11.29.17

Tilting the playing field…

Posted in AT&T, Operators, Regulatory, Services, Spectrum, Verizon at 11:08 am by timfarrar

Over the last week its been frustrating to see what should be a technical debate about the best way to regulate access networks deteriorate into ludicrous hyperbole about how “repealing net neutrality would end the internet as we know it” when in reality it “isn’t the end of the world“.

At its core this is really a debate about whether you can trust businesses in general and ISPs in particular, with Republicans declaring that a free market is the best solution to promote investment, whereas Democrats are saying that regulation is needed due to the lack of competition in access networks. Thus one side says “Net neutrality rules are unnecessary because ISPs will do the right thing” whereas the other side says its “the very laziest of anti-net neutrality tropes [to say] that the wolf hasn’t eaten the sheep yet so let’s trust the wolf.” And of course, once politics are involved, the current climate means that everything gets blown out of proportion.

In reality the right answer probably lies somewhere in the middle, which is what sensible commentators like Ben Thompson and Dean Bubley are trying to feel their way towards. Ben’s commentary in particular has come under criticism because he “assumes public intervention is costly and corrupt, that telecoms are accurate, and that there’s no role for morality” despite there being plenty of evidence of previous regulatory failures in Tom Hazlett’s recent book “The Political Spectrum”. However, its not unreasonable to think that trying a light touch approach backed up by antitrust enforcement is a good idea and that “framing these trade-offs as moral choices” is unhelpful.

Perhaps it is true that the best answer would have been to push harder on unbundling local loops to facilitate service-based competition on telco networks, just as in Europe, but that ship sailed 15 years ago when the CLECs went bankrupt. Instead, going all the way back to the 1996 Telecom Act, the US has focused on infrastructure-based competition between cable and telcos, which unsurprisingly hasn’t produced the same level of competition, due to the cost of maintaining multiple access networks.

Maybe this is a failed model and we now have to be content with regulating the current oligopoly of cable and telcos to ensure they don’t behave badly (and we can certainly debate exactly how much regulation is needed to achieve that). But perhaps wireless broadband will provide some level of new competition for fixed providers. I dismissed that possibility 6 years ago, but now I’m increasingly convinced that the enormous efficiency gains coming from MIMO will provide wireless operators with more capacity than they know what to do with, enabling them to deliver wireless broadband in the home to at least some (meaningful) number of consumers.

Whether that’s ultimately 10% or 30% of households very much depends on how much capital is available to invest in those networks. And how good the performance will be remains to be seen – after all the 13% of adults who are smartphone only internet users are mostly doing it for cost reasons and “often encounter difficulties like accessing and reading content, as well as trouble submitting files and documents.”

But that’s not my primary focus here. One point made by net neutrality proponents such as Barbara van Schewick is that for the last 20 years, the regulation of telecom networks has been backed by both Republican and Democrat administrations and so the current proposal is a radical change in precedent. You can argue with the truth of that prediction, depending on whether you think the FTC will actively enforce antitrust law to deal with future net neutrality problems, but what is interesting to me is that many of the actions cited by van Schewick were taken to support content providers like Netflix or Google when those companies had a lot less power than they do today.

Some of those actions had significant costs, such as (Republican FCC chairman) Kevin Martin’s decision to attach “lifetime net neutrality conditions to parts of the 4G spectrum that [the FCC] auctioned off in 2008″. That action was taken at the behest of Google, but the result was that Verizon acquired 22MHz of upper C-block spectrum for only $0.76/MHzPOP, a 41% discount to the average price in the auction, and a more than 70% discount to the price paid (mainly by AT&T) for the lower B-block. Thus Google’s “net neutrality” lobbying effort potentially cost the government somewhere between $5B and $10B in lost auction proceeds, without having any substantial impact on the wireless services you receive today (are you more likely to choose Verizon because some of its spectrum comes with “open access” conditions?).

Of course net neutrality has not been the only area where Silicon Valley companies have sought or obtained favorable regulatory treatment compared to telcos and cable companies. The last Commission’s set top box proceeding and proposed privacy regulations were both seen as favoring Google, Amazon and Netflix over Verizon and Comcast. The current Commission is tilting the playing field back towards access providers by abandoning these efforts and dismantling the net neutrality rules, and opponents argue that it is going too far, because of the lack of competition in access provision and because they don’t trust the wolves at Comcast, Verizon and AT&T.

But if its now a debate about whether you can trust businesses in general to behave reasonably, can you trust Silicon Valley companies any more than ISPs? Do Google and Netflix need regulatory advantages over ISPs now they are so powerful? Are ISPs any more of a monopoly than Google or Facebook or Twitter, and which of them are more likely to be disrupted in the future? Those are the questions that are now being raised, most explicitly in Chairman Pai’s speech yesterday, where he noted that:

“despite all the talk about the fear that broadband providers could decide what Internet content consumers can see, recent experience shows that so-called edge providers are in fact deciding what content they see. These providers routinely block or discriminate against content they don’t like

Nonetheless, these companies want to place much tougher regulations on broadband providers than they are willing to have placed upon themselves. So let’s be clear. They might cloak their advocacy in the public interest, but the real interest of these Internet giants is in using the regulatory process to cement their dominance in the Internet economy.
And here’s the thing: I don’t blame them for trying. But the government shouldn’t aid and abet this effort. We have no business picking winners and losers in the marketplace. A level playing field, not regulatory arbitrage, is what best serves consumers and competition.”

In fact a more directly relevant example than speech censorship comes from Netflix itself, which proclaims its support for “strong Net Neutrality” (and is seen as one of the key beneficiaries) but back in September was trying to muscle inflight connectivity providers into zero rating Netflix video content if they wanted access to Netflix’s improved codecs to minimize bandwidth consumption onboard. Ironically enough, inflight connectivity is seen by net neutrality supporters as a good example of what non-neutral networks might look like.

I’ve been warning for a while that Silicon Valley is not well positioned to succeed in building telecom networks (or cars) and so would not be favored under this infrastructure-focused administration. And that’s far from the only cause of a backlash. But now I think there’s good reason for “the entire tech industry [to be] flipping its shit” because tech companies are the most likely losers even if we don’t end up in all-out partisan warfare, but simply remove the regulatory favoritism that Silicon Valley has benefitted from for the last 20 years.

10.16.17

Set up to fail?

Posted in LightSquared, Operators, Regulatory, Spectrum at 10:35 am by timfarrar

Last week, Fierce Wireless reminded everyone that LightSquared was “one of the 10 worst telecom business moves of the last 10 years.” But now it may be time to consider if Ligado is going to appear on a similar list in a few years time.

On October 10, Brad Parkinson of the PNT Advisory Board invited Doug Smith, CEO of Ligado, to present to them at the meeting in Redondo Beach, CA on November 15. The letter advised Smith to “specifically describe your implementation plan, with a corresponding test plan addressing the issues we have openly raised” noting that “without these specific technical details and corresponding evaluations, we can only conjecture as to what you are really proposing.”

Parkinson’s letter also refers obliquely to Smith’s letter of July 6, noting that “from its tone, it is clear we still have several communications difficulties.” That’s quite an understatement, given that the July 6 letter accuses Parkinson of “willful blindness” about the specific details of Ligado’s public proposal and complains vehemently that the Board gave a “platform to Iridium’s unfounded and irrelevant concerns.”

Ligado has little alternative but to accept the invitation (and I’m told it already has), but the sub-text here is that the PNT Advisory Board meeting is full of technical experts who will undoubtedly be able to pick apart Ligado’s assertions (as stated to the FCC in June 2017) that a “consensus of industry and scientific opinion” backs Ligado’s proposal.

Indeed, the PNT Advisory Board has already advised the Executive Committee (chaired by the DoT and DoD) in July that Ligado’s “current proposal is fundamentally the same as the proposal tested in 2011″ and so the government faces a choice between:

1) Protect current and evolving uses of GPS, military and civilian, as a matter of national priority,
or
2) Approve high power terrestrial mobile broadband application in frequency bands adjacent to the GPS that would very likely cause harmful interference to both government and private sector GPS applications.

Its important to recognize that the PNT Advisory Board is attempting to ensure that the EXCOM can’t do anything other than recommend Ligado’s proposal be shelved, boxing in both NTIA and ultimately the FCC, just as in early 2012, when the EXCOM letter to NTIA was reflected in the NTIA letter to the FCC and the FCC’s proposal to suspend LightSquared’s terrestrial authorization.

Ligado has been claiming to investors that it has Transportation Secretary Elaine Chao onside and she will overrule the concerns of the DoT engineers, as well as suggesting that the nominee for NTIA Administrator David Redl is a firm supporter of freeing up this spectrum. Nevertheless, last time around LightSquared’s political backers ran for cover at the first sign of trouble and there are other voices in government, such as Scott Pace at the National Space Council, who have taken a very different position in the past.

It is fair to say that the DoT’s ABC study conclusions, that Ligado should only be permitted to operate at a few mW of downlink power are an overly conservative “worst case of the worst case” assessment. However, the DoT’s aim here is not to find a compromise but to get rid of Ligado, just as in 2011 when the FAA suggested that LightSquared could kill 800 people over 10 years.

Ironically enough, I think there could be viable technical solutions to most of these problems, such as Ligado offering to buy back or repair all affected GPS receivers, which would be cheap compared to the more than $500M of interest that the company is accruing each year on its outstanding debt. However, Ligado once again appears more interested in political lobbying efforts to obtain approval, and opponents are again using the possibility of catastrophic outcomes to block that. So just as in 2011-12, Ligado now appears likely to drown in the political swamp that it has created.

10.03.17

Which company is behind the “deadly falling satellites”?

Posted in Regulatory, SpaceX, Spectrum at 8:15 pm by timfarrar


That’s one question raised by a September 29 letter to the FCC from Senators Cory Booker and Dan Sullivan, expressing concern for the “growing challenge presented by low-Earth orbit (LEO) space debris” and asking Chairman Pai to coordinate with NASA and the FAA to “establish an interagency working group on space debris and to develop a comprehensive domestic policy on space debris mitigation”.

The letter focuses primarily on collisions between satellites and other in-orbit debris, such as the Iridium 33 incident in 2009, but the FCC also has concerns about debris falling to Earth as highlighted in the Dilbert cartoon. SpaceX has now submitted proposals for both a 4425 satellite LEO constellation and a 7518 satellite VLEO (very low Earth orbit) constellation, and when the FCC assessed SpaceX’s proposal, it calculated a worst case “aggregate casualty risk from components that survive atmospheric re-entry as roughly 1 in 4 for the 7,518 satellite deployment described in the application, assuming no replenishment” and a risk of “roughly 1 in 5 for the 4,425 satellite deployment“.

SpaceX’s application indicates that there will be five or six components on each VLEO satellite which would survive re-entry with a kinetic energy of at least 960 Joules (equivalent to a 5lb brick traveling at 65mph) and its response to the FCC’s query, stating that “individual vehicle risks rang[e] from 1:17,400 to 1:31,200″, is not exactly encouraging when there are intended to be 12,000 satellites in the constellation.

Indeed, although Elon apparently has only Non-GAAP “adjusted” hair rather than pointy hair, SpaceX’s proposed mitigation measure was similar to that in the Dilbert cartoon, suggesting that (rather than aiming for cities that have lots of swimming pools) the Commission take into account “the degree to which people would be located within structures that would provide shelter from potential impact”.

With concern now being expressed from Congress as well as within the FCC, it will therefore be interesting to see what happens next, and in particular whether this impacts the approval process, including the two draft orders that were circulated by Chairman Pai last week to “grant U.S. market access to two more NGSO systems in the Ku- and Ka- spectrum bands”. I had assumed these orders would be for SpaceX and Telesat, due to those companies’ intention to launch test satellites later this year, but according to Communications Daily, the orders are in fact to approve Space Norway and Telesat, leaving SpaceX out in the cold.

09.15.17

Eye of the hurricane…

Posted in Aeronautical, Broadband, Eutelsat, Inmarsat, Operators, Services, SES, Spectrum, ViaSat at 12:54 am by timfarrar

This week in Paris all seemed calm, after the turbulence of the last few years, with the only major announcement coming from SES with its new O3b mPower MEO constellation. But under the surface a lot is happening, and (perhaps appropriately) I think we are now just in the eye of the hurricane, and the storm will shortly ramp up once again, before we find out who and what will be left standing in a couple of years time.

SES’s announcement came several months after it selected Boeing to build the O3b NEXT constellation (the “development agreement” was announced in July as part of SES’s half year results) and the delay until now appears to have been due to SES waiting for an anchor tenant that never materialized. In fact I believe SES originally expected to announce the contract in May, as was hinted at when SES’s CEO said he was “too busy” to go to Satellite 2017). However, SES is clearly not willing to see OneWeb, ViaSat and Inmarsat take the lead in new data-oriented satellite systems, whether or not it secures a major anchor tenant for this system.

Another subject of much debate is what Panasonic will decide to do now its original plan to invest in dedicated XTS satellites appears to be dead. Panasonic wants to lay off much more of the risk on a satellite operator, rather than underwriting the satellite costs in full, as Thales did with SES-17. Will an FSS operator be prepared to take this risk, bearing in mind that Intelsat is short of money, SES is now building O3b NEXT (which won’t be well suited for high latitude aero operations) and Eutelsat is intending to partner with ViaSat? Or would Panasonic do something more radical and let a rival like Inmarsat take over provision of connectivity services?

Finally, Inmarsat seems to be under a lot of pressure after a 15% decline in its share price in the last two weeks, and some were speculating that recent personnel changes were connected to this uncertain outlook. Profitability of aero contracts (notably that with Lufthansa) remains a major concern, and issues remain to be resolved for the EAN air-to-ground network, especially if Inmarsat is forced to provide a more robust satellite link in the wake of ViaSat’s legal challenge.

All of these issues provide much food for thought, and could lead to significant realignments in the industry over the next year. Decisions affecting the inflight connectivity market are almost certain to occur, because Panasonic can’t wait too long to provide clarity on its future positioning, and so we had better batten down the hatches for the coming winds of change.

09.08.17

Me first, no me…

Posted in Broadband, Regulatory, Spectrum at 9:42 am by timfarrar

Yesterday the FCC released the proposed text of its Report and Order on “Updating Rules for Non-Geostationary-Satellite Orbit Fixed-Satellite Service Constellations” which will be voted on at the Open Meeting on September 26. There are some minor wins for SpaceX and other systems that aren’t as advanced as OneWeb, notably in the relaxation of the 6 year construction deadline so that only 50% of the constellation needs to be completed by that date.

However, the key text on the geographic scope of the FCC’s in-line interference avoidance rule (that requires the spectrum to be shared equally between NGSO systems when their satellites are aligned with one another) marks a major defeat for SpaceX, because the FCC will allow the ITU’s “first-come, first-served” coordination procedures to take precedence for non-US systems operating outside the US.

53. Geographic Area. SpaceX and SES/O3b ask that we clarify the geographic scope of our NGSO FSS sharing method as it relates to non-U.S.-licensed satellite systems granted U.S. market access. While SpaceX argues that it should govern such operations worldwide, a grant of market access typically considers radiofrequency operations only within the United States. Sharing between systems of different administrations internationally is subject to coordination under Article 9 of the ITU Radio Regulations. We believe this international regime is the appropriate forum to consider NGSO FSS radiofrequency operations that fall outside the scope of a grant of U.S. market access. Because ITU coordination procedures do not apply between two U.S. systems, our coordination trigger of ΔT/T of 6 percent will govern such operations both within and outside the United States.

OneWeb is licensed by the UK and Telesat by Canada, and these systems have ITU priority in the Ku and Ka-band NGSO spectrum respectively. Thus SpaceX will have to operate on a non-interference basis with respect to these systems in either band outside the US. This (proposed) ruling represents a big problem for SpaceX, which needs to find another line of business outside of launch to justify its latest $21B valuation.

SpaceX is already building two experimental 400kg Ku-band satellites, apparently pictured above, which are scheduled for launch at the end of 2017, as co-passengers with the Hisdesat PAZ SAR imaging satellite (note that the orbital injection parameters of PAZ and SpaceX are identical: a sun-synchronous orbit at 514 km altitude with an inclination of 97.44 degrees). A license from the FCC, both for these test satellites, and likely for the entire constellation as well, is expected very shortly.

The key purpose of SpaceX’s accelerated launch schedule is to beat OneWeb (which plans to launch its 10 test satellites in early 2018) to orbit, as under the FCC’s regulations, the first system to launch gets to choose its “home” spectrum during an inline event. Presumably on the assumption that possession is nine-tenths of the law, SpaceX also recently extended the planned lifetime of these two satellites from 6 months to at least 20 months, stating that “if this lifetime is exceeded, SpaceX plans to continue operation until such time as the primary mission goals can no longer be met.”

However, now the FCC’s proposed order appears to have derailed its strategy, SpaceX will need to find a way to gain ITU priority, if it is to build and operate a global constellation. From this point of view, Telesat, which has been adamantly defending its ITU priority, appears to be sitting pretty. Indeed we are told that after its planned test satellite launch later this year, Telesat will wait until next summer before deciding how to move forward, presumably expecting to have a wide variety of suitors once its ITU priority status is recognized.

A joint venture with SpaceX (to which Telesat contributes its licenses and SpaceX brings the money) is certainly a plausible option, though it would require SpaceX to shift its plans to Ka-band. However, if this became a real possibility, it wouldn’t be surprising for SoftBank to try and head off SpaceX by investing in Telesat, or perhaps even buying Loral Space and Communications.

The ramifications of such a move on SoftBank’s part would be even more significant, given that Intelsat’s investors apparently expect SoftBank to return to the negotiating table next year, after they rejected SoftBank’s previous offer in May, and a switch to Telesat would put them in a tricky position.

So now we have to wait and see how SpaceX responds to this setback. Will SpaceX still move forward aggressively into the satellite business or will some of the executives who have in the past counselled caution gain the upper hand? Will the experimental launch proceed on plan (I assume so)? And most importantly, which partners will emerge for Telesat’s proposed LEO system?

05.14.17

Will ViaSat’s Air Force One contract get trumped?

Posted in Aeronautical, Inmarsat, Operators, Services, ViaSat, VSAT at 12:51 pm by timfarrar

Back in June 2016 there was considerably excitement around ViaSat’s sole source $73M contract to provide connectivity for Air Force One and other senior leadership aircraft. The plan was to replace Boeing’s Ku-band BBSN (which has continued to operate ever since the commercial Connnexion-by-Boeing project was cancelled in 2006) with a dual Ka/Ku-band solution which could utilize the ViaSat Ka-band satellites within their coverage footprint and then switch back to Ku-band in other parts of the world.

I’m told that one reason this upgrade happened was that President Obama’s daughters complained that the connectivity on Air Force One compared unfavorably to the speeds available on other ViaSat-equipped aircraft they had flown on, and ViaSat ultimately received a sole source contract, with the US government purchasing a couple of dozen of ViaSat’s dual Ku/Ka antennas in addition to the airtime contract.

But I’ve heard rumors that the RF performance of this Ku/Ka antenna failed the WGS compatibility tests required by the Air Force, and so to date the US government has not installed these new terminals, and Air Force One is apparently still operating with the old Boeing system. Its unclear what the end result will be, or if this is an easily solvable problem, but ViaSat’s competitors (especially Inmarsat, which has successfully leased GX capacity to the DoD for manned surveillance missions in the Middle East) are now rubbing their hands with glee.

[UPDATE 5/15] A spokesperson for ViaSat states that this rumor “is inaccurate. ViaSat is on target with our testing and deliverables, per our DISA contract.”

The broader prospects for ViaSat’s Ku/Ka antenna also appear uncertain, with the only commercial customer to date being Virgin America, which is using a handful of terminals on its Hawaii routes. Virgin America’s new owner, Alaska Airlines, has announced its intention to replace its existing Gogo ATG solution with a high speed satellite solution, but some now think that Gogo’s recent lease of the AMC-4 satellite for Pacific coverage means it will win this business with 2Ku.

Its interesting to note that Gilat has also developed a Ku/Ka antenna, which Hughes will offer for roaming outside its own Ka-band coverage footprint. Will this antenna be better than ViaSat’s solution, and more broadly will a combined Ku and Ka antenna (which inevitably has a smaller aperture and more beam skew problems) be a realistic alternative to high performance flat panels like Gogo’s 2Ku? The answer to that question will dictate whether ViaSat and Hughes can provide competition in the long haul passenger aircraft market over the next few years, or whether Panasonic, Gogo and Inmarsat will continue to dominate that segment until all three ViaSat-3 satellites are launched in the early 2020s, by which time most airlines will already have made their choice of provider.

04.27.17

Hello Charlie!

Posted in DISH, Financials, Operators, Regulatory, Spectrum, T-Mobile at 6:58 am by timfarrar

“Goodbye Seattle…next stop Denver, Colorado!” as John Legere wrote yesterday, perhaps in preparation for a meeting when the incentive auction quiet period ends at 4pm MT this afternoon. That could seem like just more speculation about the supposed M&A negotiations frenzy that many expect now the incentive auction is over. However, it is possible that the outlines of a deal might already have been formulated a year ago, which led to DISH’s perplexing decision to bid for 20MHz of spectrum in the auction.

What is certain is that DISH didn’t accidentally end up with 20MHz of spectrum, but instead went into the auction with a bidding strategy which virtually guaranteed DISH would end up with that much spectrum, unless AT&T and Verizon both wanted a large national block. So Ergen must have had a plan for what to do with that spectrum, and that plan couldn’t be that he simply expected Verizon to turn up and buy DISH, because his position is now more stretched financially and he owns a block of spectrum that neither Verizon nor AT&T appear to want. However, this national block of low band spectrum would be ideal for a new entrant buildout.

So I think the only plausible conclusion is that Ergen already has (at least in outline) a deal in his back pocket to provide spectrum for a new competitive national network. There’s a lot of history here that has never been in public view before, and I only know about 60% of what happened, so there may be some errors below, but I believe that the overall big picture storyline of what happened in 2015 and 2016 is broadly correct.

Back in second half of 2015, DISH, T-Mobile and Google discussed a huge three way deal to build out a national LTE Advanced network that would have used DISH’s spectrum, Google’s money (plus technology developed by ATAP) and T-Mobile’s network as host. Each of the three parties would have received wholesale capacity in exchange for their contribution, similar to the LightSquared-Sprint agreement back in 2011, allowing T-Mobile to augment its network capacity and DISH and Google to offer MVNO services, such as streaming Sling TV.

Ergen made a lot of trips to Silicon Valley that fall (I was told his jet was a regular visitor at Moffett Field) but he ultimately declined to do a deal because he considered the valuation being put on his spectrum ($15B was the number mentioned to me) was insufficient. By spring 2016 Ergen had changed his mind, but Google then decided against it, after hiring Rick Osterloh and deciding to focus on the Pixel phone (which required partnerships with existing wireless operators such as Verizon).

Google has now pretty much given up on its Access projects, including Google Fiber, and no longer seems plausible as a provider of funds for the new network. That leaves two possible players with the balance sheet and potential interest to fund the plan, namely Amazon and Apple, and its pretty remarkable that John Legere mentioned Amazon twice (but not Apple) in connection with deals like this during his Q1 results call on Monday:

“…we should be clear that there are strategic possibilities between wireless companies, cable players, adjacent industries, Amazon, Internet players, that should be thought about, because they drive great value for shareholders and also new opportunities for customers.”

“Now I do feel that the old lore of the four wireless player market, it’s dead. It’s gone. So did Comcast enter or not? How long are we going to play that game? Is Google in or not? Will Amazon come in at some point in the day?”

A three way partnership between DISH, Amazon and T-Mobile therefore seems to me to be the single most likely deal to emerge in the next few weeks. T-Mobile has emphasized its desire for a rapid build out of its large block of new spectrum, and it could easily include a buildout of DISH’s incentive auction spectrum at the same time. Amazon could use the capacity not only for in-home services such as Echo, but also to support other activities such as drone deliveries, while DISH could provide wireless service built around Sling TV, as well as fixed wireless broadband if desired.

In contrast, Verizon and AT&T have their sights set on mmWave spectrum and 5G, so neither seems like a potential buyer of DISH’s spectrum, while Comcast appears determined to rely on its MVNO deal with Verizon after only buying 5x5MHz of spectrum in the incentive auction. Most importantly, attempting a merger of T-Mobile and Sprint, would still carry significant regulatory risk and would be far less attractive for T-Mobile than an agreement to host a differentiated new entrant (as Legere points out that can “drive great value for shareholders”). And as far as DISH is concerned, I’m simply amazed that no one appears to be writing about this as one of Ergen’s “options“.

04.13.17

Bluff and double bluff…

Posted in AT&T, DISH, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 7:18 pm by timfarrar

The FCC incentive auction results were published earlier today, and to everyone’s surprise, DISH ended up spending $6.2B to acquire a near national 10x10MHz footprint. T-Mobile spent $8.0B (which was only slightly above the predicted figure), but Verizon didn’t bid, and AT&T ended up with even less spectrum than predicted, spending only $900M. Comcast spent $1.7B, while two hedge fund-backed spectrum speculators, Bluewater and Channel 51, spent $568M and $860M respectively (after each receiving a $150M discount for being “small” businesses).

Some parts of this outcome (notably T-Mobile’s substantial purchases and AT&T’s bluff in bidding for a large amount of spectrum before dropping bids) are similar to my predictions, but I had expected Comcast rather than DISH to be the other large bidder. My assessment that DISH might have been pushed out of the bidding in Stage 1 was based on an assessment that DISH would initially focus on major cities to force up the price for others (as happened in AWS-3), but instead DISH played the role of a more regular bidder (presumably as a double-bluff to hide its intentions), and spread its bids fairly uniformly across a large number of licenses. In fact Comcast started with this drastically more concentrated strategy and then tried to drop bids, while AT&T also began to drop most of its bids before the end of Stage 1, with both Comcast and AT&T responsible for the dramatic falls in overall bidding eligibility from Round 24 onwards.

What did go as I predicted was that AT&T largely dictated the pace of the auction, reaching a maximum commitment of $7.4B in Stage 1 Round 21, before dropping eligibility rapidly in the latter part of Stage 1 and attempting to exit from all of its bids in Stage 2 and beyond. AT&T was only prevented from achieving this goal because Comcast apparently also got cold feet about being stranded after reaching a maximum commitment of $5.9B in Stage 1 Round 22 (based largely on concentrated bids within the largest PEAs in addition to its more modest bids for a single 5x5MHz block elsewhere).

It is unclear exactly what Comcast’s objective was, but Comcast may have been making these concentrated bids to push up the overall price to reach the reserve (which is measured on average across the top PEAs) in areas which it didn’t want, so that the price in areas it did want would be lower. However, Comcast didn’t want to be stranded and so when AT&T started dropping bids, I assume Comcast panicked and decided that it also needed to get out of those concentrated bids.

So in summary, despite its high exposure during Stage 1, I doubt Comcast really wanted to spend $6B+ on spectrum – instead it just wanted to get a limited 5x5MHz block of spectrum within its cable footprint at the lowest possible cost. AT&T apparently wanted to use its financial resources to game the auction and strand others (Verizon or DISH) with spectrum that they might struggle to put to use. T-Mobile was trying to get at least 10x10MHz of spectrum on a national basis, and succeeded, albeit with no other wireless operators now present to help ensure a quick transition of broadcasters out of the band. DISH also seems to have set out from the beginning to buy a national 10x10MHz block, with Ergen going all in on spectrum, presumably because he believed this spectrum would be cheap and could provide leverage for a subsequent deal. And finally, several speculators decided to acquire a more limited set of licenses that they hoped they could sell on to AT&T or Verizon at a later date, which now looks like a rather unwise bet.

Of course the most important, and puzzling, question is why did DISH set out to buy another 20MHz of spectrum when it already has a huge amount of spectrum that it has not yet put to use (and DISH’s current plan for that spectrum is a low cost IOT network to minimize the cost of meeting its March 2020 buildout deadline)? It seems Ergen concluded that this spectrum would either sell for a low price because of the sheer amount of spectrum available or (if AT&T and Verizon both turned up and wanted 20MHz+ of spectrum) then he could push up the price and make life difficult for T-Mobile just as in the AWS-3 auction. It turned out to be the former, but Ergen may not have expected AT&T to drop its bids at the end of Stage 1, which has resulted in both AT&T and Verizon likely having no long term interest in acquiring spectrum in this band (and potentially even an opportunity to push out the time period over which this spectrum is put to widespread use).

That leaves DISH with less leverage rather than more, because now DISH has spent so much on spectrum it can’t credibly play the role of disruptor in upcoming industry consolidation (either by building or buying) and instead Ergen has to wait for operators to come to him to buy or lease his spectrum. DISH may now want to shift into the role of neutral lessor of spectrum to all comers, but it seems unlikely that AT&T and Verizon will be prepared to enable that, while T-Mobile and Sprint now both have plenty of their own spectrum to deploy.

Instead it seems probable that Ergen might end up attempting to find other potential partners outside the wireless industry, but with cable companies are unlikely to deploy a network from scratch, he may have to return to Silicon Valley. However, with Google already having said no to a deal with DISH, the list of possibilities there is also pretty short. So yet again, we may end up with DISH on the sidelines, overshadowing, but ultimately not having much influence on the wireless dealmaking to come, whether that is a merger between a cable company and a wireless operator, or an attempt to get approval for a merger of T-Mobile and Sprint.

04.05.17

Et tu, Robert?

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:48 am by timfarrar

Is it too soon to ask whether another trip to the bankruptcy court is now a possibility for Ligado? Pressure is growing from all sides for Ligado’s proposed changes to its spectrum plans to be turned down by the FCC, culminating in yesterday’s op-ed in The Hill by former FCC Commissioner McDowell.

He noted that back in 2010 “the FCC pivoted away from physics and toward politics in making an ill-conceived decision that fundamentally endangered aviation safety and the operation of vital military equipment” and suggested that “Ligado…hasn’t changed its tactics, is pushing hard and is hoping today’s policymakers have short memories. It won’t succeed.” Most importantly, he states “the essence of the science behind their arguments hasn’t changed: Ligado’s plan still causes harmful interference to already-licensed neighbors such as satellite services providers, NOAA’s weather service and the aviation industry.”

It is particularly ironic that McDowell is adopting such an strident tone, when he served as an expert witness for LightSquared’s special committee and testified in the first bankruptcy confirmation hearing back in March 2014 that he believed the FCC will approve LightSquared’s applications by the end of 2015. He was quoted at that time as stating:

“The issues have been before the FCC for a long time. We’re almost two years away from the end of 2015, and that is more than ample time to come up with technical solutions. One component of their decision is resolution of this bankruptcy, it will be a huge issue off the checklist for the FCC. Once that’s behind us, the commission will act with alacrity.”

However, he’s not the only heavyweight opponent that Ligado is facing, with the American Meteorological Society and the American Geophysical Union urging the (previous) Secretary of Commerce back in December “to encourage the FCC to reject Ligado’s sharing proposal [for the 1675-80MHz band] outright without establishing a further FCC Notice of Proposed Rulemaking on this matter.”

Iridium has also shifted its position, from one of negotiating a compromise with Ligado over the uplink band to now telling the FCC that “Iridium’s technical analysis makes clear that a Ligado terrestrial network is virtually certain to cause substantial interference to Iridium users” so “absent an agreement in which Ligado sufficiently modifies its proposed ATC operations to avoid interference with the long-established Iridium services in the adjacent band, the Commission should deny Ligado’s effort to convert its operations in the 1627.5-1637.5 MHz band to a terrestrial wireless broadband service.”

Finally, by all accounts, last week’s Department of Transportation workshop for its Adjacent Band Compatibility (ABC) study was a train wreck for Ligado, with the DOT taking a very hard line on avoiding any possibility of interference, no matter how unlikely, and thereby insisting on extremely onerous power limits for Ligado’s operations, while Ligado continued its Sisyphean task of criticizing the 1dB C/N0 interference limit, which all other parties insist on using.

Moreover, last Friday Ligado filed an ex parte with the FCC indicating that for the 1526-1537MHz band “applying the model developed in consultation with the FAA and other stakeholders to potential tower sites has produced power ranges of 9 to 13 dBW EIRP” compared to the 32dBW Ligado originally proposed in its license modifications. Thus even if Ligado could resolve its issues with the DOT (which could ultimately restrict the transmitted power to an even lower level), the FAA model will make this part of the spectrum band at best only usable for small cells, and severely limit its value to any purchaser.

In summary, all the major components of Ligado’s potential spectrum portfolio now face significant challenges:

1) the FAA will severely limit the power levels in the 1527-37MHz downlink band, and the DOT may further constrain (or even effectively block) these operations;

2) the Earth science community is working to block an auction of the 1675-1680MHz NOAA spectrum, which is integral to Ligado’s other downlink band (1670-1680MHz);

3) Iridium is attempting to block use of the 1627.5-1637.5MHz uplink band which would be paired with 1670-1680MHz; and

4) The remaining uplink band (1647-1657MHz) is too close to 1670-1680MHz for it to be effectively paired (so it would only be used for the 1527-1537MHz low power downlinks).

So its quite plausible that the Reuters article a few weeks ago about Ligado hiring Goldman Sachs and PJT Partners to “consider a potential sale or new investment,” which were immediately followed by widespread rumors about whether DISH could buy into Ligado, was an attempt to boost Ligado’s credibility before all this bad news emerged.

But where do we go from here? Ligado still has some available cash, which could last well into next year, and permit the lobbyists to continue their work. However, unlike under past administrations, it may no longer be possible to just put off a difficult decision, because Chairman Pai has recently pledged that the FCC will follow Section 7, and supply an answer on petitions or applications for a new technology or service within one year. Ligado’s application and petition were put on public notice on April 22, 2016, so it is entirely possible that we could now see a yes or no ruling from the FCC within the next three weeks.

03.16.17

MIMO is like fracking…

Posted in Regulatory, Spectrum at 10:04 am by timfarrar

Back in 2010 the FCC came out with its notorious forecast that there would be a 275MHz spectrum deficit by the end of 2014, based on projections of traffic growth, cell site growth and network efficiency. I pointed out at the time that there were problems with their calculations, and in reality it turned out that at the end of 2014 there was a nearly 300MHz spectrum surplus not a deficit.

The primary reason for this error was the flawed estimate of network efficiency, which was predicted only to double from 0.625bps/Hz to 1.25bps/Hz between 2009 and 2014 (note that in practice new cellsites are also placed to meet data traffic demand, but for simplicity I’ve rolled this into overall network efficiency).

In reality, if we plug in the actual growth in reported traffic and cell sites over the period from 2009 to 2014 (as summarized by Brattle in their 2015 CTIA-backed effort to continue the spectrum crisis narrative) the implied network efficiency (i.e. traffic per MHz per cell site) was 525% of the 2009 value by 2014, not 200% as the FCC predicted (i.e. a 425% improvement in efficiency, not the 100% predicted).

The chart above combines this data with Brattle’s predictions of traffic and cellsite growth from 2014-2019 and highlights that once again the prediction is for very modest network efficiency gains over this period, to only 139% of the 2014 figure in 2019, and Brattle use this figure to assert that there will once again be a spectrum deficit of over 300MHz by 2019.

Put another way, Brattle assert that the efficiency gains between 2014 and 2019 (39%) will be less than one tenth of the improvement that occurred between 2009 and 2014 (425%). Of course, in the real world, massive efficiency gains are already flowing from the deployment of MIMO technology, and Gigabit LTE is only just getting started.

Sprint stated in its October 2016 spectrum leaseback transaction that it is already achieving average spectrum efficiency of 1.6-1.95 bps/Hz, well above the Brattle predictions for 2019, and that it expects the average downlink efficiency in its Band 41 spectrum to reach almost 13bps/Hz by 2019 after the introduction of massive MIMO.

Indeed, the only way Sprint was able to justify the high valuation placed on its spectrum (based on a calculation of how much capex Verizon would be able to avoid by purchasing Sprint’s spectrum) was to assume that massive MIMO would not be feasible in paired spectrum bands. In practice massive MIMO is already being addressed in paired spectrum, and will simply be a bit less efficient than in TDLTE implementations. And if even a fraction of the efficiency gains set out by Sprint are applied to the FCC/Brattle model, then it is clear that there will continue to be a large spectrum surplus not a deficit.

So returning to my title, if spectrum is like oil, then MIMO is just as revolutionary for the spectrum market as fracking has been for the oil market. And as we are seeing in the incentive auction, where Verizon declined to participate, and AT&T has said it will be spending less than $2.4B, there are very similar implications for the price of spectrum as we’ve seen for the price of oil.

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