Spectrum Valuation In Addition To A Example For Verizon In Addition To Against Wannabe Players Similar Sprint In Addition To Desperado/Promotes Similar Gsat
This post has been inwards the dorsum of my hear for a long time. It is also talking my volume - long Verizon - big, tedious amongst a *lot* of really high value spectrum as well as curt the spectrum wannabe players similar GSAT.
As for timing, the post is prompted past times the commencement of GSAT's collapse next the inquiry study past times Sahm Adrangi as well as Kerrisdale Capital.
We receive got some other motivation. For eighteen months or so Verizon has been 1 of our biggest (and sometimes our absolute biggest) long seat as well as it has non worked. We haven't lost coin - nosotros exactly receive got non kept upward amongst the bull market.
This powerfulness live (and I promise it is) exactly the symptom of a wild bull marketplace seat where "grandmother-safe" stocks (like Verizon) larn left behind. But it powerfulness also live because I am wrong.
I sincerely promise for some actually knowledgeable spectrum engineers to tell me where I am incorrect on this. Comments are appreciated either on the weblog or past times email.
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Spectrum usage - the footing for valuation
Imagine nosotros are sitting inwards the room as well as I receive got a regal flashlight. I tin transmit information to y'all using that flashlight - past times flashing it.
In the former days I powerfulness receive got used morse-code to exercise it - as well as I could in all probability larn this to function at something nether typing pace.
As computers receive got improved - as well as the low-cal flashes faster as well as faster - I receive got been able to larn to a greater extent than as well as to a greater extent than information into my signal. With telephone signals y'all larn well-nigh a 10X improvement past times going from analog to (2G) digital as well as larn some other large lick betwixt 2G as well as 3G as well as and so 4G. By the fourth dimension nosotros larn to LTE for everything (including voice) this volition largely receive got played itself out.
The regal low-cal is flashing nearly every bit fast as well as efficiently every bit it tin now.
Now suppose I receive got a room total of people as well as I wanted to flash my regal low-cal to send everyone some information.
One way is that I could "share the channel" past times sending a chip of my signal to everyone inwards the room usually amongst some sort of computer program whereby they tin choice out their chip of the signal as well as everything else gets discarded. One instance of this was "code division" every bit inwards "Code Division Multiple Access" or CDMA.
The job is that every bit I part the channel everyone's gets their information a chip slower. I demand to hold off whilst information is sent to everyone else.
And if I endeavour to exercise it also much I exactly cram upward the signal.
I could endeavour a unlike approach - which is to job multiple regal flashlights as well as flash signal at total footstep to everyone separately but I volition receive got some other problem.
The room volition live flooded amongst regal light.
And that regal low-cal volition degrade everyone else's signal.
That degradation has a name: "interference". Too much interference as well as the speed at which I tin larn information slows downwards - oft dramatically.
There are a few solutions to the interference problem.
One solution is that instead of having a large tower flashing regal low-cal to everyone I receive got lots of tiny piddling towers that flash a depression powered regal lights that has an effective transmission distance of a few metres. In an ideal globe everyone has their localised regal low-cal which gives them information as well as does non interfere amongst their neighbours.
Alas that idealised solution requires lots of uppercase expenditure (you receive got to construct a tower every few metres).
Another solution is to brand the regal low-cal into a beam as well as beam it at every private soul - so they all larn their ain signal. This has a cry - "beam forming" as well as it the footing of many proposed 5G telephone systems.
Another solution is to job the mathematics of interference to my wages - pattern my organization so that solely my signal survives - as well as everyone elses' is cancelled every bit white noise. There are variants on that - but the most famous is MIMO and it winds upward beingness really figurer intensive. However y'all tin reasonably larn some other one-half gild of magnitude of wireless efficiency via this method. It is also the footing of Steve Perlman's wireless technology. I am deeply skeptical of Steve Perlman's projection - but I am sure at that spot are people out at that spot to a greater extent than knowledgeable than me.
Another solution is to encase my regal low-cal inwards drinking glass as well as send it individually to each person. You tin larn a vast amount of information this way (fibre-optics) but y'all lose mobility.
By far the cheapest solution though is to just job some other colour.
So I flash inwards red, violet, indigo, xanthous as well as a bunch of colours y'all can't run across (but are silent actually colours).
Flashing my signal inwards multiple colours is an alternative to edifice to a greater extent than towers. This is a pretty forthwith trade-off. If I am allowed to job many colours I tin larn much to a greater extent than information out of a unmarried tower.
When somebody buys "spectrum" what they are actually buying is the correct to flash low-cal inwards a unlike colour. These colours are radio frequencies (say 700 MHZ) rather than visible low-cal (say 700 THZ for the color purple).
The correct to flash information inwards a unlike frequency (that is a unlike colour) is an alternative to the practical obligation to construct to a greater extent than towers.
As towers receive got an identifiable uppercase as well as running cost (a cost construction good known to telephone companies) spectrum has a definable value - defined by avoided cost.
The signal hither is that if y'all know the cost of the telephone companionship as well as the amount of uppercase expenditure avoided y'all tin function out the value of the spectrum to a telephone company. The telephone companionship tin either purchase to a greater extent than spectrum or construct to a greater extent than towers. [To function this out accurately y'all would demand a map of the US, demographic as well as telephone usage information past times little part as well as endeavour to function out how y'all would serve them.]
If y'all receive got a lot of information to transmit y'all tin salvage a lot of coin buying spectrum rather than edifice towers - as well as thence your spectrum is worth a lot of money. It is worth to a greater extent than if (a) the people are hard to serve or (b) at that spot is a lot of people willing to pay for speed or reliability.
This is where the value of spectrum inwards billions of dollars comes from. It comes from avoided cost.
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H5N1 telephone companionship amongst a skillful spectrum seat volition live able to avoid a lot of costs as well as silent supply a really skillful service. This volition larn inwards profitable. It volition live able to accuse to a greater extent than (as it has reliable coverage) as well as volition non receive got to construct a lot of towers.
H5N1 companionship amongst a bad spectrum seat volition receive got a cost construction that - good frankly - sucks. It volition live competed away.
When nosotros think well-nigh the value of spectrum nosotros receive got to think well-nigh the amount of cost that it avoids.
If it avoids lots of costs it is worth a lot.
If it avoids really piddling cost it is worth really little.
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The ascension of smart phones has increased demand for information a lot. Okay a huge amount. We all receive got the mesh inwards our steal these days.
And that has obliged telephone companies to pass lots of coin to maintain upward amongst demand. If they don't pass all that coin their telephone organization volition suspension down. [Lots of readers volition recollect AT&Ts problems inwards 2009 as well as if y'all exercise not here is Jon Stewart to remind you.] After the iPhone was introduced demand for information went through the roof (especially at AT&T who had a monopoly on iPhones). AT&T uppercase expenditure inwards the lastly 5 years has been roughly $100 billion - mostly on fixing this problem. These are non little sums as well as every bit spectrum is an alternative to uppercase expenditure AT&T most sure wishes they had to a greater extent than of it.
The ascension of smart-phones has driven upward the uppercase expenditure requirements of the carriers - as well as every bit spectrum is an alternative to uppercase expenditure it has driven upward the value of spectrum.
That ascension inwards the value of spectrum (which actually has been quite extreme) is the chief argue for owning Verizon. They receive got lots of skillful spectrum which agency skillful coverage at depression costs as well as that agency large profits. My stance is uncomplicated here. The tendency volition proceed as well as is Verizon's friend. Profits volition live *much* higher inwards 5 years. The stock starts at a depression teens PE ratio amongst a 4.4 pct yield as well as it is solely going to larn better.
Verizon wireless grows revenue at well-nigh vii pct as well as volition grow earnings faster.
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What sort of spectrum avoids costs?
Spectrum has value because it allows y'all coverage as well as capacity at lower costs.
But non all spectrum is equal.
There is actually skillful spectrum. That comes at depression frequency as well as amongst really few restrictions every bit to the powerfulness output.
And at that spot is pitiful spectrum which is either really high frequency or has restrictions every bit to the powerfulness output or both.
Low frequency spectrum is skillful because it propagates actually well. It tin go through buildings so y'all tin job your iPhone whilst sitting on the can inwards the centre of your concrete portion block. It tin move decent distances amongst express regard to obstacles. In the wireless globe depression frequency tends to hateful 600-900 MHZ.
In every province inwards the globe at that spot was a large block of this "beach forepart existent estate" taken past times the TV channels. Why? Because when they were allocating spectrum inwards the 1950s at that spot were non many demands as well as the TV stations asked for as well as got the best bit.
In every province inwards the Western World the TV channels are beingness forced to go digital as well as their extra spectrum is beingness sold off. That sell-off has been the footing of most of the large spectrum auctions that receive got taken place.
In the lastly auction AT&T as well as Verizon were the large purchasers - as well as those blocks are where the LTE/4G networks receive got been rolled out.
However this is non exactly "low frequency" spectrum but it also has really few restrictions every bit to the powerfulness of transmitter allowed. Typically Verizon is allowed a tower hundreds of feet high on which they tin set a 1000 watt transmitter. This allows Verizon the powerfulness to encompass a large amount of expanse (often hundreds of foursquare kilometres) from a unmarried transmitter. The most valuable spectrum at the lastly large auction covered the affluent suburbs of Chicago - middling population density as well as thick insulating walls meant that depression frequency spectrum was required. Affluence meant that people would pay for the premium service.
You would never job the spectrum that way inwards Manhattan. There is but also much demand for it. However y'all tin silent job smaller, lower towers as well as larn skillful coverage within buildings.
The ii things that brand this spectrum value is frequency (low) as well as powerfulness restrictions (very few).
High frequency spectrum is less skillful generally. It doesn't propagate every bit well. At really high frequencies (say 2500 MHZ) it can't larn into a edifice as well as so y'all lose coverage every bit y'all go into elevators or behind trees. You sure lose coverage when y'all go into the concrete nub of your edifice (ie the toilet) as well as endeavour to job the phone.
High frequency spectrum does withal receive got 1 large advantage.
There is to a greater extent than of it. Much to a greater extent than of it.
And so it gets extensively used for capacity when y'all actually demand to movement a lot of data.
If y'all are going to construct a wireless network inwards Tokyo or Seoul or New York y'all are going to demand a lot of spectrum (because the density of job is high) as well as some of that volition demand to live high frequency (simply because at that spot is non much low-frequency spectrum as well as at that spot is a lot of high frequency spectrum).
The pitiful propagation of high frequency spectrum tin live used to your advantage. High frequency spectrum has a hard fourth dimension getting into a edifice resulting inwards pitiful indoor coverage. H5N1 solution is to "light" the edifice from the within - putting a transmitter say inwards the AC duct. This makes for really skillful internal coverage.
Moreover every bit the high frequency spectrum can't usually larn into the edifice inwards this instance it can't go out of the building. This agency the spectrum used inwards the edifice does non interfere (much) amongst the spectrum used exterior the edifice allowing reuse of spectrum.
Very high frequency spectrum (say upper-band WiFi at frequencies of exactly about 5000 MHZ) tin remain within private rooms of a home. Low interference is skillful as well as agency the WiFi never gets congested. The downside is depression propagation fifty-fifty within your home. [If y'all endeavour using your iPad inwards bed on the other side of the solid y'all volition empathize the problem.]
Verizon's spectrum mix (unequivocally the best inwards America) consists mostly of depression frequency 700 MHZ "beach front" holding amongst some other amount of high-frequency spectrum (the so-called AWS bands) which are used primarily for urban infill. They receive got some frequency at higher levels also withal they receive got non traditionally had whatsoever involvement inwards really high frequency spectrum (eg 2500 MHZ).
Power restrictions
Driving inwards the province at nighttime y'all know that a large metropolis radio station (even 1 a really long way away) tin drown out a province station. Radio - peculiarly AM radio - is really depression frequency (say 0.6 MHZ) as well as tin propagate a long way (hundreds or sometimes thousands of kilometres).
There is non much spectrum this far downwards the dial so y'all can't receive got a lot of stations. And they interfere amongst each other a bully deal. The large metropolis station has a powerfulness output that volition but dwarf a regional station.
Not everyone volition live allowed to broadcast amongst high powerfulness because something amongst high powerfulness volition (badly) interfere amongst something at lower powerfulness a piddling way upward or downwards the dial.
All rights to job spectrum come upward amongst a powerfulness restriction. That powerfulness restriction tin live for a trivial amount of powerfulness or tin allow y'all to job 1600 watts from a 300 metre high antenna.
Obviously beingness able to ticker out a large amount of powerfulness from a high tower amongst a bully describe of sight volition live cheaper than putting a smaller transmitter every 50 meters.
The higher the amount of powerfulness y'all tin ticker out the higher the value of spectrum.
Lightsquared as well as powerfulness restrictions
Power restrictions tin completely neuter the value of your spectrum. LightSquared had some spectrum that was originally designated for satellites. Phil Falcone bet his hedge fund as well as his reputation on the possibility of getting that spectrum approved for terrestrial use. If he could it was really valuable.
The solely problem: that spectrum was nigh (in frequency) to the spectrum used for the economically of import GPS satellite system.
The Federal Communications Commission (FCC) said that was fine so long every bit independent tests verified that at that spot was no interference.
Phil Falcone took that every bit the go-ahead - the correct to job the spectrum.
Alas the independent tests came dorsum nasty - a telephone tower interfered amongst an aircraft navigation organization 20 kilometres away. Approval was denied.
Now I am going to brand the obvious point. GPS signal is broadcast past times a satellite running on solar unloosen energy as well as batteries hundreds of kilometres away. H5N1 telephone signal comes from a large tower hooked to mains power.
There are xi orders of magnitude divergence of powerfulness betwixt the GPS signal as well as the telephone signal. If the colours were non really unlike (say a slightly unlike shade of purple) as well as so at that spot is but no way that the GPS signal could live seen. The way to think well-nigh it: endeavour spotting a 1 watt LED versus the entire powerfulness charge of a nuclear powerfulness station converted to low-cal when the low-cal is a similar colour. It can't live done.
LightSquared demonstrated 1 thing: Phil Falcone is so egotistical he thought his volition could out override the laws of physics. It cost him his fund as well as his reputation. It cost his clients an awful lot of money.
Alas this seems mutual plenty on Wall Street. I receive got seen the most absurd things beingness said well-nigh spectrum every bit if powerfulness restrictions exercise non matter. Power restrictions absolutely determine the value of the spectrum holding.
Quick summary every bit to what is valuable as well as what is not
Low frequency spectrum amongst express powerfulness restrictions is hugely valuable.
High frequency spectrum amongst solely pocket-size powerfulness restrictions is less valuable - but is really skillful for urban infill. Once y'all receive got covered most the state amongst depression frequency spectrum y'all demand to exercise mid-range or high frequency infill. This is the phase Verizon is at nowadays at - using AWS spectrum for infill.
High frequency spectrum amongst dramatic powerfulness restrictions is worthless. H5N1 high frequency spectrum amongst a binding powerfulness restriction can't larn into a edifice as well as can't go really far as well as y'all but can't cost-effectively construct a network using that stuff. Besides it competes amongst WiFi - as well as WiFi is gratis - as well as competing against gratis is difficult.
WiFi
There is a lot of WiFi spectrum, some at 2400 MHZ but most exactly about 5000 MHZ. It is unlicensed as well as anyone tin job it. It is high frequency spectrum which makes transmission through the walls of your abode hard (as anyone who has tried tin attest).
There are some rules for using it - concerning how y'all are meant to part channels. The most of import dominion withal is a power restriction. Power restrictions on WiFi are binding as well as a WiFi signal has an effective make of well-nigh lxx meters. [The make volition depend on how many walls y'all receive got as well as also on other WiFi signals as well as how skillful your antenna is.] Whatever - it is useless over long ranges.
The powerfulness restriction is absolutely critical to WiFi. The argue why everyone inwards a street manages to job WiFi inwards their abode without causing critical interference is that everyone abides past times a power-restriction. [You cannot legally sell a WiFi access signal that does non abide past times the powerfulness restriction.]
WiFi carries a lot of information as well as it carries it past times the machinery of giving everyone a really depression powered regal low-cal which they set correct next to them. But instead of exactly regal it has well-nigh xx colours (known every bit channels). You tin send a *lot* of information past times WiFi - multiple high-definition TV channels fifty-fifty - but y'all can't send it really far. And for the most portion the consumer pays for the infrastructure [ie the piddling regal light] which is prissy for the carriers.
Point here: low-powered high-frequency spectrum competes amongst WiFi as well as y'all can't exercise that really effectively because WiFi spectrum is fairly abundant (caveat inwards the next section) as well as free.
The caveat: WiFi inwards the Superbowl Stadium versus WiFi inwards Times Square
There are well-nigh xx useable WiFi channels as well as it is non oft that xx people desire to live downloading something simultaneously within say a 100 pes radius.
When this happens y'all run the jeopardy of WiFi congestion.
There are prominent places when far more than xx people desire to job the same spectrum simultaneously. The Superbowl stadium at one-half fourth dimension has lxx 1000 people inwards it all wanting to film, accept pictures as well as upload the materials to the internet. The Superbowl stadium at half-time is in all probability the most congested spectrum inwards the world.
The WiFi (and telephone systems) inwards the lastly Superbowl worked. [It had to function - it was sponsored past times Verizon. Verizon would receive got had really bad press if it had non worked.]
In Times Square at the queue for half-priced tickets everyone seems to desire to download theater reviews (as much every bit anything to run across what to see).
WiFi does non work. I know. I receive got tried it.
It is worth explaining why.
Even though at that spot are rules unlicensed spectrum suffers from the job of the commons. Too many people inwards an uncontrolled fashion desire to larn onto it. The park withal are non really large (a twain of hundred feet radius mostly) as well as most park (say the 1 inwards my suburban street) receive got a express publish of people who desire to share. So "commons" is non a large problem.
In Times Square "commons" is a large problem. Way also many people stand upward for into my little radius as well as the network is congested.
At the Superbowl that is also truthful - but for 1 thing. There is solely 1 political party managing the network inwards the Superbowl stadium. Signal from exterior the stadium can't larn in. (The walls are also thick!)
So within the stadium the unlicensed spectrum behaves every bit if it were licensed spectrum. Sophsiticated WiFi equipment (such as Meraki) include "rogue network detection" every bit as touchstone feature. If y'all were setting upward a wireless network for (say) Stanford University where at that spot were a gazillion devices y'all would desire to ensure that rogue networks were prohibited as well as to ensure y'all ain the spectrum inwards those places. Rogue devices are jammed as well as "deauthorized".
The FCC has of late pronounced against jamming rogue networks - at to the lowest degree if y'all desire to accuse for an alternative network. The FCC of late fined Marriott Hotels $600 1000 for jamming a rogue WiFi hotspot and as well as so forcing people to pay for hotel-provided WiFi.
My approximate is that jamming remains legal (it is sure supported past times equipment manufacturers) but it is solely legal if y'all give away the WiFi signal on your controlled network.
GSAT
GSAT - the latest victim of Sahm Adrangi's precision analysis - is the possessor of ii blocks of spectrum - both originally allocated every bit satellite spectrum.
One lot is clearly worthless every bit it fifty-fifty closer to GPS spectrum than the Lightsquared spectrum. Interference is a given. There is no way they volition live allowed to operate at whatsoever meaningful powerfulness level.
The other lot of spectrum is next WiFi as well as volition never live allowed past times the FCC to live substantially to a greater extent than powerful than WiFi spectrum for fearfulness of drowning out WiFi. GSAT proposes using their spectrum amongst a four watt powerfulness limit. [Verizon spectrum is depression frequency as well as oft has a 1000 watt powerfulness limit.] This volition hateful it has a make commensurate amongst WiFi.
What GSAT are proposing is a private WiFi channel.
But for the most portion at that spot is plenty WiFi channels.
In football game stadiums or Grand Central where rogue networks tin live removed at that spot is plenty of WiFi capacity. [This was demonstrated past times the fact that your telephone worked during the lastly Superbowl.]
This applies inwards hotels also (provided hotels surrender charging for WiFi as well as thence don't autumn foul of the Marriott ruling).
In places where rogue networks can't live excluded similar Times Square some other WiFi channel volition live nice. But at that spot are non that many such places. Moreover 1 channel volition larn congested for sure inwards those places... after all if exactly ii people desire it y'all receive got a difficulty...
Simple summary: GSAT has naught inwards the spectrum game. High frequency spectrum amongst a binding powerfulness restriction is worth something nigh zero. It is a non-starter.
It is hard to run across what uppercase costs GSAT's spectrum helps a carrier avoid. And if it doesn't assist them avoid costs as well as so the spectrum is worthless. [Sorry guys.]
That said at that spot are plenty of hedge fund managers who concur GSAT on some vague notion that spectrum is scarce as well as thence valuable.
I know y'all read this blog. I suggest y'all start your next missive of the alphabet every bit follows:
AT&T as well as Verizon receive got the lion's part of depression frequency spectrum inwards the US. [Both Sprint as well as T-Mobile receive got narrow slices.]
These large holdings of low-frequency spectrum hateful that Verizon as well as AT&T tin offering amend coverage at lower uppercase cost than their competitors.
The depression frequency spectrum withal silent has express capacity. If y'all desire lots of capacity y'all receive got to job high frequency spectrum (simply because at that spot is much to a greater extent than of it).
If y'all receive got depression frequency spectrum y'all advertise yourself on network reliability ("Can y'all hear me now") but y'all offering express as well as oft little information plans.
If y'all receive got a high-frequency network your reliability is going to suck (sorry Sprint) but y'all tin offering really large (even unlimited) information plans.
To the extent that y'all tin accuse for reliability as well as y'all exercise non receive got to send huge amounts of information y'all should receive got pricing powerfulness AND to a greater extent than pocket-size uppercase expenditures. You should brand pots of money.
We receive got almost pure comparing betwixt a high-frequency job instrumentalist as well as a depression frequency job instrumentalist inwards the USA - an that is betwixt Verizon Wireless as well as Sprint.
Verizon Wireless was a separately reporting subsidiary until the cease of 2012 as well as reported its information (courtesy CapitalIQ) tin live found here. You tin run across it did something similar $76 billion inwards revenue inwards 2012 as well as the uppercase expenditure was 8.8 billion (which was its all fourth dimension high). The uppercase expenditure was the all-time-high because of the roll-out of the LTE network. Since as well as so Verizon Wireless revenue has risen. Here is wireless revenue past times quarter:
You tin unwrap the original here.
The growth charge per unit of measurement is well-nigh vii percent. It is pretty good.
Operating income for wireless is growing faster because at that spot is relatively fixed costs - as well as thus operational leverage. Operating income for wireless is at nowadays running over vii billion per quarter as well as the growth charge per unit of measurement was fourteen pct inwards the foremost quarter but solely vii pct inwards the instant quarter. [There were some odd expense shifts - my approximate is the growth charge per unit of measurement is well-nigh 10 percent.]
Capital expenditure for wireless is currently running a piddling over 10 billion per twelvemonth (it has gone upward - all that urban infill is non cheap). They are guiding it downwards inwards a twain of years which makes feel (but I approximate has to live seen to live utterly believed).
By contrast hither are Sprint's numbers. [Again y'all tin find the master courtesy of CapitalIQ.]
Revenue is solely 35 billion per twelvemonth - less than one-half Verizon - and it does non grow really much.
More importantly uppercase expenditure is running at roughly vi billion per year. Again they are guiding for it to autumn somewhat - but it can't autumn much because of the lack of coverage. What nosotros receive got is less than one-half the revenue, roughly lx pct of the uppercase expenditure as well as a lack of growth. It is non pretty.
Capital expenditure has been SUBSTANTIALLY larger than operating cash catamenia for many years. By contrast Verizon Wireless has substantial operating cash catamenia after uppercase expenditure. The spectrum holdings of Verizon receive got avoided vast uppercase expenditures as well as provided amend service as well as pricing power.
Sprint past times contrast has large as well as increasing funding needs. They needed a huge uppercase injection from Softbank. My approximate is that they volition demand some other one.
T-Mobile whose spectrum seat is similar to Srpint also has uppercase expenditure substantially larger than operating cash flow. Alas their rear is non every bit rich. My approximate is that opposite to the pop perception Sprint as well as non T-Mobile is the ultimate survivor - but solely because Sprint is controlled past times Softbank as well as Masa Son volition determine at some signal he prefers owning a solvent publish 3 telephone companionship than owning a large stake inwards Alibaba.
Some people (and guidance) think that T-Mobile becomes cash catamenia positive (after uppercase expenditure) when it finally turns off former 2G networks. I exercise non believe it every bit I think their unlimited buckets at nowadays volition forcefulness them to infill for a really long time. [The 2G network thing volition also apply to Verizon.]
The Verizon question
Verizon wireless grows revenue at well-nigh vii percent, income at well-nigh 10 pct as well as according to administration is probable to drib its uppercase expenditure.
It is priced at a teens PE ratio.
Of class it includes a wireline describe of piece of work organization but that is no longer shrinking. Why? Mainly because it is the opposite cease of all those WiFi access points.
What is is worth?
My approximate is a *lot* to a greater extent than than the electrical flow price. I can't run across whatsoever argue why the demand for bandwidth volition non live a lot higher inwards a decade as well as the powerfulness to solve problems past times digital compression (ie 4G over analog) is nearing an end. There is probable going to live a truthful compaction as well as that compaction volition supply pricing power.
But bluntly y'all don't demand that. All y'all demand is the revenue growth to proceed at 4-7 pct for one-half a dozen years, turn a profit growth is thus 8-14 pct as well as the gratis cash is overwhelming. Verizon is very cheap it continues. It starts amongst an almost 4.5 pct dividend. If it gets amend at that charge per unit of measurement for one-half a dozen years (still an opened upward question) Verizon is really cheap. In gild for Verizon non to live skillful value that revenue growth needs to halt or the uppercase expenditure requirements demand to blow out.
Some people province the revenue growth volition halt because at that spot is a cost state of war going on inwards USA telephony. I receive got spent a lot of fourth dimension looking at it as well as think it is mostly a phoney state of war (forgive the pun) but it is clearly impacting Sprint whose revenue is stationary but whose customers
I would love (off-the-blog) a decent conversation amongst anyone who has a decent thought on how to value Verizon's spectrum. I receive got a listing past times county of the USA of their spectrum holdings (its a 25 megabyte file).
Is at that spot whatsoever to a greater extent than spectrum?
It is worth cry for whether this tin live solved past times making to a greater extent than spectrum available. Are at that spot bully "fallow fields" of spectrum?
The curt answer is no.
The long answer is a piddling to a greater extent than complicated.
The available low-frequency spectrum has by-and-large come upward from freeing upward the spectrum previously used for TV. In most countries (though non America) all the auctions receive got happened.
In America at that spot are ii major releases of that spectrum. The foremost was inwards Jan 2008 - as well as the instant volition live inwards 2015 (the so-called incentive auction).
The 2008 auction was bid exactly after the introduction of the iPhone (announced 29 June 2007, introduced a piddling later). The bidding prices were non high. Spectrum demand as well as prices receive got gone upward massively since the introduction of smart-phones.
The 2015 auction volition live the lastly auction of high-value depression frequency spectrum inwards my lifetime. There are no to a greater extent than huge blocks to live had. The FCC has reserved xxx MHZ for shaver players (not AT&T or Verizon). That reservation is a huge gift from taxpayers to the shaver carriers as well as volition allow at to the lowest degree 1 of Sprint or T-Mobile (or mayhap Dish) to prosper. For the shaver players the 2015 auction is their lastly gamble to larn some high-powered low-frequency spectrum. It is do-or-die.
Because Sprint has a richer rear (Softbank) my approximate is the winner volition live Sprint.
At high frequency at that spot is non actually a shortage of spectrum. There is a lot of WiFi spectrum if y'all desire to construct a really dense network (at really high cost). But to a greater extent than realistically Sprint owns (courtesy of Clearwire) huge swathes of really high frequency spectrum amongst much to a greater extent than realistic powerfulness limits than WiFi. Sprint is able to offering a lot of capacity - but every bit the spectrum is high frequency they powerfulness receive got problem offering it over a wide market.
Future research
I am seeking anyone who tin assist me value Verizon's spectrum. I desire to prepare a physics-based model of Verizon's competitive advantage. Hope beloved readers that y'all tin help.
John
As for timing, the post is prompted past times the commencement of GSAT's collapse next the inquiry study past times Sahm Adrangi as well as Kerrisdale Capital.
We receive got some other motivation. For eighteen months or so Verizon has been 1 of our biggest (and sometimes our absolute biggest) long seat as well as it has non worked. We haven't lost coin - nosotros exactly receive got non kept upward amongst the bull market.
This powerfulness live (and I promise it is) exactly the symptom of a wild bull marketplace seat where "grandmother-safe" stocks (like Verizon) larn left behind. But it powerfulness also live because I am wrong.
I sincerely promise for some actually knowledgeable spectrum engineers to tell me where I am incorrect on this. Comments are appreciated either on the weblog or past times email.
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Spectrum usage - the footing for valuation
Imagine nosotros are sitting inwards the room as well as I receive got a regal flashlight. I tin transmit information to y'all using that flashlight - past times flashing it.
In the former days I powerfulness receive got used morse-code to exercise it - as well as I could in all probability larn this to function at something nether typing pace.
As computers receive got improved - as well as the low-cal flashes faster as well as faster - I receive got been able to larn to a greater extent than as well as to a greater extent than information into my signal. With telephone signals y'all larn well-nigh a 10X improvement past times going from analog to (2G) digital as well as larn some other large lick betwixt 2G as well as 3G as well as and so 4G. By the fourth dimension nosotros larn to LTE for everything (including voice) this volition largely receive got played itself out.
The regal low-cal is flashing nearly every bit fast as well as efficiently every bit it tin now.
Now suppose I receive got a room total of people as well as I wanted to flash my regal low-cal to send everyone some information.
One way is that I could "share the channel" past times sending a chip of my signal to everyone inwards the room usually amongst some sort of computer program whereby they tin choice out their chip of the signal as well as everything else gets discarded. One instance of this was "code division" every bit inwards "Code Division Multiple Access" or CDMA.
The job is that every bit I part the channel everyone's gets their information a chip slower. I demand to hold off whilst information is sent to everyone else.
And if I endeavour to exercise it also much I exactly cram upward the signal.
I could endeavour a unlike approach - which is to job multiple regal flashlights as well as flash signal at total footstep to everyone separately but I volition receive got some other problem.
The room volition live flooded amongst regal light.
And that regal low-cal volition degrade everyone else's signal.
That degradation has a name: "interference". Too much interference as well as the speed at which I tin larn information slows downwards - oft dramatically.
There are a few solutions to the interference problem.
One solution is that instead of having a large tower flashing regal low-cal to everyone I receive got lots of tiny piddling towers that flash a depression powered regal lights that has an effective transmission distance of a few metres. In an ideal globe everyone has their localised regal low-cal which gives them information as well as does non interfere amongst their neighbours.
Alas that idealised solution requires lots of uppercase expenditure (you receive got to construct a tower every few metres).
Another solution is to brand the regal low-cal into a beam as well as beam it at every private soul - so they all larn their ain signal. This has a cry - "beam forming" as well as it the footing of many proposed 5G telephone systems.
Another solution is to job the mathematics of interference to my wages - pattern my organization so that solely my signal survives - as well as everyone elses' is cancelled every bit white noise. There are variants on that - but the most famous is MIMO and it winds upward beingness really figurer intensive. However y'all tin reasonably larn some other one-half gild of magnitude of wireless efficiency via this method. It is also the footing of Steve Perlman's wireless technology. I am deeply skeptical of Steve Perlman's projection - but I am sure at that spot are people out at that spot to a greater extent than knowledgeable than me.
Another solution is to encase my regal low-cal inwards drinking glass as well as send it individually to each person. You tin larn a vast amount of information this way (fibre-optics) but y'all lose mobility.
By far the cheapest solution though is to just job some other colour.
So I flash inwards red, violet, indigo, xanthous as well as a bunch of colours y'all can't run across (but are silent actually colours).
Flashing my signal inwards multiple colours is an alternative to edifice to a greater extent than towers. This is a pretty forthwith trade-off. If I am allowed to job many colours I tin larn much to a greater extent than information out of a unmarried tower.
When somebody buys "spectrum" what they are actually buying is the correct to flash low-cal inwards a unlike colour. These colours are radio frequencies (say 700 MHZ) rather than visible low-cal (say 700 THZ for the color purple).
The correct to flash information inwards a unlike frequency (that is a unlike colour) is an alternative to the practical obligation to construct to a greater extent than towers.
As towers receive got an identifiable uppercase as well as running cost (a cost construction good known to telephone companies) spectrum has a definable value - defined by avoided cost.
The signal hither is that if y'all know the cost of the telephone companionship as well as the amount of uppercase expenditure avoided y'all tin function out the value of the spectrum to a telephone company. The telephone companionship tin either purchase to a greater extent than spectrum or construct to a greater extent than towers. [To function this out accurately y'all would demand a map of the US, demographic as well as telephone usage information past times little part as well as endeavour to function out how y'all would serve them.]
If y'all receive got a lot of information to transmit y'all tin salvage a lot of coin buying spectrum rather than edifice towers - as well as thence your spectrum is worth a lot of money. It is worth to a greater extent than if (a) the people are hard to serve or (b) at that spot is a lot of people willing to pay for speed or reliability.
This is where the value of spectrum inwards billions of dollars comes from. It comes from avoided cost.
--
H5N1 telephone companionship amongst a skillful spectrum seat volition live able to avoid a lot of costs as well as silent supply a really skillful service. This volition larn inwards profitable. It volition live able to accuse to a greater extent than (as it has reliable coverage) as well as volition non receive got to construct a lot of towers.
H5N1 companionship amongst a bad spectrum seat volition receive got a cost construction that - good frankly - sucks. It volition live competed away.
When nosotros think well-nigh the value of spectrum nosotros receive got to think well-nigh the amount of cost that it avoids.
If it avoids lots of costs it is worth a lot.
If it avoids really piddling cost it is worth really little.
--
The ascension of smart phones has increased demand for information a lot. Okay a huge amount. We all receive got the mesh inwards our steal these days.
And that has obliged telephone companies to pass lots of coin to maintain upward amongst demand. If they don't pass all that coin their telephone organization volition suspension down. [Lots of readers volition recollect AT&Ts problems inwards 2009 as well as if y'all exercise not here is Jon Stewart to remind you.] After the iPhone was introduced demand for information went through the roof (especially at AT&T who had a monopoly on iPhones). AT&T uppercase expenditure inwards the lastly 5 years has been roughly $100 billion - mostly on fixing this problem. These are non little sums as well as every bit spectrum is an alternative to uppercase expenditure AT&T most sure wishes they had to a greater extent than of it.
The ascension of smart-phones has driven upward the uppercase expenditure requirements of the carriers - as well as every bit spectrum is an alternative to uppercase expenditure it has driven upward the value of spectrum.
That ascension inwards the value of spectrum (which actually has been quite extreme) is the chief argue for owning Verizon. They receive got lots of skillful spectrum which agency skillful coverage at depression costs as well as that agency large profits. My stance is uncomplicated here. The tendency volition proceed as well as is Verizon's friend. Profits volition live *much* higher inwards 5 years. The stock starts at a depression teens PE ratio amongst a 4.4 pct yield as well as it is solely going to larn better.
Verizon wireless grows revenue at well-nigh vii pct as well as volition grow earnings faster.
--
What sort of spectrum avoids costs?
Spectrum has value because it allows y'all coverage as well as capacity at lower costs.
But non all spectrum is equal.
There is actually skillful spectrum. That comes at depression frequency as well as amongst really few restrictions every bit to the powerfulness output.
And at that spot is pitiful spectrum which is either really high frequency or has restrictions every bit to the powerfulness output or both.
Low frequency spectrum is skillful because it propagates actually well. It tin go through buildings so y'all tin job your iPhone whilst sitting on the can inwards the centre of your concrete portion block. It tin move decent distances amongst express regard to obstacles. In the wireless globe depression frequency tends to hateful 600-900 MHZ.
In every province inwards the globe at that spot was a large block of this "beach forepart existent estate" taken past times the TV channels. Why? Because when they were allocating spectrum inwards the 1950s at that spot were non many demands as well as the TV stations asked for as well as got the best bit.
In every province inwards the Western World the TV channels are beingness forced to go digital as well as their extra spectrum is beingness sold off. That sell-off has been the footing of most of the large spectrum auctions that receive got taken place.
In the lastly auction AT&T as well as Verizon were the large purchasers - as well as those blocks are where the LTE/4G networks receive got been rolled out.
However this is non exactly "low frequency" spectrum but it also has really few restrictions every bit to the powerfulness of transmitter allowed. Typically Verizon is allowed a tower hundreds of feet high on which they tin set a 1000 watt transmitter. This allows Verizon the powerfulness to encompass a large amount of expanse (often hundreds of foursquare kilometres) from a unmarried transmitter. The most valuable spectrum at the lastly large auction covered the affluent suburbs of Chicago - middling population density as well as thick insulating walls meant that depression frequency spectrum was required. Affluence meant that people would pay for the premium service.
You would never job the spectrum that way inwards Manhattan. There is but also much demand for it. However y'all tin silent job smaller, lower towers as well as larn skillful coverage within buildings.
The ii things that brand this spectrum value is frequency (low) as well as powerfulness restrictions (very few).
High frequency spectrum is less skillful generally. It doesn't propagate every bit well. At really high frequencies (say 2500 MHZ) it can't larn into a edifice as well as so y'all lose coverage every bit y'all go into elevators or behind trees. You sure lose coverage when y'all go into the concrete nub of your edifice (ie the toilet) as well as endeavour to job the phone.
High frequency spectrum does withal receive got 1 large advantage.
There is to a greater extent than of it. Much to a greater extent than of it.
And so it gets extensively used for capacity when y'all actually demand to movement a lot of data.
If y'all are going to construct a wireless network inwards Tokyo or Seoul or New York y'all are going to demand a lot of spectrum (because the density of job is high) as well as some of that volition demand to live high frequency (simply because at that spot is non much low-frequency spectrum as well as at that spot is a lot of high frequency spectrum).
The pitiful propagation of high frequency spectrum tin live used to your advantage. High frequency spectrum has a hard fourth dimension getting into a edifice resulting inwards pitiful indoor coverage. H5N1 solution is to "light" the edifice from the within - putting a transmitter say inwards the AC duct. This makes for really skillful internal coverage.
Moreover every bit the high frequency spectrum can't usually larn into the edifice inwards this instance it can't go out of the building. This agency the spectrum used inwards the edifice does non interfere (much) amongst the spectrum used exterior the edifice allowing reuse of spectrum.
Very high frequency spectrum (say upper-band WiFi at frequencies of exactly about 5000 MHZ) tin remain within private rooms of a home. Low interference is skillful as well as agency the WiFi never gets congested. The downside is depression propagation fifty-fifty within your home. [If y'all endeavour using your iPad inwards bed on the other side of the solid y'all volition empathize the problem.]
Verizon's spectrum mix (unequivocally the best inwards America) consists mostly of depression frequency 700 MHZ "beach front" holding amongst some other amount of high-frequency spectrum (the so-called AWS bands) which are used primarily for urban infill. They receive got some frequency at higher levels also withal they receive got non traditionally had whatsoever involvement inwards really high frequency spectrum (eg 2500 MHZ).
Power restrictions
Driving inwards the province at nighttime y'all know that a large metropolis radio station (even 1 a really long way away) tin drown out a province station. Radio - peculiarly AM radio - is really depression frequency (say 0.6 MHZ) as well as tin propagate a long way (hundreds or sometimes thousands of kilometres).
There is non much spectrum this far downwards the dial so y'all can't receive got a lot of stations. And they interfere amongst each other a bully deal. The large metropolis station has a powerfulness output that volition but dwarf a regional station.
Not everyone volition live allowed to broadcast amongst high powerfulness because something amongst high powerfulness volition (badly) interfere amongst something at lower powerfulness a piddling way upward or downwards the dial.
All rights to job spectrum come upward amongst a powerfulness restriction. That powerfulness restriction tin live for a trivial amount of powerfulness or tin allow y'all to job 1600 watts from a 300 metre high antenna.
Obviously beingness able to ticker out a large amount of powerfulness from a high tower amongst a bully describe of sight volition live cheaper than putting a smaller transmitter every 50 meters.
The higher the amount of powerfulness y'all tin ticker out the higher the value of spectrum.
Lightsquared as well as powerfulness restrictions
Power restrictions tin completely neuter the value of your spectrum. LightSquared had some spectrum that was originally designated for satellites. Phil Falcone bet his hedge fund as well as his reputation on the possibility of getting that spectrum approved for terrestrial use. If he could it was really valuable.
The solely problem: that spectrum was nigh (in frequency) to the spectrum used for the economically of import GPS satellite system.
The Federal Communications Commission (FCC) said that was fine so long every bit independent tests verified that at that spot was no interference.
Phil Falcone took that every bit the go-ahead - the correct to job the spectrum.
Alas the independent tests came dorsum nasty - a telephone tower interfered amongst an aircraft navigation organization 20 kilometres away. Approval was denied.
Now I am going to brand the obvious point. GPS signal is broadcast past times a satellite running on solar unloosen energy as well as batteries hundreds of kilometres away. H5N1 telephone signal comes from a large tower hooked to mains power.
There are xi orders of magnitude divergence of powerfulness betwixt the GPS signal as well as the telephone signal. If the colours were non really unlike (say a slightly unlike shade of purple) as well as so at that spot is but no way that the GPS signal could live seen. The way to think well-nigh it: endeavour spotting a 1 watt LED versus the entire powerfulness charge of a nuclear powerfulness station converted to low-cal when the low-cal is a similar colour. It can't live done.
LightSquared demonstrated 1 thing: Phil Falcone is so egotistical he thought his volition could out override the laws of physics. It cost him his fund as well as his reputation. It cost his clients an awful lot of money.
Alas this seems mutual plenty on Wall Street. I receive got seen the most absurd things beingness said well-nigh spectrum every bit if powerfulness restrictions exercise non matter. Power restrictions absolutely determine the value of the spectrum holding.
Quick summary every bit to what is valuable as well as what is not
Low frequency spectrum amongst express powerfulness restrictions is hugely valuable.
High frequency spectrum amongst solely pocket-size powerfulness restrictions is less valuable - but is really skillful for urban infill. Once y'all receive got covered most the state amongst depression frequency spectrum y'all demand to exercise mid-range or high frequency infill. This is the phase Verizon is at nowadays at - using AWS spectrum for infill.
High frequency spectrum amongst dramatic powerfulness restrictions is worthless. H5N1 high frequency spectrum amongst a binding powerfulness restriction can't larn into a edifice as well as can't go really far as well as y'all but can't cost-effectively construct a network using that stuff. Besides it competes amongst WiFi - as well as WiFi is gratis - as well as competing against gratis is difficult.
WiFi
There is a lot of WiFi spectrum, some at 2400 MHZ but most exactly about 5000 MHZ. It is unlicensed as well as anyone tin job it. It is high frequency spectrum which makes transmission through the walls of your abode hard (as anyone who has tried tin attest).
There are some rules for using it - concerning how y'all are meant to part channels. The most of import dominion withal is a power restriction. Power restrictions on WiFi are binding as well as a WiFi signal has an effective make of well-nigh lxx meters. [The make volition depend on how many walls y'all receive got as well as also on other WiFi signals as well as how skillful your antenna is.] Whatever - it is useless over long ranges.
The powerfulness restriction is absolutely critical to WiFi. The argue why everyone inwards a street manages to job WiFi inwards their abode without causing critical interference is that everyone abides past times a power-restriction. [You cannot legally sell a WiFi access signal that does non abide past times the powerfulness restriction.]
WiFi carries a lot of information as well as it carries it past times the machinery of giving everyone a really depression powered regal low-cal which they set correct next to them. But instead of exactly regal it has well-nigh xx colours (known every bit channels). You tin send a *lot* of information past times WiFi - multiple high-definition TV channels fifty-fifty - but y'all can't send it really far. And for the most portion the consumer pays for the infrastructure [ie the piddling regal light] which is prissy for the carriers.
Point here: low-powered high-frequency spectrum competes amongst WiFi as well as y'all can't exercise that really effectively because WiFi spectrum is fairly abundant (caveat inwards the next section) as well as free.
The caveat: WiFi inwards the Superbowl Stadium versus WiFi inwards Times Square
There are well-nigh xx useable WiFi channels as well as it is non oft that xx people desire to live downloading something simultaneously within say a 100 pes radius.
When this happens y'all run the jeopardy of WiFi congestion.
There are prominent places when far more than xx people desire to job the same spectrum simultaneously. The Superbowl stadium at one-half fourth dimension has lxx 1000 people inwards it all wanting to film, accept pictures as well as upload the materials to the internet. The Superbowl stadium at half-time is in all probability the most congested spectrum inwards the world.
The WiFi (and telephone systems) inwards the lastly Superbowl worked. [It had to function - it was sponsored past times Verizon. Verizon would receive got had really bad press if it had non worked.]
In Times Square at the queue for half-priced tickets everyone seems to desire to download theater reviews (as much every bit anything to run across what to see).
WiFi does non work. I know. I receive got tried it.
It is worth explaining why.
Even though at that spot are rules unlicensed spectrum suffers from the job of the commons. Too many people inwards an uncontrolled fashion desire to larn onto it. The park withal are non really large (a twain of hundred feet radius mostly) as well as most park (say the 1 inwards my suburban street) receive got a express publish of people who desire to share. So "commons" is non a large problem.
In Times Square "commons" is a large problem. Way also many people stand upward for into my little radius as well as the network is congested.
At the Superbowl that is also truthful - but for 1 thing. There is solely 1 political party managing the network inwards the Superbowl stadium. Signal from exterior the stadium can't larn in. (The walls are also thick!)
So within the stadium the unlicensed spectrum behaves every bit if it were licensed spectrum. Sophsiticated WiFi equipment (such as Meraki) include "rogue network detection" every bit as touchstone feature. If y'all were setting upward a wireless network for (say) Stanford University where at that spot were a gazillion devices y'all would desire to ensure that rogue networks were prohibited as well as to ensure y'all ain the spectrum inwards those places. Rogue devices are jammed as well as "deauthorized".
The FCC has of late pronounced against jamming rogue networks - at to the lowest degree if y'all desire to accuse for an alternative network. The FCC of late fined Marriott Hotels $600 1000 for jamming a rogue WiFi hotspot and as well as so forcing people to pay for hotel-provided WiFi.
My approximate is that jamming remains legal (it is sure supported past times equipment manufacturers) but it is solely legal if y'all give away the WiFi signal on your controlled network.
GSAT
GSAT - the latest victim of Sahm Adrangi's precision analysis - is the possessor of ii blocks of spectrum - both originally allocated every bit satellite spectrum.
One lot is clearly worthless every bit it fifty-fifty closer to GPS spectrum than the Lightsquared spectrum. Interference is a given. There is no way they volition live allowed to operate at whatsoever meaningful powerfulness level.
The other lot of spectrum is next WiFi as well as volition never live allowed past times the FCC to live substantially to a greater extent than powerful than WiFi spectrum for fearfulness of drowning out WiFi. GSAT proposes using their spectrum amongst a four watt powerfulness limit. [Verizon spectrum is depression frequency as well as oft has a 1000 watt powerfulness limit.] This volition hateful it has a make commensurate amongst WiFi.
What GSAT are proposing is a private WiFi channel.
But for the most portion at that spot is plenty WiFi channels.
In football game stadiums or Grand Central where rogue networks tin live removed at that spot is plenty of WiFi capacity. [This was demonstrated past times the fact that your telephone worked during the lastly Superbowl.]
This applies inwards hotels also (provided hotels surrender charging for WiFi as well as thence don't autumn foul of the Marriott ruling).
In places where rogue networks can't live excluded similar Times Square some other WiFi channel volition live nice. But at that spot are non that many such places. Moreover 1 channel volition larn congested for sure inwards those places... after all if exactly ii people desire it y'all receive got a difficulty...
Simple summary: GSAT has naught inwards the spectrum game. High frequency spectrum amongst a binding powerfulness restriction is worth something nigh zero. It is a non-starter.
It is hard to run across what uppercase costs GSAT's spectrum helps a carrier avoid. And if it doesn't assist them avoid costs as well as so the spectrum is worthless. [Sorry guys.]
That said at that spot are plenty of hedge fund managers who concur GSAT on some vague notion that spectrum is scarce as well as thence valuable.
I know y'all read this blog. I suggest y'all start your next missive of the alphabet every bit follows:
Dear Limited Partner
As y'all know nosotros concur GSAT fifty-fifty though their spectrum is restricted to depression powerfulness output as well as is of a high frequency as well as thence volition non receive got a make of to a greater extent than than a few hundred feet. It also competes amongst WiFi spectrum within that range.
We withal think that the laws of physics exercise non apply to us because...Low frequency spectrum - as well as the incredible value it offers
AT&T as well as Verizon receive got the lion's part of depression frequency spectrum inwards the US. [Both Sprint as well as T-Mobile receive got narrow slices.]
These large holdings of low-frequency spectrum hateful that Verizon as well as AT&T tin offering amend coverage at lower uppercase cost than their competitors.
The depression frequency spectrum withal silent has express capacity. If y'all desire lots of capacity y'all receive got to job high frequency spectrum (simply because at that spot is much to a greater extent than of it).
If y'all receive got depression frequency spectrum y'all advertise yourself on network reliability ("Can y'all hear me now") but y'all offering express as well as oft little information plans.
If y'all receive got a high-frequency network your reliability is going to suck (sorry Sprint) but y'all tin offering really large (even unlimited) information plans.
To the extent that y'all tin accuse for reliability as well as y'all exercise non receive got to send huge amounts of information y'all should receive got pricing powerfulness AND to a greater extent than pocket-size uppercase expenditures. You should brand pots of money.
We receive got almost pure comparing betwixt a high-frequency job instrumentalist as well as a depression frequency job instrumentalist inwards the USA - an that is betwixt Verizon Wireless as well as Sprint.
Verizon Wireless was a separately reporting subsidiary until the cease of 2012 as well as reported its information (courtesy CapitalIQ) tin live found here. You tin run across it did something similar $76 billion inwards revenue inwards 2012 as well as the uppercase expenditure was 8.8 billion (which was its all fourth dimension high). The uppercase expenditure was the all-time-high because of the roll-out of the LTE network. Since as well as so Verizon Wireless revenue has risen. Here is wireless revenue past times quarter:
| (dollars inwards millions) | ||||||||
| 2012 | 2013 | 2014 | ||||||
| Unaudited | 3Q | 4Q | 1Q | 2Q | 3Q | 4Q | 1Q | 2Q |
| Operating Revenues | ||||||||
| Retail service | $ 15,538 | $ 15,786 | $ 16,169 | $ 16,422 | $ 16,776 | $ 16,967 | $ 17,246 | $ 17,288 |
| Other service | 616 | 607 | 559 | 656 | 740 | 744 | 741 | 790 |
| Service | 16,154 | 16,393 | 16,728 | 17,078 | 17,516 | 17,711 | 17,987 | 18,078 |
| Equipment | 1,858 | 2,559 | 1,813 | 1,953 | 1,924 | 2,421 | 1,870 | 2,387 |
| Other | 1,012 | 1,042 | 982 | 945 | 959 | 993 | 1,022 | 1,018 |
| Total Operating Revenues | 19,024 | 19,994 | 19,523 | 19,976 | 20,399 | 21,125 | 20,879 | 21,483 |
You tin unwrap the original here.
The growth charge per unit of measurement is well-nigh vii percent. It is pretty good.
Operating income for wireless is growing faster because at that spot is relatively fixed costs - as well as thus operational leverage. Operating income for wireless is at nowadays running over vii billion per quarter as well as the growth charge per unit of measurement was fourteen pct inwards the foremost quarter but solely vii pct inwards the instant quarter. [There were some odd expense shifts - my approximate is the growth charge per unit of measurement is well-nigh 10 percent.]
Capital expenditure for wireless is currently running a piddling over 10 billion per twelvemonth (it has gone upward - all that urban infill is non cheap). They are guiding it downwards inwards a twain of years which makes feel (but I approximate has to live seen to live utterly believed).
By contrast hither are Sprint's numbers. [Again y'all tin find the master courtesy of CapitalIQ.]
Revenue is solely 35 billion per twelvemonth - less than one-half Verizon - and it does non grow really much.
More importantly uppercase expenditure is running at roughly vi billion per year. Again they are guiding for it to autumn somewhat - but it can't autumn much because of the lack of coverage. What nosotros receive got is less than one-half the revenue, roughly lx pct of the uppercase expenditure as well as a lack of growth. It is non pretty.
Capital expenditure has been SUBSTANTIALLY larger than operating cash catamenia for many years. By contrast Verizon Wireless has substantial operating cash catamenia after uppercase expenditure. The spectrum holdings of Verizon receive got avoided vast uppercase expenditures as well as provided amend service as well as pricing power.
Sprint past times contrast has large as well as increasing funding needs. They needed a huge uppercase injection from Softbank. My approximate is that they volition demand some other one.
T-Mobile whose spectrum seat is similar to Srpint also has uppercase expenditure substantially larger than operating cash flow. Alas their rear is non every bit rich. My approximate is that opposite to the pop perception Sprint as well as non T-Mobile is the ultimate survivor - but solely because Sprint is controlled past times Softbank as well as Masa Son volition determine at some signal he prefers owning a solvent publish 3 telephone companionship than owning a large stake inwards Alibaba.
Some people (and guidance) think that T-Mobile becomes cash catamenia positive (after uppercase expenditure) when it finally turns off former 2G networks. I exercise non believe it every bit I think their unlimited buckets at nowadays volition forcefulness them to infill for a really long time. [The 2G network thing volition also apply to Verizon.]
The Verizon question
Verizon wireless grows revenue at well-nigh vii percent, income at well-nigh 10 pct as well as according to administration is probable to drib its uppercase expenditure.
It is priced at a teens PE ratio.
Of class it includes a wireline describe of piece of work organization but that is no longer shrinking. Why? Mainly because it is the opposite cease of all those WiFi access points.
What is is worth?
My approximate is a *lot* to a greater extent than than the electrical flow price. I can't run across whatsoever argue why the demand for bandwidth volition non live a lot higher inwards a decade as well as the powerfulness to solve problems past times digital compression (ie 4G over analog) is nearing an end. There is probable going to live a truthful compaction as well as that compaction volition supply pricing power.
But bluntly y'all don't demand that. All y'all demand is the revenue growth to proceed at 4-7 pct for one-half a dozen years, turn a profit growth is thus 8-14 pct as well as the gratis cash is overwhelming. Verizon is very cheap it continues. It starts amongst an almost 4.5 pct dividend. If it gets amend at that charge per unit of measurement for one-half a dozen years (still an opened upward question) Verizon is really cheap. In gild for Verizon non to live skillful value that revenue growth needs to halt or the uppercase expenditure requirements demand to blow out.
Some people province the revenue growth volition halt because at that spot is a cost state of war going on inwards USA telephony. I receive got spent a lot of fourth dimension looking at it as well as think it is mostly a phoney state of war (forgive the pun) but it is clearly impacting Sprint whose revenue is stationary but whose customers
I would love (off-the-blog) a decent conversation amongst anyone who has a decent thought on how to value Verizon's spectrum. I receive got a listing past times county of the USA of their spectrum holdings (its a 25 megabyte file).
Is at that spot whatsoever to a greater extent than spectrum?
It is worth cry for whether this tin live solved past times making to a greater extent than spectrum available. Are at that spot bully "fallow fields" of spectrum?
The curt answer is no.
The long answer is a piddling to a greater extent than complicated.
The available low-frequency spectrum has by-and-large come upward from freeing upward the spectrum previously used for TV. In most countries (though non America) all the auctions receive got happened.
In America at that spot are ii major releases of that spectrum. The foremost was inwards Jan 2008 - as well as the instant volition live inwards 2015 (the so-called incentive auction).
The 2008 auction was bid exactly after the introduction of the iPhone (announced 29 June 2007, introduced a piddling later). The bidding prices were non high. Spectrum demand as well as prices receive got gone upward massively since the introduction of smart-phones.
The 2015 auction volition live the lastly auction of high-value depression frequency spectrum inwards my lifetime. There are no to a greater extent than huge blocks to live had. The FCC has reserved xxx MHZ for shaver players (not AT&T or Verizon). That reservation is a huge gift from taxpayers to the shaver carriers as well as volition allow at to the lowest degree 1 of Sprint or T-Mobile (or mayhap Dish) to prosper. For the shaver players the 2015 auction is their lastly gamble to larn some high-powered low-frequency spectrum. It is do-or-die.
Because Sprint has a richer rear (Softbank) my approximate is the winner volition live Sprint.
At high frequency at that spot is non actually a shortage of spectrum. There is a lot of WiFi spectrum if y'all desire to construct a really dense network (at really high cost). But to a greater extent than realistically Sprint owns (courtesy of Clearwire) huge swathes of really high frequency spectrum amongst much to a greater extent than realistic powerfulness limits than WiFi. Sprint is able to offering a lot of capacity - but every bit the spectrum is high frequency they powerfulness receive got problem offering it over a wide market.
Future research
I am seeking anyone who tin assist me value Verizon's spectrum. I desire to prepare a physics-based model of Verizon's competitive advantage. Hope beloved readers that y'all tin help.
John
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