Verizon, Dish: What’s in their CBRS playbooks?

Now that the winners of the Citizens Broadband Radio Services (CBRS) 3.5 GHz auction are known, the question turns to: What are the winners going to do with their licenses?

The winners aren’t talking because the FCC’s rules prohibit discussing the auction until the quiet period ends, a practice that dates back to the 1990s to prevent collusion. However, investment analysts evaluating the auction results say it’s clear that Verizon went deep in the larger U.S. markets while Dish Network went far and wide, spending less than Verizon but acquiring spectrum in more markets. Charter Communications, Comcast and Cox Communications rounded out the top five highest bid amounts.

Verizon’s total spend of about $1.894 billion, which represents 41% of total winnings in the auction of Priority Access Licenses (PALs), garnered 75% of licenses in large markets. Verizon played in all of the top cities, but won in only 156 counties.

“However, when Verizon won, it went deep, averaging 3.6 licenses per county,” wrote Cowen analysts, noting that bidders were limited to a total of four licenses per county. “Verizon spent heavily by going deep in high traffic areas. Clearly the carrier is looking at CBRS as ‘capacity’ spectrum for hotspots to overlay on top of ‘coverage’ spectrum.”

Of the top three U.S. carriers, Verizon holds the least amount of untapped mid-band spectrum – AT&T has WCS/AWS-3 spectrum and T-Mobile has 2.5 GHz – so it was expected to go big in the PAL auction. The analysts noted that the company has said it has all the resources it needs for 5G when considering refarming, spectral efficiency technologies such as beamforming, Massive MIMO, carrier aggregation and Dynamic Spectrum Sharing (DSS), as well as fiber/cell splitting.

“To that end, if Verizon’s network performance should slip temporarily, today’s spend should help soften the blow,” the Cowen analysts wrote. “Meanwhile, Verizon has the strongest balance sheet (this $1.89B spend essentially a ‘drop in the bucket’) and is primed for a massive spend in C-band, which should restore order as the #1 network (this time in the 5G era).”

Nationwide, 40 MHz deep didn’t happen

Last week, LightShed Partners analysts Walter Piecyk and Joe Galone speculated that Verizon would buy a nationwide, 40 MHz deep, CBRS spectrum position for $2.7 billion. “That was way off,” the analysts wrote today. “Verizon secured high bids on 40 MHz of spectrum in just 20% of the U.S. population and 30 MHz in another 26%. That means, Verizon bought nothing in more than half the United States.”

To be fair, Verizon secured deep spectrum in the big markets where it needs it the most, they added. In smaller markets, the shared General Authorized Access (GAA) CBRS spectrum might be enough to satisfy Verizon’s spectrum needs, but “using unlicensed spectrum seems more like a cable strategy than a Verizon one,” they wrote. Based on the bidding results, “we believe Verizon will primarily be using CBRS for LTE capacity augmentation. We still think this could include implementations in small cells and macro towers, but this was not a positive data point for tower companies.”

Verizon acquired either three or four licenses in the markets where it won, averaging 35 MHz of spectrum in those markets at an average price of $0.39 per MHz POP, according to New Street Research analyst Jonathan Chaplin. That price was close to double the overall average; however, Verizon focused on large dense markets that always trade at higher prices than the average, he noted.

“I really think that this band becomes their bridge,” said Brian Goemmer, president of AllNet Insights, in an interview. People often talk about how Verizon can use DSS and other spectrum bands, but its other bands, aside from millimeter wave, already are fairly heavily used by 4G LTE, “so they really don’t have a lot of free spectrum” for 5G coverage. “This gives them something they can use immediately and carry them, hopefully, to when they can win and launch C-band spectrum.”

‘Dish was everywhere’

With a total of 5,492, Dish took the most counties and licenses by far. “Dish was everywhere, in the top cities but mostly in rural markets, spending just $1.15/MHz-POP,” wrote Cowen’s Colby Synesael. “When digging deeper, we see that Dish’s depth was the lowest (just 1.8 licenses per county) and in the big cities, often purchased just 1 PAL. In summary, Dish spent wisely going for breadth and not depth. This was a solid strategy to in-fill nationwide coverage of upper-mid-band spectrum ideal for Dish’s wholesale/enterprise IoT network.”

Dish already had the “supermarket” of untapped spectrum and continues to augment its portfolio further still. “As Dish looks for strategic partners (Uber, Amazon, drones, IoT), they did themselves a favor by augmenting the portfolio with CBRS,” Synesael concluded.

At first blush, CBRS further deepens Dish’s already robust and vacant mid-band spectrum position, according to the LightShed analysts. “However, a mix of CBRS spectrum could also emerge as an important asset that Dish can integrate into a service offering that appeals to a diverse set of data-centric tech companies,” they wrote.

They added that it wasn’t long ago that the “anti-Dish crowd” was questioning the company’s ability to fund the $1.4 billion purchase of Boost and a pending $1.1 billion debt maturity. “Dish settled both with its cash on hand, continued to generate free cash flow, and just went out and committed $900 million to buy more spectrum,” Piecyk and Galone wrote. “At this point, Verizon should be wondering what Dish might have lined up for the C-Band auction. We are too.”

Given the way the CBRS band is structured – and other bands, for that matter – it would be possible for Dish to lease spectrum until it needs to use it.

In Kings County, New York, for example, Verizon won four, Dish won two licenses and Charter Communications won one license, and “those guys are going to use it in some way,” Goemmer said. Still, someone could lease spectrum from Dish and make the capital outlay knowing they could use the GAA spectrum if they need to, but “I think the question would be if you’re willing to fall back and use GAA, if you lose the lease, why wouldn’t you just operate in GAA all the time?,” he said. “I don’t think there’s anything that really stands out to me right now that there’s a clear second-hand market.”

The quiet period for the PAL auction runs through September 17.

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