AT&T, Verizon Stake Out U.S. Microwave Spectrum Licenses Ahead of Big 5G Broadband Expectations

B. Washburn
B. Washburn

Summary Bullets:

  • 5G’s high-frequency component holds the promise of very high-performance/low-latency millimeter wave mass-market communications. AT&T and Verizon are aiming for companies with large bundles of spectrum licenses.
  • Millimeter wave license holders struggled to monetize the business. The 5G spec makes mass-market promises, but the technology has to break cost and power usage barriers.

The latest U.S. spectrum auction wound down in April, raising US$19.8 billion – less than half of what the U.S. government expected – for 70 MHz of spectrum sold for cellular communications in the desirable sub-1 GHz band. Comcast, T-Mobile and Dish Networks bid heavily. But, incumbent mobile operators AT&T, Verizon and Sprint, usually starved for spectrum and willing to spend big, barely made a showing.

Instead, AT&T and Verizon are investing in spectrum of a different sort. In February 2017, AT&T quietly bought a company called FiberTower; AT&T also has bid to acquire Straight Path Communications. For its part, Verizon has a standing offer to acquire the spectrum licenses formerly held by XO Communications.

FiberTower? Straight Path? Behind these brands are companies once known as Teligent, Winstar and Nextlink. Twenty years ago, those companies paid a premium to acquire huge numbers of U.S. government spectrum licenses in the 28- and 38-GHz millimeter wave range during the dot-com boom. All three experienced dot-com bust bankruptcies, and subsequent owners have been in search of a cash cow business plan ever since.

That cash cow is finally here. The 5G specifications include a high-frequency component that could turn high-speed/low latency millimeter wave communications into a desirable mass-market asset. The FCC is paying attention to the 5G high-frequency spec: In 2016, the Commission promised to free up 10.85 GHz of millimeter wave spectrum in 28-, 38- and 60-GHz bands for that purpose. But, AT&T and Verizon rightly recognize that an auction is costly, and there are winners and losers. If 5G’s millimeter wave specification opens up a new revenue opportunity, isn’t it a safer bet to buy companies that already own big bundles of licenses in these frequency bands?

For the same reason, AT&T found its US$1.25 billion offer for Straight Path Communications counterbid by a mystery player offering US$1.31 billion. So far, industry speculation believes the counterbidder is either Verizon or Sprint owner Softbank. Until recently, it was unthinkable that these underappreciated millimeter spectrum assets could start a bidding war. But, market players are willing to bet on them, even if it is betting on the unknown. Mass-market millimeter wave communications is no slam dunk. Successful mobile device radio componentry needs to be tiny, inexpensive and power efficient. Millimeter wave technology is a performance powerhouse that operates in a nosebleed part of spectrum where gear has been neither cheap nor low-power. But, the risks of missing the boat on this key 5G element appear to be too high for the big players to sit out.

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