2024 is coming to a close and in addition to our best wishes for the Holiday Season and 2025, we would like to share a few thoughts on challenges and opportunities in the US telecommunications industry going forward.
Broadband Subsidy
The massive $42.5 billion BEAD program continues on its state-by-state trajectory to ensure all Americans are served by broadband. Criticized for injecting dirigiste policy objectives into subsidies to build where facilities are absent, BEAD is likely to undergo some refinements/changes with the new Administration. This could focus, among other things, on the current preference for fiber build. There is a role for other technology solutions, notably fixed wireless and satellite, for areas where fiber costs would be very high. And fixed wireless and satellite service can be made available in many cases much more quickly. Having access, even if it is not at “fiber speed”, is better than having no access at all.
In parallel with BEAD, the FCC began re-kindling the 5G Fund with $9 billion to subsidize deployment of mobile 5G technology in underserved areas. Set to be awarded using a reverse auction process, the specific rules and the timeline for the auction are yet to be defined. The baseline for the rules is likely to be the RDOF auction, held in 2000, perhaps with some refinement notably around bidder qualifications and post-auction processes focused on minimizing defaults to ensure that the funds are actually spent.
Since some BEAD funding criteria could include mobile coverage requirements, there is possible overlap with the 5G Fund. To date the FCC has been “treading lightly” on the 5G fund, perhaps waiting so that prospective bidders have reasonable clarity on where funds can be focused.
More generally, the FCC’s ability to mandate and administer universal service programs is being tested in the Supreme Court, following court actions suggesting that the FCC is engaging in taxation, which it is not mandated to do. The agency has a long history in promoting universal service objectives through various programs and initiatives, the alternative to which is unclear. In other words, given a goal of universal service – initially for phone service, now for broadband – if it is not within the FCC’s purview to manage it, then who?
Rip and Replace Leads to Some “New” Old Spectrum
The biggest spectrum issue haunting the industry is the lack of auction authority for the FCC. To the rescue, to some extent, is the under-funded Rip and Replace Program. Funding for this is being increased by $3 billion in the 2025 National Defense Authorization Act, which will allow the FCC to borrow the funds and then mandates it to pay them back using proceeds from the re-auction of the returned AWS-3 licenses. The AWS-3 licenses were won – for about $3 billion – in Auction 97 in 2014 by DISH bidders SNR and Northstar Wireless but the licenses were returned when the bidders were denied DE credits by the FCC.
The AWS-3 re-auction has been a long time coming but will now take pace within the next 18 months. DISH (Echostar) may anticipate re-acquiring the licenses but recall that Auction 97 was hotly contested, and many other parties acquired licenses at high prices including the Big 3 – Verizon, T-Mobile and AT&T. The returned licenses cover markets including New York, Chicago and Boston, meaning this auction could jumpstart a new era of spectrum awards. On the other hand, the licenses in question are FDD and with relatively low capacity, mostly 5+5 MHz. In 5G, TDD and larger channels are the norm in mid-band. The world has changed since Auction 97… the answer to whether the AWS-3 licenses are worth $3 billion now will come from the result of competitive bidding.
More Mid-Band and Lower 3 GHz
Notwithstanding AWS-3, mid-band in the 3 GHz range is “everyone’s” focus… Making available frequencies in the Lower 3 GHz range would go a long way to filling out 5G Band n77, maximizing available mid-band capacity. Coupling this with siphoning off more satellite capacity in the upper portion of the range, i.e. “north” of 3980 MHz, would put the US in a lead position globally.
While there is a full 900 MHz of capacity covered by Band n77, most countries have only licensed portions of the band, usually the middle 3400-3800 MHz portion. Depending on how much added satellite spectrum could be freed up in the US, and if the currently low-power CBRS range is included with potential changes enabling high power operation, the US would be a world leader in awarding in the range of 80% of what is available.
Auctioning the Lower 3 GHz band, as with the AWS-3 re-auction but for different reasons, does not require the FCC’s auction authority to be renewed. What it does require, on the other hand, is for the Department of Defense to acquiesce to freeing up some of the resources for commercial use. This is not a new or easy discussion, and the outcome will likely involve some form of sharing mechanism, from which mobile carriers have tended to shy away.
There are likely many ways to “skin the cat” and since FCC auctions have, among other things, been proven winners for raising money for Treasury, it may not be a stretch to predict that the new Administration will find a way to dealing with the Lower 3 GHz frequencies and an auction will likely be the result.
Auction Authority and the National Spectrum Strategy
In a turn of events that has left availability of new spectrum assets in limbo, the FCC’s authority to conduct auctions was not renewed after its Congressional mandate expired in late 2022. As noted above, though, the AWS-3 re-auction, thanks to Rip and Replace, and the Lower 3 GHz band auction are not dependent on auction authority. So then what would be the pipeline once auction authority is restored, assuming that it is unlikely not to be restored at some point.
Notably, in late 2023, the NTIA released its National Spectrum Strategy. Other than bands already identified elsewhere, the main chunk of new MHz here would come from the 7-8 GHz range, a set of frequencies on the table for discussion at WRC-27. This is new potential prime spectrum territory and could go a long way to getting a start on new spectrum for 6G as standards and technologies for that are developed in the coming years. 6G will require even larger swaths of capacity than 5G and frequencies in the 7 to 15 GHz range, or higher, are seen as the prime candidates. The 7-8 GHz range, however, like Lower 3 GHz, is filled with government and military incumbents. Another candidate band is the Upper 12 GHz range, already subject to an FCC docket but would also require renewed auction authority to be licensed.
Fixed Wireless Access Still Going Strong and Potential Revenues from D2D
Fixed wireless access, affectionately known as FWA, continues to grow, confounding analysts and naysayers. Saddled with the history of under-performing services that used unlicensed spectrum and insufficient capacity, the new FWA relies on 5G and higher capacity licensed spectrum, notably in C-Band and potentially in mmWave. By all counts, the re-emergence of FWA is a success story, bringing a new source of revenue for operators, another competitive alternative for consumers, complementing fiber, cable and satellite services.
Another black sheep of the telecom world is the high frequency mmWave range. mmWave comes with the promise of vast new capacity but is hampered by short distances and impacted by annoying things such as rain and trees. The US remains the only market where mmWave bands are commonly included in consumer devices, which has facilitated service development notably for closed environments such as venues and stadiums. Also notably, 2024 saw the launch of mmWave CPE for 5G FWA pushing forward the performance of FWA services. The jury is still out on the broader potential of mmWave spectrum.
Later in 2025 or maybe even 2026 is likely to see the start of testing the revenue potential of D2D supplemental services by satellite. It will be interesting to see what Apple and the mobile operators decide in terms of any pricing and the level of consumer acceptance that could be achieved, if any.
Screens Screens Screens
A more down-to-earth issue which impacts the industry are the various spectrum screens the FCC uses when assessing transactions and auction rules. Currently there are three screens – one that covers low and mid band total, one specific to low band (less than 1 GHz), and one for mmWave (24 GHz and up). Following a petition of AT&T in 2021, the FCC is considering adding a mid-band screen. The mid-band screen as defined by AT&T would include 2.5 GHz – mostly held by T-Mobile – as well as the 3450 MHz and C-Band range but exclude CBRS. The screens and rules are due for modernization. Two “events” of 2024 clearly indicate that the current screens are increasingly unworkable:
- T-Mobile was not successful in its 800 MHz license auction. Selling these was a condition of the Sprint merger and meant to keep it within the Low Band screen. Selling the licenses to AT&T or Verizon, not eligible to bid without special permission, would likely put those two over the screen depending on the area. DISH was the original designated buyer but declined. T-Mobile now finds itself with the Catch-22 of being allowed to keep the 800 MHz spectrum if there are no viable buyers, but at the same time, having to divest, if it is to meet the screen itself. And the screen is further put to test with the proposed T-Mobile acquisitions of UScellular’s 600 MHz licenses along with those of Comcast, announced in 2023 but not yet filed with the FCC, which now feels like a long time ago.
- The continuing sale of UScellular assets also includes transactions for 3450 MHz licenses and 850 MHz licenses. The 3450 MHz licenses are proposed to be acquired by AT&T on closing of T-Mobile-UScellular. AT&T already holds the maximum four blocks in every PEA in the 3450 MHz band, a limit that will expire in early 2026. In the meantime, technically, it would not be allowed to acquire the UScellular blocks. UScellular’s 850 MHz licenses are proposed to be acquired by Verizon, which of course already has significant Low Band holdings in 700 MHz and 850 MHz. UScellular also has some C-Band licenses, for which no transaction has yet to be identified. Again, depending on the buyer, these could put pressure on the different screens.
In a nutshell, there is no shortage of challenges and opportunities for telecom service providers in 2025. As a friendly reminder, LYA brings expertise and experience in supporting telecom operators with services ranging from business strategy and valuation, spectrum and regulatory matters, broadband subsidy support, expert evidence, and other activities. Please get in touch and we look forward to hearing from you.