As news of new initiatives, partnerships, and trial plans focusing on 5G are pouring in from the Mobile World Congress (MWC) 2017,  we should not forget the most valuable asset that each mobile operator desperately needs to materialize their 5G vision, while remaining competitive with their LTE/LTE-Advanced offerings today – spectrum.

By Shahed Mazumder

Licensed spectrum is increasingly important since unlimited data plans, which are primarily enabled by spectrum holdings, have made a spectacular comeback as the mainstream offer from the Big 4 US carriers. It has become difficult to keep track of constantly changing offers, price cuts, and feature additions around unlimited data offerings – initiated by challengers T-Mobile and Sprint in the summer of 2016, and now joined by market leaders AT&T, and Verizon within the first couple of months of 2017.

Unlimited Data – What’s in It?

In January 2017, a study jointly conducted by FierceWireless, P3 Group, and Strategy Analytics revealed how much mobile and WiFi data the smartphone users of the Big 4 carriers consumed  during Q4 2016, and on which applications the data was consumed[i].  With more than 2,300 participating smartphone users and nearly 11M samples collected from  around the country, the study found that the frequency of app usage over mobile increased at the expense of app usage on WiFi over the measured period.  Customers of all carriers except Verizon used apps significantly more often on mobile than on WiFi. This trend was particularly  strong  with customers of Sprint, the early champion of unlimited data offers. Comparably, Verizon users consumed the least amount of data over mobile,  with both Verizon (31%) and AT&T (28%) users consuming noticeably lower proportion of mobile data; this reflects some price sensitivity due to the absence of unlimited data offers from these two carriers during Q4 2016.  

Smartphone Usage Pattern by Carriers.jpg

Average number of app sessions per user per day, total data volume per smartphone user per day, and average smartphone app usage time per user per day. (Source: P3 Group, 2016)

Looking at the most used smartphone apps for customers of the Big 4 carriers, Facebook predictably dominated app usage statistics for usage time regardless of connection type. Other than Facebook, the data hungry video app YouTube was a constant presence across the board. Remarkably, Sprint users also spent a significant chunk of their app usage time via mobile on Netflix, again demonstrating the appeal and effects of unlimited data.

 Top 10 Smartphone Apps by Usage Time.jpg

 (Source: P3 Group, 2016)

LTE Spectrum Battleground – Who Stands Where?

In October 2016,  Allnet Insights & Analytics and FierceWireless partnered to map out LTE spectrum (both deployed and held) of the Big 4 cellular operators, broken down on a county-by-county basis[ii]. The maps, based on a September 2016 data set, represented the downlink spectrum that matched the latest handsets available for each operator.

Verizon, the nation’s first and largest LTE operator,  now covers 143M wireless customers[iii] and passes a total of 312M in population. Verizon initially built its LTE network on the 700MHz spectrum license it won in FCC’s 700MHz spectrum auction held in 2008, and they also spent over $10B in 2015 for AWS-3 spectrum licenses to secure spectrum before demand started to skyrocket. Verizon’s overall spend was second only to AT&T, but they paid the highest Price per MHZ-POP to ensure ownership of lucrative bands, such as J block (1770MHz-1780MHz) spectrum holdings in key markets of Los Angeles, San Francisco, Washington D.C. and Philadelphia. Verizon also took part in the FCC’s most recent incentive auction for TV broadcasters’ unwanted 600MHz spectrum licenses[iv]. In addition, Verizon’s plan to purchase XO Communications was motivated in large part by a desire to obtain XO’s 28GHz and 39GHz spectrum[v].

AT&T, the second largest LTE operator, now covers 132M wireless customers[vi] and passes 355M in North America (including Mexico). AT&T primarily built its LTE network on AWS-1 and 700MHz spectrum and they also spent close to $18B, by far the  largest amount, on AWS3 spectrum licenses in 2015. Allnet noted that AT&T's 3-carrier aggregation strategy helped it to go after larger spectrum bands that in effect have been supporting the carrier’s new activism in favor of unlimited data. In additional recent research conducted by Deutsche Bank[vii], AT&T has been hailed as the king of unused spectrum to the point that it could respond to any competitive moves (i.e. Verizon offering unlimited data) more efficiently by leveraging its spectrum position as a “key differentiator vs. peers”. Referring to AT&T’s top management, the research report singles out the fact that AT&T sits on top of 65MHz of unused capacity- this is comprised of 40MHz of AWS-3/WCS spectrum, 5MHz of 2G spectrum, and 200MHz of 700MHz band spectrum via FirstNet. The lead contributor (40 MHz)  to this tally has been known to the analyst community since 2016, as AT&T’s CFO  and CEO both have said repeatedly that out of roughly 140MHz of spectrum ownership nation-wide, AT&T is only using around 100MHz.

T-Mobile, the third largest operator, covers 68M customers[viii] and passes 312M in population. T-Mobile deployed the LTE network primarily on their AWS-1 and 700MHz license, and the carrier also spent $1.77M on AWS-3 spectrum licenses in 2015  while announcing that it could spend up to $10B on 600MHz incentive auction.

Sprint, the smallest of the Big 4, currently has around 58M customers[ix] and reportedly passes 300M in population  with their LTE network. Sprint has aggressively deployed a carrier aggregation strategy that enabled ~200Mbps of download speed with iPhone 7 in some markets. Sprint has been particularly active  in building out its LTE network on its 2.5GHz spectrum holdings, partially via small cells, which fueled their pioneering role in offering unlimited data. Due to cash limitations, the carrier is not participating in the 600MHz incentive auction; however, not participating in the 600MHz spectrum auction is not necessarily a deal breaker. In today’s market, operators are more interested in boosting capacity in high demand markets – a task more suitable for higher frequency spectrum such as AWS-3. Lower frequency spectrum such as 600MHz, due to its excellent propagation characteristics, is desirable for initial coverage expansion, but not necessarily for capacity expansion.

Wireless Dominance Battle to Continue

In the most recent RootMetrics network performance testing study, Verizon came out on top, scoring  the best marks across all five categories of reliability, speed, data, call, and text[x]. Verizon’s overall score of 93.9 was followed by AT&T’s overall score of 90.5. Both were well ahead of Sprint (84.7) and T-Mobile USA (81.2). However, in a different study commissioned by OpenSignal testing, Verizon and T-Mobile USA were in a statistical dead heat in terms of LTE network speeds, with T-Mobile increasingly closing the gap on Verizon in terms of LTE coverage[xi]. In the latest round of testing conducted during H2 2016, both carriers demonstrated average (not peak) LTE download speed of just under 17Mbps.  For the same metric, AT&T achieved 13.86Mbps, with Sprint  as a distant fourth in average LTE network speed at only 8.99Mbps. The data makes it clear that depending on test parameters and objectives, the  evaluation of competitive dynamics can produce varying results  since different operators prioritize different themes in their network philosophy.  What is undisputable is the need of available spectrum to materialize pretty much any of those philosophies. As the speed-price combination of unlimited data offers continues to heat up among the Big 4 US carriers, it will be interesting to monitor how their spectrum strategy evolves going forward.