% of its macro sites compared to less than 60% a year ago.
It’s somewhat ironic that Sprint had all of this 2.5 GHz spectrum for years but didn’t do a whole lot with it until recently. “Now at the end of their life, they’re actually building it out,” commented Roger Entner, founder and analyst at Recon Analytics.
Things are changing relatively fast. For a long time, Sprint has been the lone TDD carrier in the U.S. “It’s a new world now,” with 5G, where TDD is valued over FDD, said Bill Ho, founder and principal analyst at 556 Ventures.
“There’s a lot more flexibility,” he said. For a long time, people pointed out that 2.5 GHz didn’t propagate well and now they’re singing a different tune with 5G—and 2.5 is now considered midband, where years ago it was high band.
The thing about 5G is it can use both TDD (unpaired spectrum) and FDD (paired spectrum). FDD was necessary in the world of voice and is more widely used because of previous frequency assignments. Now that everything is IP and data driven, TDD and midband spectrum are now valuable commodities, said Lynnette Luna, principal analyst at GlobalData Technology.
Luna said she does not think regulators will require the divestiture of Sprint’s 2.5 GHz holdings. It’s a cornerstone to T-Mobile’s 5G strategy if and when it combines with Sprint.
“In the scope of 5G, 100 MHz of spectrum isn’t considered an extravagant amount,” she said. “I think with 5G the 2.5 GHz band will finally be put to good use. It is suited for wider area coverage and Sprint will offer higher spectral efficiency by way of MIMO and other enhancements such as high order modulation. Unlike Sprint, which has failed over and over to capitalize on its rich 2.5 GHz holdings in the LTE market, T-Mobile has a track record for swift and aggressive network buildout in the LTE realm.”
We don’t know what concessions the companies are talking about with the DOJ. Things this week do appear to be off the rails to some degree or other, prompting one New Street Research note to be titled: “TMUS/S: Now WTF Are We,” and a footnote apologizing for using a phrase that includes an obscenity. But other than the word “unprecedented,” the analysts heard the phrase “WTF” more than any other on Monday. In the case of that note, the “W” stood for “where,” not “what.”
Indeed, where this deal is headed and the implications for spectrum are all top of mind this week. Sooner or later, we’ll know the fate of that 2.5 GHz spectrum. — Monica @malleven33