Mobile operators traditionally have had two major tools for increasing network capacity: add new spectrum or shrink the size of cells. From time to time, advances in radio technology and air interface also help. But more spectrum and smaller cells are the two primary tools.
As the 5G era nears, the balance of investment choices could shift. Traditionally, mobile operators have preferred to grow capacity by adding new spectrum. But in the 5G era, where use of millimeter wave spectrum will require use of small cells, the economics of “buy spectrum or shrink cell size” could shift, in the direction of small cells.
In other words, at least some mobile operators might be able to add capacity more affordably by emphasizing small cell architecture than by “brute force” spectrum addition. Verizon executives sometimes have argued they could have boosted capacity at slightly less cost by reconfiguring networks, instead of buying new spectrum.
We’ll have to see, but it is conceivable the capex decisions increasingly will shift to small cell and other architectural changes, even if new spectrum acquisition remains important.
The business case will be affected by the availability of backhaul assets (fiber deep into neighborhoods), the expected cost of acquiring new spectrum (in the recent 600-MHz auctions Verizon did not bid and AT&T bid only a little, for example), and the growing ability to make use of unlicensed spectrum, and also cheaper shared spectrum (expected to be cheaper than traditional fully-owned spectrum).
Most informed observers outside of Verizon believe it will have to boost its spectrum assets. But Verizon continues to insist it is “very confident” with its present and potential spectrum assets, according to Matt Ellis, Verizon CFO. “We have significant opportunities to continue to grow within the spectrum holdings that we currently have; we’re refarming spectrum as we've talked about for a while; we still have the AWS-3 spectrum; and then unlicensed,” said Ellis.
It is not an unrealistic position. Even if, historically, gaining new spectrum has been the main way mobile operators have added new capacity, using smaller cells is the other typical way additional gains have been achieved. With the fiber deep architectures Verizon is pioneering in Boston, it is creating the backhaul infrastructure to do just that: add small cells to reuse existing capacity.
So, in terms of the physical options, Verizon does not absolutely need more spectrum to add more capacity.
On the other hand, there is no advantage to Verizon to claim otherwise, even if it believes it might, or will, add more spectrum in the future.
Verizon maintains bargaining advantage over potential sellers if it continues to insist it does not need to buy additional spectrum assets from would-be sellers, especially to support 4G operations.
Keep in mind that the usable capacity the smaller providers (T-Mobile US and Sprint) can wring out of any amount of raw spectrum is greater than can be deployed (all other things being equal) by AT&T and Verizon, which have many more customers to support.
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