Eric Schmidt: FCC C-Band Auction Dooms U.S. 5G Future

In an opinion piece published in the Financial Times (paywall applies), former Google CEO Eric Schmidt, former CEO of Google, said that the FCC’s C band auction would threaten U.S. telcos by drastically increasing their debt loads.  “It is a digital setback that America and its allies can ill-afford,” Schmidt said.  Here are other excerpts from Schmidt’s FT op-ed:

FCC Auction 107 issued 280MHz in the valuable “C-Band” spectrum (3.7GHz-3.98GHz)  — the ideal frequencies for 5G — to mobile telecommunications companies for network development.

But it imposed no meaningful requirement to build necessary network infrastructure. The massive sums winners paid for the spectrum will reduce their financial capacity to actually use it. Instead, it will probably result in disinvestment and downsizing.

At the same time, $81bn is merely a trifle for the U.S. government, equivalent to less than a month of US debt issuance and the money is unlikely to be spent on the 5G network the country needs. The outcomes are predictable: Americans will face higher prices and weaker digital services — yesterday’s internet tomorrow.

That is what happened when European telecoms companies paid over the odds during the 3G auctions of the early 2000s. Europe is still recovering from its lost digital decade. At stake are not just internet speeds but preserving prosperity. Today’s leading technology companies are American because U.S. companies built the core components of high-speed data infrastructure in the 4G LTE era, which meant their software was positioned to succeed.  That is not the case for 5G.

Only 24 per cent of Europeans had access to a 5G network last autumn. US 5G is more marketing than a true step change in data speeds. In contrast, China will soon have a national network with speeds of 1 gigabit a second. With China’s head start, the next generation of technology giants — and the products and services they build — are not going to be European or American but Chinese.

My research team estimates that a gigabit C-band network covering 80 per cent of Americans will require 1m new cell sites and cost $70bn to build. Without it there will be no 5G, and no base on which to build 6G. America’s digital economy will become an also-ran.  We need aggressive, innovative strategies to prompt rapid infrastructure buildout. It will show the world that there are viable alternatives to Chinese digital hegemony.

Here are three ways to do it:

  1. Congress should use the proceeds of Auction 107 for a special data infrastructure fund to provide direct aid to states that build physical 5G infrastructure.
  2. The money could be allocated to promote rapid and equitable buildout.
  3. The foregone revenue would be recouped by the documented economic boost brought by higher data speeds.

If the FCC auctions more spectrum, it should insist on getting infrastructure (built by the winning bidders). A true 5G network will require more than the C-Band auction’s 280MHz of spectrum.

Japan, China, South Korea, the UK and Canada will assign an average of 660MHz of mid-band spectrum each for 5G by 2023. Future auctions must set stringent build requirements, with penalties for underperformance.

Pursue alternatives to auctions. The defence department has proposed sharing government-controlled spectrum with commercial providers if they build infrastructure quickly.

Auction 107 has put what could be the penultimate nail in the coffin of U.S. global technology leadership. Policymakers must pursue all available means to bolster digital infrastructure rather than focusing on filling government coffers.

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Although the identity of bidders and how much they’ve committed to spend will not be revealed until the assignment phase of Auction 107 is completed, there are signs operators shelled out much more than they anticipated.

Analysts at Credit Suisse, for example, reckon that AT&T, T-Mobile and Verizon will need to increase their aggregate debt load by a quarter, to $400 billion, to finance their expected purchases.

Ed Cholerton, who was recently promoted to Nokia’s president for North American customer experience, said, “Countries that seek to pad the treasury with these license fees hold back deployments and put themselves at disadvantage to China and others who don’t go down this path.”

Analysts at New Street Research have most recently estimated that AT&T would spend $24 billion on C-band, with Verizon estimated at $29 billion and T-Mobile at $13 billion. Meanwhile, analysts at Cowen have estimated AT&T’s C-band spend at $20 billion; Verizon’s at $35 billion; and T-Mobile at $10-15 billion.

AT&T recently filed an SEC Form 8-K, indicating that it has secured a $14.7 billion term loan credit with Bank of America, and that the purpose of the loan may include “financing acquisitions of additional spectrum.”

Schmidt Futures estimates that a gigabit C-band network, covering 80% of Americans, will require 1 million new cell sites and cost around $70 billion to build.  “Without it there will be no 5G, and no base on which to build 6G,” said Schmidt. “America’s digital economy will become an also-ran.”

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References:

https://www.ft.com/content/dca96eaf-8262-42d8-a95f-d255642e9c7a

https://www.lightreading.com/5g/former-google-chief-warns-massive-sums-paid-for-c-band-will-stall-5g/d/d-id/767249?

https://www.fiercewireless.com/5g/nokia-s-head-u-s-sales-worries-about-c-band-costs

https://techblog.comsoc.org/2020/12/23/mid-band-spectrum-for-5g-fcc-c-band-auction-at-70b-shattering-records/

Analysis: FCC’s C band auction impact on U.S. wireless telcos

Assessment of COVID-19 impact on telecom industry; C-Band Spectrum Update

2 thoughts on “Eric Schmidt: FCC C-Band Auction Dooms U.S. 5G Future

  1. Eric Schmidt’s comments reminds me of the term TANSTAAFL – There Ain’t No Such Thing As A Free Lunch. The consumers ultimately will have to pay for these costs. Ironically, the government will probably end up subsidizing people on the low-end side so they can participate in the wireless revolution.

    These do seem like significant costs that make pole attachment fees pale in comparison.

    I still question what the urgency and use cases for 5G are? To be clear, both Waymo and Aurora suggested last week in a panel that they are not building their autonomous drivers to depend upon a communications network. It will be a nice-to-have to improve safety, but it won’t be dependent upon it.

    It’s primary use-case for the autonomous vehicle will be entertainment of the passengers.

    https://viodi.com/2021/02/05/a-culture-of-safety-is-av-table-stakes/

  2. C-band spectrum auctions in the USA: wireless incumbents are paying for the weight of 5G expectation

    “The high prices of C-band spectrum have sucked Verizon and AT&T into a spiral of ever-greater dependence on 5G, even as their share of consumer telecoms looks set to decline.”

    Increasing dependence on 5G
    In the USA, the burden of expectation placed on 5G is perhaps greater than in other regions. For reasons that date back to the break-up of the original AT&T into regional fixed operators, the current AT&T and Verizon are more dependent on mobile than comparable large European or developed Asia–Pacific ex-incumbent operators. It means neither can afford not to get hold of a decent block of spectrum.

    Assuming these two have spent heavily, they will be under internal pressure to build out rapidly to secure a rapid return. Few operators have ever been left so cash-strapped after auctions that roll-out is actually curtailed, and neither AT&T nor Verizon fall into this category. In fact, the sunk spectrum cost is likely to dwarf the roll-out cost. There are about 400 000 cell sites in the USA, and if each was upgraded to 5G at a high-end average cost of USD100 000, the total would still be only half the spectrum cost.

    There is, however, an opportunity cost in spending so much. It entails less diversification of the kind that might make operators less reliant on securing 5G spectrum, although diversification through M&A into content has not been a happy experience for either AT&T (DirecTV, TimeWarner) or Verizon (AOL). Fibre or fixed-wireless network spend could be interrupted. AT&T’s FTTP has done well during the pandemic, but FTTP covers only a quarter of its 60 million premises wireline footprint, and it needs to spend more if it wants to defend its non-fibre base; doubling its homes-passed to 50% coverage would cost USD10–12 billion. For Verizon, the aim to cover 30 million premises outside its wireline footprint with FWA is also likely to suffer. C-band spectrum could help to overcome some of the high coverage costs associated with mmWave 5G FWA, but throwing C-band spectrum at ultra-low-yield FWA when average broadband data traffic is around 500GB per month is hardly an optimal use of a scarce resource.

    Where is the pay-off?
    Spectrum value is generally determined by the savings that can be made in network costs as a result of deploying the spectrum (‘technical value’) and by the commercial performance improvements that are realised due to improved network performance (‘commercial value’). The technical value of the spectrum is a measure of how much the spectrum is worth as a way of avoiding additional cost to maintain the same level of service by other means, for example through additional sites. This in turn depends on expected traffic growth, which appears to be slowing greatly in the USA, as it is in other advanced markets, hence limiting the technical value. So high prices suggest a higher commercial value, which now in the USA lies to a large extent with the competitive advantage that a higher average speed can deliver. It is not, however, obvious that the additional spectrum would deliver to either AT&T or Verizon a competitive advantage over T-Mobile on average speed.

    It is therefore all the more important that AT&T and Verizon really do find ‘new wave’ 5G enterprise revenue (or ‘lead the emerging 5G economy’ as the CTIA President puts it), if only to offset the new-competition-fuelled decline in basic mobile ARPU. Neither will have the right assets this decade to avoid relative decline in mainstream consumer telecoms.

    Perhaps, though, no operator – let alone the telecoms industry – should ever have got into a position where 5G carries such a weight of expectation.

    https://www.analysysmason.com/research/content/comments/spectrum-usa-5g-rdnt0/

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