AT&T, Verizon Propose C Band Power Limits to Address FAA 5G Air Safety concerns

AT&T and Verizon said today that they would limit some of their 5G wireless services for six months while federal regulators review the signals’ effect on aircraft sensors, an effort to defuse a conflict about C band interference that has roiled both industries.

The cellphone carriers detailed the proposed limits Wednesday in a letter to the Federal Communications Commission (FCC). The companies said they would lower the signals’ cell-tower power levels nationwide and impose stricter power caps near airports and helipads, according to a copy reviewed by The Wall Street Journal.   This comes after, both companies agreed to push back their 5G C band rollouts by an additional month to January 5, 2022 after the FAA issued a Nov. 2 bulletin warning that action may be needed to address the potential interference caused by the 5G deployment.

“While we remain confident that 5G poses no risk to air safety, we are also sensitive to the Federal Aviation Administration‘s desire for additional analysis of this issue,” the companies said in the letter to FCC Chairwoman Jessica Rosenworcel.

“Wireless carriers, including AT&T and Verizon, paid over $80 billion for C-band spectrum—and have committed to pay another $15 billion to satellite users for early access to those licenses—and made those investments in reliance on a set of technical ground rules that were expressly found by the FCC to protect other spectrum users.”

AT&T and Verizon said they had committed for six months to take “additional steps to minimize energy coming from 5G base stations – both nationwide and to an even greater degree around public airports and heliports,” and said that should address altimeter concerns.

Wireless industry officials have held frequent talks with FCC and FAA experts to discuss the interference claims and potential fixes, according to people familiar with the matter. An FCC spokesman said the agreed-upon limits “represent one of the most comprehensive efforts in the world to safeguard aviation technologies” and the agency will work with the FAA “so that 5G networks deploy both safely and swiftly.”  Wireless groups argue that there have been no C-Band aviation safety issues in other countries using the spectrum.

Earlier this month, the Federal Aviation Administration (FAA) warned it could restrict U.S. airspace in bad weather if the networks were turned on as planned in December. The FAA warning came in the thick of cellphone carriers’ network upgrade projects.  A spokesman for the FAA called the proposal “an important and encouraging step, and we are committed to continued constructive dialogue with all of the stakeholders.” The FAA believes that aviation and 5G service in the band telecom companies have planned to use can safely coexist, he said.

AT&T and Verizon said they would temporarily lower cell-tower power levels for their 5G wireless services nationwide.

Photo Credit: GEORGE FREY/AGENCE FRANCE-PRESSE/GETTY IMAGES

Wireless industry executives don’t expect the temporary limits to seriously impair the bandwidth they provide customers because networks already direct signals away from planes and airport tarmacs, according to another person familiar with the matter.

Still, the voluntary limits are a rare step for wireless companies that place a high value on the spectrum licenses they hold. U.S. carriers spent $81 billion to buy licenses for the 5G airwaves in question, known as the C-band, and spent $15 billion more to prepare them for service this winter.

The carriers earlier this month delayed their rollout plans until early January after FAA leaders raised concerns about the planned 5G service. Air-safety officials worried the new transmissions could confuse some radar altimeters, which aircraft use to measure their distance from the ground.

At an industry event last week, FAA Administrator Steve Dickson said conducting flights in a safe manner and tapping spectrum for 5G services can both occur. He said the question was how to “tailor both what we’re doing in aviation so that it dovetails with the use of this particular spectrum.”  Mr. Dickson said another focus is the use of the spectrum in other parts of the world and how it differs compared with the U.S. “That’s what the discussions are that we’re having with the telecoms right now.”

U.S. wireless companies send 5G signals over lower frequencies than the altimeters, but air-safety officials worried that some especially sensitive sensors could still pick up cell-tower transmissions. Regulators in Canada and France have also imposed some temporary 5G limits.

The carriers’ letter said the mitigation measures would provide more time for technical analysis “without waiver of our legal rights associated with our substantial investments in these licenses.”

C-band limits are most relevant to AT&T and Verizon, which paid premiums to grab licenses for the new signals ready for use in December 2021. The companies still plan to launch their service, subject to the new limits, in January 2022. The proposed limits would extend to July 6, 2022 “unless credible evidence exists that real world interference would occur if the mitigations were relaxed.”

Rival carrier T-Mobile US Inc. is less vulnerable to delay because it spent a smaller amount for licenses that are eligible for use in December 2023. It also controls a swath of licenses suitable for 5G that aren’t subject to air-safety claims.

It’s not yet clear whether the proposal will be accepted by the FAA, which has warned pilots of the possibility that “interference from 5G transmitters and other technology could cause certain safety equipment to malfunction, requiring them to take mitigating action that could affect flight operations.” After July 6th, both carriers say they’ll set everything back to normal “unless credible evidence exists that real-world interference would occur if the mitigations were relaxed.”

“Our use of this spectrum will dramatically expand the reach and capabilities of the nation’s next-generation 5G networks, advancing US leadership, and bringing enormous benefits to consumers and the US economy,” Verizon and AT&T claimed in their joint letter sent to the FCC.

The federal agencies and the companies they oversee are meanwhile stuck in what New Street Research analyst Blair Levin called “a deep state game of chicken” guided by each regulator’s particular interest, with no clear path towards resolution.

References:

https://www.wsj.com/articles/at-t-verizon-propose-5g-limits-to-break-air-safety-standoff-11637778722

https://www.wsj.com/articles/fight-over-5g-and-aviation-safety-clouds-big-outlays-made-by-at-t-verizon-11636894800?

https://www.bloomberg.com/news/articles/2021-11-24/at-t-and-verizon-to-cut-5g-power-to-meet-aviation-safety-worries

https://www.reuters.com/technology/att-verizon-agree-new-precautions-address-5g-air-safety-concerns-2021-11-24/

 

C-Band 5G’s Threat to Aviation

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

Importance of FCC C Band Auction for 5G in the U.S.

https://transportation.house.gov/news/press-releases/committee-leaders-urge-fcc-to-act-to-protect-aviation-safety-amid-5g-broadband-implementation

 

AT&T Provides Update on Fiber Rollouts, 5G Expansion, and Financial Outlook

Here are the highlights of AT&T Investor Day Announcements:

3 million new fiber locations:

AT&T plans to deploy fiber-to-the-premises (FTTP) to another 3 million-plus residential and business locations across more than 90 metro areas in 2021, and is already sizing up plans to push that to an additional 4 million locations in 2022, Jeff McElfresh, CEO of AT&T Communications, said today during the company’s investor day event.

“The margin economics are attractive.  These areas are adjacent to our current footprint, driving cost efficiencies in our build as well as our marketing and distribution efforts.”

McElfresh expects its fiber subscriber volumes increase in the second half of the year after the initial buildouts, but noted that he likes what AT&T is seeing in the early part of 2021. The company noted that about 70% of its gross broadband adds in fiber buildout areas are new AT&T customers.

“And if we keep up with that pace, our vision would be to have over half of our portfolio, or 50% of our network, covered by that fiber asset.  As our integrated fiber plan improves the yield performance on that fiber it will further give us conviction on continuing that investment in the coming years.”

AT&T is also looking to broaden its reach of fiber amid rising data demand and network usage that has occurred during the pandemic, and isn’t expected to stop any time soon.  That’s shown in the graph’s below:

Click here for a larger version of this image. (Source: AT&T)

 

References:

https://www.lightreading.com/opticalip/fttx/atandt-to-plant-fiber-in-3m-locations-this-year-sizes-up-4m-more-in-2022/d/d-id/768057?

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AT&T’s 5G Strategy:

AT&T’s 5G network now covers 230M Americans in 14,000 cities and towns and AT&T 5G+ is now available in parts of 38 cities in the U.S. 

Note: AT&T may temporarily slow data speeds if the network is busy.

“Connectivity is at the heart of everything we do – 140 years and counting. From our fiber network backbone to the layers of wireless spectrum technology, we provide 5G network coverage that delivers the speeds, security and lower latency connections that customers and businesses need,” said Jeff McElfresh, CEO – AT&T Communications. “Over the past five years, AT&T has invested more capital in the U.S. than any other public company.”

Here is what the company said about its 5G Strategy:

AT&T has planned a balanced approach to 5G. Our strategy of deploying 5G in both sub-6 (5G) and mmWave (5G+) spectrum bands provides a great mix of speeds, latency and coverage for consumers and businesses. We rolled out nationwide 5G that now covers 230 million people, and offer 5G+ providing ultra-fast speeds to high-density areas where faster speeds can have huge impacts for our customers. So far, AT&T has deployed 5G+ nodes in parts of 38 cities across the U.S.

AT&T 5G is opening up some impressive opportunities for businesses and consumers and mid-band and mobile edge computing will help us go even further. There is an emerging multi-sided business model across 5G, edge computing and a variety of use cases from healthcare to gaming.

Our mobile edge computing plus 5G network will help satisfy the need for ultra-responsive networks and open up new possibilities for consumers and businesses. With our investments, we will take advantage of new technologies like spatial computing to enable applications across industries from manufacturing automation to watching immersive sports.

Reference: https://about.att.com/story/2021/5g_strategy.html

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C-band spectrum deployment to begin in 2021:

  • AT&T acquired 80 MHz of C-band spectrum in the FCC’s Spectrum Auction 107. The company plans to begin deploying the first 40 MHz of this spectrum by the end of 2021.
  • AT&T expects to spend $6-8 billion in capex deploying C-band spectrum, with the vast majority of the spend occurring from 2022 to 2024. Expected C-band deployment costs are already included in the company’s 2021 capex guidance and in its leverage ratio target for 2024.
  • AT&T expects to deliver 5G services over its new C-band spectrum licenses to 70 to 75 million people in 2022 and 100 million people in “early” 2023.
    • Funding C-band spectrum: AT&T’s investment in C-band spectrum via Auction 107 totals $27.4 billion, including expected payments of $23 billion in 2021.
    • To meet this commitment and other near-term priorities, in 2021 the company expects to have access to cash totaling at least $30 billion, including cash on hand at the end of 2020 of $9.7 billion, commercial paper issued in January 2021 of $6.1 billion and financing via a term loan credit agreement of $14.7 billion.

Jeff McElfresh, CEO of AT&T Communications, explained the operator’s focus on both 5G and fiber: “Our value proposition is to serve customers how they want to be served with enough bandwidth and capacity and speed, and we’ll let the technology service architecture meet that demand or that need.”

“When you get up into the midband segment of spectrum, while it offers us really wide bandwidth for speed and capacity, its coverage characteristics don’t penetrate [buildings and other locations] as effectively as the lowband does,” he said. “And so as we design our network and our offers in the market, you will see us densify our wireless network on the top of our investments in fiber.”

–>Yet McElfresh didn’t really address how AT&T Communications would overcome those challenges.

References:

https://about.att.com/story/2021/att_analyst_day.html

https://www.lightreading.com/opticalip/atandt-serves-up-5g-plans-with-healthy-dose-of-pragmatism/d/d-id/768059?

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Financial Targets and Guidance:

  • End-of-year 2021 debt ratio target of 3.0x. The company expects to end 2021 with a net debt-to-adjusted EBITDA ratio of about 3.0x,3 reflecting an anticipated increase in net debt of about $6 billion to fund the C-band spectrum purchase.
    • 2024 debt ratio of 2.5x or lower. During 2024, AT&T expects to reach a net debt-to-adjusted EBITDA ratio of 2.5x or lower.3 To achieve this target, the company expects to use all cash flows after total dividends to pay down debt and will continue to look for opportunities to monetize non-strategic assets. The company also does not plan to repurchase shares during this period.

Click here for a larger version of this image. (Source: AT&T)

  • 2021 guidance unchanged. AT&T’s 2021 financial guidance, announced in January 2021, is unchanged on a comparative basis. For the full year, the company continues to expect:
    • Consolidated revenue growth in the 1% range
    • Adjusted EPS to be stable with 20204,5
    • Gross capital investment6 in the $21 billion range, with capital expenditures in the $18 billion range
    • 2021 free cash flow7 in the $26 billion range, with a full-year total dividend payout ratio in the high 50’s% range

References:

https://about.att.com/story/2021/att_analyst_day.html

 

 

Verizon Outlines Plans for C-Band and mmWave 5G, Business Internet and MEC

C-Band auction results:

Verizon has outlined its plans to expand 5G network coverage using the spectrum it acquired in the recent C-band auction.  The company pledged to cover 100 million Americans with its new C-band 5G network—which it will brand as “ultra wideband”—by next March

Verizon succeeded in more than doubling its existing mid-band spectrum holdings by adding an average of 161 MHz of C-Band nationwide for $52.9 billion including incentive payments and clearing costs.

Verizon won between 140 and 200 megahertz of C-Band spectrum in every available market. Specifically, Verizon:

  • Secured a minimum 140 megahertz of total spectrum in the contiguous United States and an average of 161 megahertz nationwide; that’s bandwidth in every available market, 406 markets in all.
  • Secured a consistent 60 megahertz of early clearing spectrum in the initial 46 markets – this is the swath of spectrum targeted for clearing by the end of 2021, home to more than half of the U.S. population.
  • Secured up to 200 megahertz in 158 mostly rural markets covering nearly 40 million people. This will further enhance Verizon’s broadband solution portfolio for rural America.

The auction results represent a 120 percent increase in Verizon’s spectrum holdings in sub-6 gigahertz bands. The quality of this spectrum and Verizon’s depth of licensed holdings represent the premier asset in the industry. In addition, C-Band is a widely used spectrum band throughout the world and will allow for roaming opportunities and economies of scale. The spectrum bands Verizon won are contiguous, which will streamline deployment of this spectrum across the mainland United States.

At an analysts meeting on Wednesday evening, the company said the improved services will help it accelerate wireless network service revenue growth.  Verizon expects growth of at least 2 percent this year, 3 percent in 2022 and 2023 and 4 percent or more in 2024. It’s committed an extra $10 billion in capex over the next three years to support the additional 5G network roll-out.  Projected spending this year is in the range of $17.5-18.5 billion.

5G mmWave:  The super-fast 5G mmWave network that Verizon launched two years ago has seen slow growth, even though Verizon has put up 17,000 cell sites. It’s a very short-range technology, and it’s best used in places like stadiums, concert halls, and convention centers—all the places that have been hardest hit by the pandemic.

Only 5% of Verizon’s total network usage will be on millimeter-wave by the end of 2021, although that could double if stadiums fill up again, according to Verizon CTO Kyle Malady. Only 9% of the carrier’s postpaid customer base has mmWave-capable phones.

Ultimately, he sees as much as 50% of 5G network usage moving to mmWave in dense cities.  Of course, that involves people going outside to use it, because mmWave requires line of sight communications so can’t penetrate building walls or other structures.

Verizon is looking at using millimeter-wave for focused backhaul, which will let it put up more rural sites quickly without worrying about running fiber to them.

The company intends to put up another 14,000 millimeter-wave sites this year, Malady said. There’s still technical room for improvement with millimeter-wave, he added. Verizon is working with three different repeater vendors to improve range without adding entire new sites, and he has a “roadmap with Qualcomm” for better beamforming and software features to improve both range and latency.

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In the next 12 months, Verizon expects to have incremental 5G bandwidth via the new spectrum available to 100 million people in the initial 46 markets, delivering 5G Ultra Wideband performance on C-Band spectrum. Over 2022 and 2023, coverage is expected to increase to more than 175 million people and by 2024 and beyond, when the remaining C-Band is cleared, more than 250 million people are expected to have access to Verizon’s 5G Ultra Wideband service on C-Band spectrum.

In addition, Verizon is committing to an additional $10 billion in capital expenditures over the next three years to deploy C-Band as quickly as possible. This spend will be in addition to the current capital expenditure guidance of $17.5B-$18.5B for 2021, which is expected to be at comparable levels through 2023.

C-Band spectrum in Verizon’s Network:

More than 70% of the 5G devices in the hands of customers today are C-Band compatible. Every iPhone 12 model is C-Band compatible. The Samsung Galaxy S21 series and Google Pixel 5 are also compatible. Going forward, all new 5G handsets Verizon brings to market to postpaid customers will be C-Band compatible, with more than 20 C-Band compatible devices offered by the end of the year.

The acquisition of this C-Band spectrum will be a critical component in Verizon’s 5G broadband strategy — 5G Home and 5G Business Internet.

5G Home: By the end of this year, Verizon expects to cover nearly 15 million homes with its home broadband product, and by the end of 2023, 30 million homes, using both 4G and 5G.

To accompany the growth in fixed broadband offerings, the company introduced new 5G Home devices which will be simple for customers to install in their homes – including the Internet Gateway, and the Verizon Smart Display, which join the Verizon 5G Internet Gateway. All three devices will have a sleek design and ‘self setup’ featuring AR guidance, simple instruction videos, and in-app chat and call support.

5G Home internet, the super fast service with download speeds up to 1 Gbps, depending on location, is currently available in 18 markets, with one to two million households expected to be covered via mmWave by end of 2021 and a total of 15 million with LTE Home and the arrival of the first tranche of C-Band. Verizon has teamed up with some of the best content providers in the industry to bring customers plenty of options for all their gaming and streaming needs.

5G Business Internet: 5G Business Internet complements the full suite of Verizon Business tools and offerings, including OneTalk voice communications, BlueJeans by Verizon video-collaboration platform, advanced security and other business services.

By using a high powered fixed 5G receiver, business customers will be able to access the broadband speeds they need with the reliability from Verizon they have come to expect. 5G Business Internet is now available in three markets on mmWave with plans to bring the product to 20 more before the end of the year.

Accelerate 5G Edge:

Verizon Business is well positioned to capture significant edge compute share and is in-market today with both public and private MEC models in collaboration with leading cloud providers. With the addition of C-Band spectrum, the company expects a wider and faster path to monetization.

By the end of 2022, the total edge compute addressable market in the U.S. is estimated to reach $1 billion, and by 2025, rapid adoption of Edge Compute is estimated to create a $10 billion addressable marketplace.

Public MEC Model: Last year, the company partnered with AWS: Wavelength and immediately connected AWS’s 1 million plus developer community to the nearly 170 million end-devices across Verizon’s 4G and 5G Nationwide networks at the edge. Developers today are building use cases spanning a wide array of commercial applications – all through an easy on-ramp in the AWS portal where they can move their workloads to the edge of our network, automatically triggering a recurring revenue share for Verizon and AWS. This partnership enables Verizon Business to be a key participant in this growing opportunity with C-Band accelerating our reach and time to market.

Private MEC Model: Last year, Verizon Business announced a collaboration with Microsoft to deliver a Private MEC model for customers that want a completely dedicated edge compute infrastructure on-premise to provide unique connectivity for their employees, enable data-intensive applications and benefit from solutions like computer vision, augmented reality and machine learning – all built to increase productivity, provide enhanced security and reduce latency in ways that wi-fi cannot.

This fully integrated Verizon 5G solution includes:

  • Verizon Private Edge, which combines the power of Microsoft Azure cloud and edge capabilities with 5G on the customer premise.
  • Verizon Private network connectivity, which is forecast to be a $10 billion dollar global market by 2025.
  • Co-developed real-time enterprise solutions like Intelligent Logistics, Predictive Maintenance, Robotics and Factory Automation, which give Verizon Business a direct line of sight to another $12 billion applications and solutions addressable opportunity by 2025 that will be commercialized through a growing partner ecosystem, including IBM, Cisco, Deloitte and SAP.

The demand for MEC services unlocks an estimated Verizon total market that is forecast to exceed $30 billion by 2025, revenue that will be shared with partners.

Verizon expects to increase service revenues by shifting people to higher-tier unlimited (text, talk, Internet) cellular plans.

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Quotes from Executives:

Hans Vestberg, Chairman and CEO of Verizon

FCC C-Band auction results
“Today is one of the most significant days in our 20-year history. This was a highly successful auction for Verizon – a once in a lifetime opportunity – and I am thrilled with what we were able to accomplish.”

Verizon’s strategy
“Our growth model is based on a clear vision: We are a multi-purpose network company with the best networks architected by the best engineers on the planet. This idea of a multi-purpose network at scale is our strategic foundation to maximize growth and put us in a position to realize the best return on investment in the fully-networked economy.”

Verizon’s competitive advantage 
“Since we began building 5G, we have had a first mover advantage. We are more than a year ahead in building and selling mmWave with our 5G Ultra Wideband service and still the only company with commercial Mobile Edge Compute. Now we intend to extend our lead by accelerating our deployment of C-Band. Our new C-Band position combined with our mmWave, means we are the only carrier suited to deploy the fastest, most powerful 5G experience to the most people – or as we call it, 5G built right.”

Ronan Dunne, CEO of Verizon Consumer Group

5G adoption
“Customers are migrating to 5G in earnest. As of YE 2020, 9% of our Consumer postpaid phone base were on a 5G device. With the exciting device lineup we have in store, and the superior 5G experience that we deliver, we expect to reach 50% some 18 months ahead of GSMA forecast, and end 2023 ahead of even the more ambitious Ericsson Mobility Report forecast.”

5G devices
“Overall we have 10M 5G Ultra Wideband devices in the hands of customers on our network today. And of those, approximately 70% are already C-Band compatible. Going forward all new 5G handsets we sell to postpaid customers will be C-Band compatible.”

Step ups
“We have seen tremendous step-ups from our customers from Metered to Unlimited and Unlimited to Premium Unlimited as we discussed back in November. We continue to see this with over 20% of our postpaid accounts ending the year on a Premium Unlimited plan. We expect this number to grow to over 30% this year and approximately 50% by 2023. With C-Band included, we think step-ups to premium will only accelerate.”

5G Home acceleration 
“By the end of 2021 we will have between 1 and 2 million millimeter wave 5G Homes open for sale and some 15 million in total with the arrival of the first tranche of C Band. By the end of 2023 this will have risen to more than 30 million households we can serve.”

Tami Erwin, CEO of Verizon Business

Mobile Edge Compute
“Verizon Business has a strong first-mover advantage to build a nationwide Mobile Edge Compute platform and be both a market leader and a market maker. This is not just an idea, it’s happening. Companies in every industry are finding exciting ways to bring 5G and 5G Edge to life – leveraging the full capabilities of 5G from throughput and ultra-low latency to sensor densification and rock solid reliability.”

Kyle Malady, CTO of Verizon

Auction results
“We secured a game-changing amount of C-Band spectrum to go along with our leadership in millimeter wave spectrum. We’ve been planning for many months, and are already working to make this the fastest deployment of new spectrum ever. As the leader in the wireless industry, we have consistently deployed a deep portfolio of strong spectrum holdings with best in class technology capabilities. This same focus will continue to position us for growth for years to come.”

Matt Ellis, CFO of Verizon

“Our Network as a Service strategy is our foundation when considering significant investments. We’ve leveraged that framework, investing in key strategic areas, such as spectrum, network assets, partnerships, and disciplined M&A, to position us for this next technology era.”

“Our strategy is working. Our core business is producing revenue growth today. More customers are experiencing the benefits of 5G Ultra Wideband every month on our millimeter wave spectrum and C-Band helps us accelerate the timeline and expand upon that growth.”

References:

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

by Grant’s Interest Rate Observer:

The Federal Communication Commission’s (FCC’s) ongoing sale of wireless C-band spectrum rights marks a decisive event for the telecommunications industry.  As industry players compete for more digital bandwidth to help roll out 5G services, aggressive bidding looks set to generate a windfall for the U.S. government.  Estimated proceeds will exceed $80 billion, easily topping the prior record of $45 billion for FCC spectrum in 2015.

As the three-way battle for 5G dominance takes shape, former also-ran T-Mobile U.S., Inc. appears to have the jump on competitors Verizon Communications, Inc. and AT&T, Inc., thanks in large part to substantial midrange spectrum frequency gained from last year’s acquisition of Sprint Corp. “For many years, Verizon hammered its competitors time and time again with the ‘best network’ and their big red coverage map,” Sasha Javid, chief operating officer of wireless company BitPath, told Bloomberg on Jan. 22. “Well, the map is looking quite magenta [signifying T-Mobile’s corporate color] today in terms of 5G coverage around the country.”

The incumbents will need to pay up to catch up. Analysts at New Street Research wrote on Jan. 11 that “if T-Mobile spends less than we expect, Verizon or AT&T will likely account for the shortfall. Neither company has the cash on hand to cover what we expect them to spend in the auction at present; we would expect more debt issuance for the group in coming weeks.”

Extra borrowings that accompany Verizon and AT&T’s 5G spending spree look to do no favors for the pair’s respective capital structures. Craig Moffett, co-founder and one-half eponym of MoffettNathanson, LLC, estimated last Tuesday that triple-B-plus-rated Verizon may spend up to $40 billion on 5G digital real estate, enough to add nearly one full turn of leverage to its 2.3 times reported net borrowings (3.2 times after accounting for operating leases and pension liabilities) as of Dec. 31.  Analyst Craig Moffett wrote:

“Higher leverage will mean that capital spending will, by necessity, be pinched and stretched. Lower capital spending will mean that it will take longer to deploy their C-Band spectrum, which, in turn, will mean Verizon will be slower to catch up to T-Mobile.”

Meanwhile, Verizon’s other peer has already tapped the credit markets to finance its own shopping spree. This morning, triple-B-rated AT&T officially entered into a $14.7 billion, 364-day term loan offering at 100 basis points over Libor, with proceeds earmarked for general corporate purposes, including the financing of additional spectrum.

The new borrowings color AT&T’s dubious distinction as the world’s most encumbered non-financial company. Net debt footed to $198 billion, inclusive of operating lease and pension liabilities (equal to 3.6 times consensus 2021 adjusted Ebitda) as of Dec. 31, following efforts to diversify into higher growth businesses via the 2015 and 2018 purchases of DirecTV and TimeWarner for $67 billion and $109 billion, respectively. More debt could further complicate efforts to both tame its bloated balance sheet and improve slumping operating results including sharp subscriber losses and fast-retreating Ebitda within the DirecTV business.

Those problems have helped pressure shares to the tune of negative 18% after accounting for dividends since a bearish analysis in the Dec. 13, 2019 edition of Grant’s Interest Rate Observer, compared to a 24% total return from the S&P 500 over that period.   By way of response, AT&T has pivoted to asset sales, including recently shopping DirecTV to private equity companies at a reported $15 billion price tag, while prioritizing its quarterly dividend, now at a 7.2% trailing annual rate. On last week’s conference call, CEO John Stankey reiterated plans “to use free cash flow after dividends for the next couple of years to pay down debt.”

Noting that the company is in danger of exceeding the 3.5 times adjusted leverage limit that Moody’s Investors Service has cited as a projected ceiling for AT&T to maintain its investment grade imprimatur, MoffettNathanson wrote last Wednesday that the spectrum sale left Ma Bell with two bad choices:

Sitting out the auction would have left them far behind in 5G; buying spectrum would leave their dividend looking even more unsustainable.  Damned if you do, damned if you don’t.

Selling DirecTV now will help slow the overall rate of Ebitda decline, but it won’t solve the basic problem. AT&T’s leverage is far too high for a shrinking company, and their dividend is too high for them to do anything serious about lowering it. Something’s gotta give.

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References:

Importance of FCC C Band Auction for 5G in the U.S.

 

UPDATED: Mid-band Spectrum for 5G: FCC C-Band Auction at $80.9B Shattering Records

Importance of FCC C Band Auction for 5G in the U.S.

FCC Chairman Ajit Pai has described the commission’s plan for its auction of a portion of the C-band — the 4Ghz to 8GHz radio frequencies used mostly for consumer satellite transmissions, but in the future for 5G mobile broadband.

The FCC wants to auction off the bottom 280MHz (the 3.7 – 4.2Ghz range) of the C-band and reserve 20Mhz of the band above that threshold for further needs. Both the FCC and current satellite operators say this will still leave enough spectrum for the operators to provide the same level of service that we have today.

The C-band is a valuable block of very underutilized spectrum. Portions of it are also a great addition to mobile operators who want to roll out 5G using the mid-band spectrum.

The 3.7 to 4.2Ghz range of the C band would offer a great balance of range and capacity which is important when carriers want to offer any real nationwide 5G service. A combination of low-band, mid-band, and upper millimeter-wave bands would offer carriers plenty of spectrum to maintain existing networks and add 5G expansion from coast to coast, and that’s what carriers and the current FCC wants to see happen.

Executives from Verizon, AT&T and T-Mobile stated their support for Federal Communications Commission (FCC) Chairman Ajit Pai’s proposal to get C-band spectrum cleared and available for a public auction, a plan that immediately saw backlash from some senators and public interest groups.

The network operators’ support isn’t surprising given they’ve been pressing for more mid-band spectrum for 5G and lobbying for quick action on C-band spectrum specifically, but they’re all coming at it from different places.

Currently, four satellite operators provide the majority of C-band satellite service in the U.S. — Intelsat, SES, Eutelsat, and Telesat. These are the companies that provide the actual satellite broadcast that you might be paying another company for and reach well over 100 million homes.

The satellites and ground equipment need to be changed so that they use the upper 200MHz of the C-band to transmit at the same level of service we’re all used to. The cost of this relocation is expected to be in the $3 billion to $5 billion range and will be covered by the auction winners.

The FCC would like this relocation, which is expected to be finished by September 2025, to be expedited. It proposes what chairman Pai calls “accelerated relocation payments.” These would also be paid by the winning bidders, but only if the satellite operators meet a specific schedule: free the lowest 100MHz of the spectrum by September 2021 and the remaining 180MHz by September 2023.  Should this occur, the fees would include these expedition bonuses and rise to $9.7 billion.

Chairman Pai says that this is almost necessary if the U.S. wants to be competitive with the rest of the world when it comes to 5G:

“It is in the public interest to make available frequency in the C-band as quickly as possible as part of a national priority to promote American leadership in 5G. To get the job done quickly, we need to align the private interest of satellite companies with the public interest.”

Pai also notes that these are simply FCC proposals and that Congress can overrule any or all of them.

While acknowledging that Congress can have the final say, Pai also stated the regulations that allow the FCC to make these decisions.

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Section 316 of the Federal Communications Act grants authority to modify any licenses granted to current holders of C-band spectrum, section 309 allows the FCC to auction the lower 280MHz of the spectrum for “flexible” use, section 303 allows the FCC to set new rules and regulations for the technical usage of the C-band, and Title 3 allows the FCC to require the auction winners to pay any and all relocations fees.

Pai also suggested that he hopes Congress will make a small override to the proposed FCC recommendations and offer 10% of the proceeds to rural broadband initiatives. This is a promise Pai has made and championed for since placed as FCC chair, yet so far we’ve seen no movement from carriers or to regulations.

If there is to be any real nationwide 5G network that’s reliable and stand-alone, we’ll have to see plenty of spectrum reallocation. Some, like this news, will be authorization for new use cases and others will be carriers repurposing existing holdings. It will take a lot of work before any country has a full 5G nationwide network.

References:

https://www.fiercewireless.com/regulatory/verizon-at-t-t-mobile-support-pai-s-c-band-plan-as-backlash-commences

https://www.bloomberg.com/news/articles/2020-01-06/c-band-analyst-says-spectrum-sale-may-net-50-billion-in-revenue

https://www.multichannel.com/news/c-band-auction-timetable-plan-faces-challenges