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Why T-Mobile wants Verizon’s discarded 4G airwaves

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Why does T-Mobile want to build an LTE network using frequencies Verizon hasn’t touched in six years? There are several reasons, but the main one has to do with the different stages the two carriers are at in their LTE rollouts.

T-Mobile(s tmus) just agreed to pay $2.635 billion for Verizon Wireless’s neglected 700 MHz airwaves, and to boot T-Mobile kicked in some valuable higher-band spectrum it originally planned to use for LTE and HSPA+. According to BTIG analyst Walter Piecyk, the package deal amounts to a 38 percent premium over what Verizon originally paid at auction for the spectrum in 2008.

That’s a lot of money for spectrum that Verizon Wireless no longer wanted and that much of the wireless industry had written off as sub-par airwaves. But the value of spectrum to any given carrier is all in how you look at the network.

When Verizon first gained its 700 MHz windfall last decade, it talked a lot about how the low-frequency licenses amounted to owning “beachfront spectrum.” Low frequencies propagate further, making it ideal for building a coverage network that can reach for miles in rural areas and penetrate walls in urban jungles.

Carmel beach

Verizon used the biggest chunk of its 700 MHz holdings to power its initial nationwide LTE rollout, but even as that network neared completion it let a significant amount of spectrum, called the lower 700 MHz band, languish. Instead it turned its attention to the higher-band 1700 MHz/2100 MHz airwaves owned by the cable companies. In order to get regulators to sign off on the cable airwave deal, Verizon agreed to sell off its remaining dormant 700 MHz holdings.

Why would Verizon part with beachfront spectrum it already owned, to spend billions buying these cable airwaves? It’s because it no longer needed them. Verizon had already built out its coverage network to most of the U.S. population. It no longer needed range, it needed capacity, and those high-frequency AWS airwaves were the perfect vehicle for the high-bandwidth network it craved. As I said at the time, Verizon traded in its beachfront property for what it considered penthouse real estate.

We’re already seeing evidence of that with the launch of Verizon’s LTE monster. In urban areas where its subscribers are concentrated and demand is the highest, Verizon has managed to field massive LTE systems that tripled its capacity and doubled its network speeds in many cities like New York, Chicago and Seattle. It never could pulled off that feat with its remaining 700 MHz licenses.

Verizon's LTE coverage in dark red
Verizon’s LTE coverage in dark red

T-Mobile is in the opposite position. It’s in the process of building a very high-capacity LTE network in the big cities using AWS frequencies (networks just as powerful as Verizon’s). But the big knock on T-Mobile has always been that its impressive 3G and 4G speeds disappear once you leave the city limits. These low-frequency airwaves will let T-Mobile build wide-sweeping networks to fill in those gaps.

The reason T-Mobile is acting now to buy those airwaves — apart from having recently raised funds for such acquisitions — is that the 700 MHz airwaves it’s buying recently became much more useful. T-Mobile is getting a portion of the band known as the A-block, which no other nationwide operator is using for LTE.

700 MHz band plan

Until recently, an A-block owner had trouble getting device makers to build smartphones for its airwaves. But a compromise worked out between AT&T(s t) and the FCC has made all the entire lower 700 MHz part of the same interoperable spectrum band. If that band rationalization hadn’t occurred, T-Mobile would have been stuck with orphan airwaves and faced its old problems of getting the latest and greatest devices (remember how long it waited for the iPhone).

Still T-Mobile remains in the market for more spectrum. The Verizon purchase only gives it 700 MHz licenses covering half the country’s population. If T-Mobile truly wants to shed its reputation as being a city-only service provider, it will have to buy a lot more airwaves.

8 Responses to “Why T-Mobile wants Verizon’s discarded 4G airwaves”

  1. Hi just popped in and you folks have some good info and thoughts. I can’t speak from a tech side but I figure I’d share what I’m up against.

    My job requires service in out bound ares where T-Mobile had fair service 3g-4g but spotty.

    As of late that’s all gone. Seems once the Lte came on line 3&4g went away. I’m around the Salisbury NC area. What bugs me is seeing sprint with Lte and 4&3g service where I get none, at best I get an unusable 2g 2bar service lol.

    Thing is this is hard for the little folks to keep changing provider’s to find one service is usable in out lying ares. The 700band you mention we can only hope that they will use it to help us get better service.

  2. Covering rural areas with lower spectrum probably helps them keep their rates down because they have fewer towers to maintain. T-Mobile isn’t only popular for their Southwest Airlines-style phone plans, they also save you a little money compared to AT&T or Verizon.

  3. whats the $ per gig content providers pay?

    that’s the bottom line, i wonder if maybe we will see a modern equivelent of the calling cards that used toll free access numbers. perhaps we will vpn providers that undercut normal consumer per gig charges.

  4. Kevin Fitchard

    Hey AJ,

    T-Mobile did make a point in mentioning rural coverage in its announcement, but you’re right perhaps it is wishful thinking. T-Mobile has always targeted a particular type of urban customer and so it’s not likely to change it’s stripes overnight. That said if it is going to build to an LTE network that reaches beyond urban dense areas it’s a lot easier and cheaper to do so at 700 MHz than it is at AWS.

    I agree with you that T-Mo isn’t going to be covering farmland here, but there are a lot of in-between places it doesn’t have coverage. Highways between cities, far flung suburbs and whatnot. I can’t think that T-Mobile is simply looking at this spectrum as a pure capacity play. It’s seem like a lot of money and hassle, just to add a little bandwidth, don’t you think?

    • Andrew J Shepherd

      Kevin, yes, I do not think that this is purely a capacity play. After all, it is just a 6 MHz FDD block. Moreover, T-Mobile is giving up some AWS spectrum to get it. And I think that T-Mobile actually has fairly good rural and highway footprint — in the eastern half of the country, at least. But the problem is that most of that coverage is still GSM only.

      I will use a recent, relevant example. I drove roundtrip to Indianapolis this past weekend, and I am both a T-Mobile sub and a Sprint sub. Along I-70 between Kansas City and Indianapolis, Sprint has EV-DO the entire stretch and LTE most of the way, soon to be all of the way. In contrast, T-Mobile has only GSM for about 80 percent of that Interstate corridor, just islands of W-CDMA and/or LTE every 30-100 miles.

      Now, Lower 700 MHz is not the key to solving that problem. “Modernization” is the crucial component, and since site spacing is already set up for PCS, that could be achieved in current PCS and AWS spectrum. Again, see Sprint. That aforementioned extensive LTE along I-70 is band 25 LTE 1900. Band 26 LTE 800 is also being deployed as we speak, but it is not necessary to the complete overlay plan.

      From T-Mobile, we have yet to see such a plan, and I do not think it is forthcoming. I suppose Lower 700 MHz could be the catalyst for a rural and highway focused initiative, but as I have pointed out, it is not required to do as Sprint is doing.

      Thus, I return to my original thesis. T-Mobile views the Lower 700 MHz acquisition primarily as a means to compete with the far greater signal propagation of VZW’s Upper 700 MHz, AT&T’s Lower 700 MHz, and Sprint’s SMR 800 MHz in urban/suburban areas. Further evidence of this is in T-Mobile’s own presentation yesterday with the emphasis on the spectrum to be acquired in the top 10 and top 30 markets, which make up a disproportionate 70 percent of the T-Mobile customer base.


      • Kevin Fitchard

        Yep, all great points, AJ. Making me rethink my analysis, but I still think T-Mobile can build a network far more efficiently (with fewer towers) in outlying areas at 700 MHz than it can with AWS or PCS. Sure, it’s limited by its existing tower grid, but it still has some flexibility.

        To your point though, it may be seeing the primary benefit as in-city coverage. I should have focused more on that angle in my piece, though I get the impression that carriers far exaggerate the in-building qualities of low-band spectrum in cities. They build at such densities that they don’t realize huge benefits. I’ve been told carriers have to rein in the power of cells in cities, because the more they punch through walls, the more they risk interference with neighboring cells. But since this is going to be an overlay network, T-Mobile has a lot more flexibility.

      • Aj/Kevin

        I just switched from Sprint to T-Mobile. In the past I owned a Transportation company that moved goods from the west coast to the east and back. I used Sprint. Sprint’s EVDO network worked just about everywhere.

        Fast forward to today. I am more stationary in southern cal. Sprints network as regards data has gone from an amazing 3G network to a horrible hodgepodge mix up that flat out doesn’t work. T-Mobile doesn’t work everywhere. But where it does work, it works much better then Sprint. For example, I regularly pull down 27+MBpS on T-Mobiles LTE. And, although I live in the suburbs about 70 miles from LA/SD, T-Mobile has great coverage out here. I believe the 700mhz purchase is going help fill in gaps. I am hopeful that Sprint will have a decent network soon, but my initial observations tell me its not likely for at least 3 more years.

  5. Andrew J Shepherd

    Kevin, I started to engage you on Twitter, but I will expound at greater length here. I have some qualms about two of the statements in your article:

    “These low-frequency airwaves will let T-Mobile build wide-sweeping networks to fill in those gaps.”

    “If T-Mobile truly wants to shed its reputation as being a city-only service provider, it will have to buy a lot more airwaves.”

    The truth is that T-Mobile has thousands of moderately to exceedingly rural GSM only sites that have long been just languishing. T-Mobile does not require additional spectrum to “modernize” those sites for W-CDMA and/or LTE; it just needs new base station infrastructure and advanced backhaul.

    However, T-Mobile has shown remarkably little interest in extending 3G/4G services to even its existing 2G network outside of its urban/suburban comfort zones — though that could be readily accomplished with T-Mobile’s existing stash of PCS and AWS spectrum.

    Do you see that strategy changing because of the Lower 700 MHz A block acquisitions? I get the implication from your article that you might. But I feel that is wishful thinking.

    With the MetroPCS merger and its myriad AWS spectrum acquisitions over the past two years, T-Mobile seems to have hunkered down as the high capacity city provider. I do not see that changing with Lower 700 MHz.

    Instead, T-Mobile will stay the course by focusing on improving urban/suburban signal density — especially in building coverage — through its first substantial sub 1 GHz spectrum supply.