The first-quarter earnings season is behind us and we're over halfway through the second quarter. I've learned a lot from these public events in addition to media interviews and to the many investor conferences in which carrier executives push their messages to and field probing questions from the investment community.
The state of carriers' networks is always an interesting and much followed topic relative to competition in the U.S. wireless landscape. So for this month, I'll round up some progress the carriers have reported on their networks to date. As a simple backdrop and stating the obvious for the benefit of non-hardcore wireless geeks, the two largest carriers, Verizon Wireless and AT&T, are essentially done with their national LTE buildouts while T-Mobile and Sprint are at different stages trying to reach network parity.
- LTE coverage: A big network revelation on its first-quarter earnings call was that it reached a 308 million LTE POPs covered. This is significant because now population coverage is now competitively on par with archrival Verizon. There will be those who argue that population and geographic coverage are different animals and it will be telling to see how close every competitors' national LTE coverage map compares. As a gauge of population, the U.S. Census Bureau has the country's population currently near 321 million.
- Further buildout: While it looks like AT&T is almost done, there is more work to be done as putting additional resources in play to address more coverage and capacity as they focus on distributed antenna systems (DAS) and small cells. However, AT&T's original small cell end of 2015 deployment goal of 40,000 has since been shelved spectrum and network assets from the Leap Wireless acquisition provided some dividends. Yet beyond the domestic market, AT&T will be busy upgrading its Mexican acquisitions (Iusacell and Nextel Mexico) to LTE in the coming years to realize a North American LTE network covering over 400 million POPs.
- Spectrum and decommissioning: AT&T dropped $18.2 billion in the AWS-3 auctions, logically to help in capacity and speed, yet it'll be quite some time until that spectrum gets cleared and ready for service in 2017-18 timeframe. Even then, AT&T is just using AWS-3 as a supplemental downlink to address capacity. But 2.3 GHz WCS spectrum is waiting in the wings, and AT&T expects to start deploying that spectrum this summer. This will be a multi-year effort but device support in the portfolio has already been seeded in 2015. With the customers and spectrum from the Leap deal, there comes heavy lifting tasks. Though 90 percent of Cricket customers are on the AT&T network, the legacy CDMA network is scheduled for sunset by the end of September at which time that spectrum could be repurposed for LTE.
- Carrier aggregation: It's happening and AT&T has acknowledged it here and there in specific markets, but haven't made any national fanfare announcements yet. So far, carrier aggregation has been reported on 700+PCS (Band 17/2) and 700+AWS (Band 17/4) with device support ongoing in the portfolio. For all carriers, carrier aggregation is an important tool to boost throughput both as table stakes to enhance subscribers' network experience and keep abreast of competitors' speed claims in their marketing.
- Network transformation: AT&T made a big bet in its Domain 2.0 vision/next-generation network to transform its entire network (not just wireless) into a software-centric architecture for the purpose of operational efficiencies and faster service enablement (read buzz acronyms SDN and NFV). However, it is a long road with AT&T's stated goal of virtualizing and controlling 75 per cent of its network with this architecture by 2020. AT&T is very much out front of their competitors in this direction and this approach should bring at least cost savings and perhaps lessen capital expenditures in years to come.
- LTE coverage: As AT&T has caught up in population covered, Verizon continues to expand with assistance through its LTE Rural America program. Verizon's 5-year anniversary announcement revealed its rural carrier partners brought in nearly 2.5 million POPs to that 308 million national tally. Still, the program's spectrum leases cover 2.9 million POPs so logically, there is a bit more expansion left for Verizon's rural LTE network.
- Further buildout: Verizon executives have stated many times that densifying the network and addressing capacity is a strategic imperative to its roughly 108 million retail subscribers. As such, in addition to DAS commitment, Verizon has earmarked $500 million of its capex on small cells in specific markets over the next three years.
- Spectrum: Given the rather large subscriber base, many have wondered whether Verizon's spectrum portfolio (700, 850, PCS, AWS) was enough to address expanding data usage given 86 percent of data traffic travels over the LTE network. With the addition of AWS-3 spectrum into the portfolio, Verizon continues to feel good about their spectrum position, and similar to AT&T, they project 2017 to be when AWS-3 will enter service. Still, Verizon is on the refarming path as it has started to move its PCS assets onto LTE. Looking ahead, the 850 MHz refarming to LTE is also on the drawing boards though initially in a slim 5x5 MHz configuration.
- Carrier aggregation: 700+AWS (Band 13/4) carrier aggregation will be implemented in 2015 with device portfolio support already available. Though not publicly stated, logically, 700+PCS (Band 13/2) should also follow. Interestingly, Verizon has shown interest in aggressively pushing for LTE operating in unlicensed spectrum (LTE-U) and aggregating with its licensed assets with possible service in 2016.
- Network transformation: Similar to AT&T's motivations, Verizon just recently embarked on a software defined network strategy in April with naming key technology partners. Unlike AT&T, no public implementation timetables or goals have been disclosed.
- LTE coverage: T-Mobile has been upfront about improving their network. To their credit, using the spectrum from the AT&T breakup, MetroPCS acquisition and deft secondary market purchases of low-band 700 MHz A Block spectrum, the company is now on the course to reach its 300 million POP coverage goal. More importantly, attaining that goal provides good marketing muscle against larger competitors AT&T and Verizon. Similar to many carriers' LTE coverage goals, it has surpassed them. The mid-2015 280 million POP target laid out in late 2014 has already been reached and with this track record, T-Mobile could very well beat its 300 million goal before the end of the year. Similar to all competitors, T-Mobile counts on rural partners to help reach its POP coverage goals by roaming agreements or leasing spectrum.
- Further buildout: T-Mobile's 700 MHz buildout continues to be the prime focus, allowing for better coverage beyond urban areas and also better inbuilding penetration performance to win over doubters from Verizon and AT&T, especially business customers. Given the bandwidth depth that provide the foundation for marketing "Wideband LTE" (at least 15x15 MHz) in specific markets and speed claims, densifying the network is to some extent already baked into its buildout. Still, it looks at small cells as case-specific niche solutions.
- Spectrum and decommissioning: Though it did not splurge on the AWS-3 auction, its near term focus is to put into service its 700 MHz assets and the remaining portions of the MetroPCS spectrum. Since the deal approval, the company was on a blistering pace to migrate CDMA users onto the T-Mobile network. In the original merger plan, T-Mobile expected to shut down the MetroPCS network in the second half of 2015, but given this success, T-Mobile will shut down the CDMA network in June. Helping the cause were phased market CDMA decommissionings to quickly repurpose the underlying spectrum for LTE. Though the smart buys of 700 MHz spectrum provide it 190 million POPs, geographically, more 700 MHz will likely be purchased.
- Carrier aggregation: T-Mobile is looking at carrier aggregation across its portfolio. 700+AWS (Band 12/4) carrier aggregation is already available in certain markets with 700+PCS (Band 12/2) following behind. Mutually beneficial ground work in 3GPP standards also make it possible for a PCS+AWS (Band 2/4) combination. However, given its spectrum depth, this latter flavor should be lower priority compared to its 2016 push for LAA/LTE-U to further downlink throughput.
- LTE coverage: At the end of 2014, Sprint covered 270 million POPs. By the end of the first quarter, it reached the 280 million mark. Yet there is a caveat as Sprint reported its crown jewel 2.5 GHz LTE deployment separately in 2014. Sprint met its 100 million POP goal by the end of 2014, but in their calendar fourth-quarter earnings, the number miraculously jumped to 125 million. Since then, the carrier has been silent on any 2.5 GHz goals nor any response to address the magic 300 million POP coverage metric that national competitors exceeded/will reach. What is known is that it expects about 38 million in POP coverage through LTE roaming agreements with Competitive Carrier Association members.
- Further buildout: Network Vision is for the most part complete but the near term goal is to build out LTE in the 800 "rebranded" areas. This may be nuance wording but rebanding is still a thorn in its network side and far from complete, requiring heavy duty lobbying to keep it rolling. The long pole in the network tent continues to be its 2.5 LTE plans, as it remains unclear what the end vision will look like. The original goals shifted with the entrance of CEO Marcelo Claure, when he stated then Sprint was going to target network congestion rather than an across the board buildout. Most recently, Sprint executives discussed a longer-term massive densification plan, complete with vendor RFPs that needs to be finalized with parent SoftBank. It's puzzling that densification as a logical next step wasn't thought out or funded in Network Vision. As a result the carrier will still lag competitors.
- Spectrum and carrier aggregation: Sprint didn't need to participate in the AWS-3 auction given a lack of AWS in its portfolio but the 2.5 GHz crown jewel with massive depth has yet to be fully exploited. Since 2014, two-carrier, TDD intra-band carrier aggregation was already planned, with three-carrier TDD to follow in 2015. Though two-carrier carrier aggregation-capable devices are already seeded in the portfolio, the slow pace of this implementing feature continues to position Sprint last in speed, as most of its LTE is based on a narrow 5x5 MHz PCS implementation. The question will be how quickly two-carrier and three-carrier carrier aggregation come about if they are tied to this longer-term massive densification strategy. In the long run, there are plans for FDD-TDD carrier aggregation ostensibly to provide further speed. Finally, Sprint has embraced Wi-Fi as another "network layer," most recently and formally with its Boingo partnership at airports along with Wi-Fi calling support and its own "Wi-Fi Connect" router. Yet with all the new Wi-Fi support, Sprint has yet to throw its support behind LTE-U.
So to distill all of this, here are some bottom line points. In terms of LTE coverage, network parity is coming. Verizon and AT&T are adding capacity while T-Mobile is quickly catching up to its larger competitors with a network capacity already planned. Sprint is the slowest mover in the coverage arena and still needs to address building out its network for capacity and what their capital program to support this will be.
Every carrier is "happy" with their spectrum position but they're smart and will always be on the hunt in the secondary market for complementary spectrum. T-Mobile should be the hungriest for additional 700 MHz spectrum. Carrier aggregation will pick up as the speed war, fueled by the never ending RootMetrics reports and the subsequent carrier press releases and earnings call citations. AT&T and Verizon's network transformations are "skating to where the puck will be" in an effort to become more agile and drive down costs. So far smaller Sprint and T-Mobile haven't seen this need. There's no doubt that more changes will come about this year.
William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures. He has over 25 years of experience in the fixed, Internet and wireless sectors. Follow him on Twitter @billho888.