USA

Telecoms, Mobile and Broadband - Statistics and

Analyses

16th Edition
Researcher: Henry Lancaster
Published: 7 January 2019
Copyright 2019

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USA - Telecoms, Mobile and Broadband - Statistics and Analyses

About BuddeComm
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telecommunications market and its role within the digital economy. The research offered by
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companies and 200 discrete technologies and applications.

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such as e-health, e-education, smart grids, e-media and e-entertainment are affecting
organisations and communities across the world and so are of particular interest.

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year

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Forecasts

This report includes forecasts for market growth. Contributing factors and market dynamics
impacting growth within this period are described in the text accompanying the forecast tables
and charts. Sources used as inputs for deriving both estimates (denoted as (e)) and forecasts
(denoted as (f)) include telecommunication sector statistics from a range of national and
international sources. Unless otherwise stated, statistics for GDP, revenue, etc are shown in US$,
in order to maintain consistency within and between markets.

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reports, categorised by country, region, topic or company, provide current information and
independent, analyses by BuddeComm’s experienced team of Senior Analysts.

Glossary of Abbreviations

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Abbreviations document on www.budde.com.au

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USA - Telecoms, Mobile and Broadband - Statistics and Analyses

Executive Summary

Executive Summary
USA remains among leaders for 5G into 2019

Growth in the US mobile subscriber base remains strong, with a penetration rate of about 127%.
Declining revenue from voice services is compensated for by high growth in mobile data use,
itself supported by upgraded networks based on LTE technologies. Smartphone penetration is
also high, which had encouraged mobile data use among subscribers. The major operators, led
by AT&T, Verizon and T-Mobile US, have partnered with vendors to trial 5G technologies and
services and will be expanding their commercial services further into 2019 and into 2020. In
addition, operators are working on the potential of NB-IoT, LTE-U and LTE-A technologies, in
some respects as complementary technologies supported by 5G.

Major recent developments include the complex reserve auction for spectrum in the 600MHz
band, which raised more than $19 billion. Although network operators must wait for spectrum
allocations to be concluded, the additional 70MHz made available will go far to supporting
mobile broadband in rural areas and improving network capacity.

In addition to the auction of 28GHz spectrum in late 2018 the FCC plans other auctions in 2019
(for spectrum in the 24GHz, 37GHz, 39GHz and 49GHz bands) to increase the amount of
spectrum available for 5G.

Given the size of the US broadband market, and the growing demand for data on both fixed and
mobile networks, there is continuous pressure for operators to invest in fibre networks, and to
push connectivity closer to consumers. In recent years the US has seen increased activity from
regional players as well as the major telcos and cablecos. Much of this activity was stimulated
by Google Fiber following its investments in a number of markets. Although Google Fiber (now
managed through Alphabet’s Access unit) began scaling back its efforts in late 2016, the
company’s legacy has been profound. It encouraged the major providers to reduce pricing for
their similar offers, stimulated interest among municipal leaders, and highlighted the fact that

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Executive Summary

haphazard and potentially duplicated fibre deployments are no effective substitute for
municipally-led wholesale fibre infrastructure accessible to any provider.

Local networks supported by municipal governments have also sprung up despite the lobbying
efforts of AT&T and Verizon aimed at preventing local competition. However, for their part AT&T
and Verizon have both refocussed efforts on FttP rather than FttN, looking at the benefits of
current investments for decades to come. G.fast is also being rolled out, to a lesser degree, in
areas where FttP is less feasible, while a growing number of cablecos have also deployed
DOCSIS3.1.

There is growing recognition of the importance of a trans-sectoral approach to broadband

networks, including the health, education and energy sectors, in order to fully realise the benefits
of the nascent digital economy. The FCC’s Eight Fixed Broadband report, published in December
2018, revealed how much still needs to be done to move the US broadband market forward.

This report provides analyses as well as key statistics and forecasts on the US mobile market.
It also assesses telcos’ strategies, regulatory policies, and developments in the deployment of
emerging technologies. In addition the report covers the cable, DSL, FttP, Wi-Fi and WiMAX
broadband markets, providing market analyses as well as a range of relevant statistics.

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Executive Summary

Key developments:

 T-Mobile US merger with Sprint receives government approvals;

 Sprint signs MVNO deal with Altice USA;

 FCC authorises the use of LTE-U devices in the under-utilised 5GHz band;

 5G trials supporting 4K ultra-high definition (UHD) video;

 AT&T launches national LTE-M service;

 T-Mobile US secures additional 700MHz blocks for $1.3 billion;

 Google trials facial recognition m-payment system, launches Project Fi MVNO;

 AT&T closes down 2G infrastructure, reassigns spectrum for LTE;

 Altice USA to deliver a 10Gb/s service across its footprint by 2022, split off from parent
company;

 Fiber Broadband Association counts 41 million premises passed with fibre;

 AT&T invests $14 billion in LTE and U-verse network;

 Maine Fiber Co completes 1,100 mile open network fibre backbone;

 Charter Communications launches 1Gb/s DOCSIS3.1 service;

 Round 2 auction of the Connect America Fund completed;

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Executive Summary

 Report update includes telcos' operating and financial data to Q3 2018, recent market
developments.

Companies mentioned in this report:

AT&T, Verizon, Sprint Corporation, T-Mobile US, TracFone, MetroPCS Communications, Leap
Wireless, Frontline, Alltel, US Cellular, Clearwire, Google, CenturyLink, Qwest, Frontier
Communications, Windstream, Fairpoint, Cincinnati Bell, Comcast, HughesNet, ViaSat, Altice
USA

Henry Lancaster
January 2019

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USA - Telecoms, Mobile and Broadband - Statistics and Analyses

Table of Contents

Table of Contents
Broadband market 1

■ Introduction and statistical overview 1

Market analysis 1

Broadband statistics 3

Forecasts – broadband subscribers – 2019; 2021; 2023 6

■ Policy and regulation framework 7

Network regulation overview 7

Broadband stimulus package 8

FCC’s National Broadband Plan 11

Private networks 14

Network neutrality 15

■ Hybrid Fibre Coax (HFC) networks 17

New technologies 20

Cable operators 22

■ Digital Subscriber Line (DSL) networks 34

Introduction 34

Verizon 36

AT&T 40

Frontier Communications 44

G.fast developments 47

■ Other fixed broadband services 48

Wi-Fi 49

WiMAX 50

Municipal wireless broadband 53

State and municipal deployments 56

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Table of Contents

Satellite broadband 57

PLC 58

■ Fibre-to-the-Premises (FttP) 58

Market analysis 58

Market overview 60

FttP network rollout 61

■ Policy and regulation framework 63

National Broadband Plan 63

Gigabit City Challenge 64

■ Public (ILEC, CLEC and Municipal) FttP networks 65

Municipalities 66

Google Fiber 68

FCC ruling on municipal fiber networks 69

Other projects/providers 71

■ RBOC FttP roll-out 73

Verizon 73

AT&T 75

CenturyLink 79

Cincinnati Bell 81

Comcast 82

Altice USA 83

Digital economy 84

■ E-entertainment 84

■ E-health 85

■ E-government 87

■ E-education 88

■ E-commerce 89

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Table of Contents

Digital media 91

■ Videostreaming 91

■ Music streaming 93

Mobile communications 95

■ Market analysis 95

■ Mobile statistics 96

General statistics 96

Mobile voice 99

Mobile data 101

Mobile broadband 103

Forecasts – mobile subscribers – 2019; 2020; 2022 105

■ Regulatory issues 105

Public Safety Network 106

Mobile Number Portability (MNP) 108

Spectrum 109

Spectrum swaps and acquisitions 116

■ Mobile infrastructure 120

5G 120

4G (LTE) 124

3G 134

Other infrastructure developments 134

■ Major mobile operators 136

Industry body 136

AT&T 136

Verizon Wireless 143

T-Mobile US 147

Sprint Corporation 158

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Table of Contents

MVNOs 163

■ Mobile content and applications 166

Mobile music 166

M-payment 166

M-commerce 168

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Table of Contents

List of Tables
Table 1 – Historic - Internet users and penetration – 2000 – 2009 3

Table 2 – Internet users and penetration – 2010 – 2018 5

Table 3 – Historic - Broadband subscribers and penetration – 2000 – 2009 5

Table 4 – Broadband subscribers and penetration – 2010 – 2018 6

Table 5 – Forecast broadband subscribers – 2019; 2021; 2023 7

Table 6 – Fixed broadband subscribers by data rate – 2012 – 2016 14

Table 7 – Fixed broadband population coverage by data rate – 2012 – 2016 14

Table 8 – Top 10 cable MSOs’ subscribers – 2010; 2012 – 2018 18

Table 9 – US cable modem subscribers – 2000 – 2018 19

Table 10 – Historic - Cablevision subscriptions by service – 2011 – 2015 23

Table 11 – Historic - Cablevision financial data – 2011 – 2015 24

Table 12 – Altice USA RGUs by service – 2016 – 2018 25

Table 13 – Optimum RGUs by service – 2015 – 2018 25

Table 14 – Suddenlink RGUs by service – 2015 – 2018 25

Table 15 – Altice USA financial data – 2016 – 2018 26

Table 16 – Altice USA revenue by type – 2016 - 2018 26

Table 17 – Suddenlink financial data – 2016 – 2018 26

Table 18 – Cablevision financial data – 2016 – 2018 27

Table 19 – Comcast financial data – 2015 – 2018 28

Table 20 – Comcast revenue by service– 2012 – 2018 29

Table 21 – Comcast subscriptions by service – 2012 – 2018 30

Table 22 – Comcast bundled services subscriptions – 2014 – 2018 31

Table 23 – Charter Communications financial data – 2015 – 2018 33

Table 24 – Charter Communications residential revenue by type – 2015 – 2018 33

Table 25 – Charter Communications residential RGUs by type – 2015 – 2018 34

Table 26 – Broadband subscribers for major telco providers – 2009 – 2018 36

Table 27 – Verizon wireline (FiOS) operational data – 2010 – 2018 39

Table 28 – Verizon wireline financial data – 2014 – 2018 39

Table 29 – AT&T fixed-line operational data – 2011 – 2018 43

Table 30 – AT&T financial data – 2011 – 2018 44

Table 31 – Frontier Communications revenue – 2008 – 2018 46

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Table of Contents

Table 32 – Frontier Communications customers by sector – 2011 – 2018 46

Table 33 – FttP homes passed and connected – 2001 – 2018 62

Table 34 – AT&T wireline operational data – 2013 – 2018 77

Table 35 – CenturyLink financial data – 2015 – 2017 80

Table 36 – CenturyLink subscribers by platform – 2015 – 2018 80

Table 37 – Cincinnati Bell Fioptics revenue – 2012 - 2017 81

Table 38 – Cincinnati Bell Fioptics subscribers – 2012 – 2018 82

Table 39 – Mobile market revenue, roaming revenue, ARPU – 2000 – 2017 97

Table 40 – Mobile subscribers and penetration – 2002 – 2019 98

Table 41 – Mobile voice traffic – 2012 – 2018 99

Table 42 – Mobile data traffic – 2011 – 2017 101

Table 43 – Mobile data-only devices in use – 2013 – 2017 102

Table 44 – Messaging traffic (SMS, MMS) – 2005 – 2018 103

Table 45 – Active mobile broadband subscribers and penetration – 2008 – 2018 104

Table 46 – LTE mobile broadband coverage broadband subscribers and penetration – 2012 – 2016 104

Table 47 – Forecast mobile subscribers – 2019; 2021; 2023 105

Table 48 – Verizon Wireless LTE devices on network– 2011 – 2016 127

Table 49 – M2M connections – 2009 – 2016 134

Table 50 – AT&T Mobility financial data – 2004 – 2018 137

Table 51 – AT&T wireless subscribers – 2002 – 2018 140

Table 52 – Verizon wireless financial data by sector – 2010 – 2018 145

Table 53 – Verizon wireless subscribers – 2005 – 2018 146

Table 54 – T-Mobile US wireless subscribers – 2003 – 2018 150

Table 55 – T-Mobile US own-branded subscribers – 2010 – 2018 151

Table 56 – T-Mobile US ARPU (€, annualised) – 2009 – 2018 152

Table 57 – T-Mobile US ARPU ($, annualised) – 2012 – 2018 152

Table 58 – T-Mobile US financial data – 2010 – 2018 153

Table 59 – MetroPCS financial data – 2007 – 2012 155

Table 60 – MetroPCS subscribers – 2007 – 2012 156

Table 61 – Sprint wireless financial data – 2009 – 2019 160

Table 62 – Sprint subscribers – 2010 – 2018 162

Table 63 – Sprint blended ARPU – 2011 – 2018 163

Table 64 – Online retail sales – 2012 – 2018 168

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Table of Contents

List of Charts
Chart 1 – Broadband subscribers and penetration – 2005 – 2018 ...........................................................................................6

Chart 2 – Comcast revenue by service– 2012 – 2018 .............................................................................................................29

Chart 3 – Comcast subscriptions by service – 2012 – 2018 ...................................................................................................30

Chart 4 – Comcast bundled services subscriptions – 2014 – 2018 .......................................................................................31

Chart 5 – Verizon wireline (FiOS) operational data – 2010 – 2018 .........................................................................................39

Chart 6 – AT&T operational data – 2011 – 2018 ......................................................................................................................43

Chart 7 – AT&T financial data – 2011 – 2018...........................................................................................................................44

Chart 8 – Frontier Communications customers by sector – 2011 – 2018 .............................................................................47

Chart 9 – AT&T wireline operational data – 2013 – 2018 ........................................................................................................78

Chart 10 – Mobile subscribers and penetration – 2002 – 2019 ..............................................................................................99

Chart 11 – Active mobile broadband subscribers and penetration – 2008 – 2018 .............................................................104

Chart 12 – AT&T Mobility financial data – 2004 – 2018 ........................................................................................................139

Chart 13 – Verizon wireless financial data by sector– 2010 – 2018.....................................................................................145

Chart 14 – Verizon wireless subscribers – 2010 – 2018 .......................................................................................................147

Chart 15 – T-Mobile US subscribers – 2009 – 2018 ..............................................................................................................151

Chart 16 – T-Mobile US financial data – 2010 – 2018 ...........................................................................................................154

Chart 17 – Sprint financial data – 2009 – 2019......................................................................................................................162

List of Exhibits
Exhibit 1 – AWS spectrum auction – January 2015 ...............................................................................................................111

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Table of Contents

For a full overview of our information on North America, see

 Canada - Telecoms, Mobile and Broadband - Statistics and Analyses

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USA - Telecoms, Mobile and Broadband - Statistics and Analyses

Broadband market

Broadband market
■ INTRODUCTION AND STATISTICAL OVERVIEW

Market analysis

With IP networks forming the foundation of the burgeoning market for bundled
services, broadband has become one of the fastest growing sectors of the overall
telecoms market. The principal broadband technologies include cable modem,
wireline Digital Subscriber Line (DSL), Fiber-to-the-Premises (FttP) and other FttX
architecture, satellite, Wi-Fi, WiMAX, wireless Multipoint Distribution Services
(MDS), and LTE mobile technologies.

In the second half of the 1990s the government supported the commercialisation
of the internet with the National Infrastructure Initiative, the Telecommunications
Act of 1996, and various e-commerce, e-government and e-education programs.
Throughout the 1990s the US led the rest of the world in the development of
infrastructure, applications and in the adoption of the internet.

However, since 2001 the country’s ranking among OECD countries for broadband
penetration, a key driver behind internet usage growth has remained stubbornly
low. The US continues to linger at around 15th on the OECD broadband
penetration tables, down from 4th place in 2001. The US also lags behind in terms
of broadband access speeds, service levels and value. In the case of fibre
penetration within the fixed-broadband sector, the US stands at 9.4%, compared
to 72% in Japan and 70% in South Korea. The other top ten markets for fibre
penetration, all in Europe, range from 22% to 46%.

Broadband growth is driven in part by increasing demand for faster internet

access, and for bandwidth-hungry services such as videostreaming and other OTT
applications. In addition, the increasing availability of Wi-Fi, the deployment of LTE
and WiMAX networks, together with the rapid uptake of smartphones, Wi-Fi-

Please note: All $ are US$ unless stated otherwise

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Broadband market

enabled laptops, netbooks and other devices, is propelling the growth of fixed
wireless and mobile wireless broadband demand, and so placing greater demand
on fixed-line networks serving as mobile backhaul. In coming years a key
stimulant for broadband access will come from 5G-based services, with many
existing fixed-line broadband subscribers, particularly in poorly served rural areas,
expected to switch to mobile-only solutions and end their fixed-line contracts.

AT&T and Verizon have quickened the pace of their fibre deployments, while a
number of regional cablecos have also extensively upgraded their HFC networks
to DOCSIS3.1, a standard which facilitates download speeds of 1Gb/s and higher.
DOCSIS3.1 deployments will materially improve the US average speeds and
worldwide ranking. As a result of these upgrades, the cable sector has become
the dominant broadband platform, with a market share above 50%.

By contrast, DSL has been in decline with the number of DSL subscribers having
fallen steadily as subscribers migrate to cable and fibre-based services.

In terms of operator market shares, Comcast has about 20% of the market by
subscribers, followed by AT&T, Charter Communications (incorporating
TimeWarnerCable), Verizon and CenturyLink. Together, these operators hold
about 70% of the market. As of September 2018 the fourteen largest cable and
telephone providers in the US had 97.66 million broadband subscribers between
them, representing about 94% of the market. The top cable companies had about
63.61 million broadband subscribers (a gain of 728,000 in the third quarter alone),
while the top seven telcos had about 34.05 million subscribers (representing a
loss of 150,000 in the quarter).

The FCC has progressively upgraded its definition of broadband, which once
stood at only 256kb/s. In 2011 the FCC defined high-speed broadband as a service
providing at least 4Mb/s. This was considered the minimum speed required for
some basic services, though is inadequate for streaming a single HD video
channel, which requires at least 5Mb/s. The FCC in December 2014 updated the
minimum broadband speed required for universal service to 10Mb/s. It is
Please note: All $ are US$ unless stated otherwise

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Broadband market

common for households to half a dozen connected devices on a single

connection, with more than 60% of data during peak times being video and audio
downloads.

The FCC ruling meant that in order to secure cash from the Connect America Fund
telcos and cablecos need to provide 10Mb/s download and 1Mb/s upload. With
the ruling in place, the FCC made available up to $1.8 billion annually to ‘price cap’
operators in early 2015, and thereby expand 10Mb/s services to over five million
people in rural areas.

In January 2015 the FCC again redefined broadband, at 25Mb/s download and
3Mb/s upload. The move has implications for future broadband policy including
the speed of broadband for deployment subsidies under the Universal Service
Fund.

Broadband statistics

Despite the steady growth in the number of broadband subscribers, the FCC
estimates that some 19 million people in the US (of a population of around 316
million), or about seven million of 119 million households, lack access to a fixed
broadband service. This equates to about 6% of all people/households on
average, or 24% of rural households and about 2% of urban households.

According to Leichtman Research Group, the fourteen largest cable and telephone
providers in the US (representing about 94% of the market) reported having about
728,000 new subscriber additions in the third quarter of 2018. These providers
together accounted for 97.66 million subscribers.

Table 1 – Historic - Internet users and penetration – 2000 – 2009

Year Internet users (million) Internet penetration

2000 124 44%

2001 146 51%

Please note: All $ are US$ unless stated otherwise

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Broadband market

2002 166 58%

2003 184 64%

2004 196 68%

2005 205 70%

2006 213 71%

2007 218 72%

2008 223 74%

2009 234 76%

Source: BuddeComm based on internetlivestats data

Please note: All $ are US$ unless stated otherwise

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Broadband market

Table 2 – Internet users and penetration – 2010 – 2018

Year Internet users (million) Internet penetration

2010 241 77%

2011 245 78%

2012 251 80%

2013 259 83%

2014 269 85%

2015 280 87%

2016 (e) 286 89%

2017 (e) 294 92%

2018 (e) 302 94%

Source: BuddeComm based on internetlivestats data

Table 3 – Historic - Broadband subscribers and penetration – 2000 – 2009

Year Subscribers (million) Penetration

2000 7.0 2.5%

2001 12.7 4.4%

2002 19.8 6.8%

2003 27.7 9.5%

2004 37.3 12.6%

2005 51.1 17.2%

2006 60.2 20.0%

2007 71.7 23.6%

2008 77.1 25.2%

2009 80.0 25.8%

Source: BuddeComm based on OECD and ITU data.

Please note: All $ are US$ unless stated otherwise

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Broadband market

Table 4 – Broadband subscribers and penetration – 2010 – 2018

Year Subscribers (million) Penetration

2010 84.5 27.1%

2011 88.3 28.0%

2012 92.5 29.1%

2013 96.0 30.4%

2014 97.810 30.8%

2015 102.212 31.9%

2016 106.327 33.0%

2017 109.838 33.9%

2018 (e) 111.23 34.7%

Source: BuddeComm based on OECD and ITU data.

Chart 1 – Broadband subscribers and penetration – 2005 – 2018

Source: BuddeComm based on ITU and FCC data

Forecasts – broadband subscribers – 2019; 2021; 2023

The number of broadband subscribers is expected to continue to grow solidly over

the next five years, although at declining growth rate in response to higher
penetration rates.
Please note: All $ are US$ unless stated otherwise

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Broadband market

The number of DSL subscribers should continue to decline as customers are

migrated to fibre infrastructure. The cable sector should be more resilient as
operators widen the reach of services based on the DOCSIS3.1 standard.
Nevertheless, some cable broadband operators including Altice USA are
switching from DOCSIS to fibre and this will accelerate the transition to fibre
infrastructure overall.

Other factors to consider include the improving economic position and market
saturation, which can influence the pace at which growth rates move. In addition,
customer take-up of ‘skinny’ bundles in some cases have reinvigorated the cable
TV market, helping to offset declines as customers switch to OTT offerings. This
has impacted on the potential for losses in the cable broadband sector.

The widening deployment of 5G into 2019 will also place a break of fixed
broadband growth since it is expected that many customers will end their fixed-
line broadband connections and adopt mobile-only solutions for voice and data
services.

Table 5 – Forecast broadband subscribers – 2019; 2021; 2023

Year Subscribers (million)

2019 (e) 113.2

2021 (f) 119.1

2023 (f) 124.5

Source: BuddeComm forecasts

■ POLICY AND REGULATION FRAMEWORK

Network regulation overview

The FCC’s Triennial Review Order (TRO) of 2003 was one of the most
comprehensive and significant FCC rules to be made under the 1996 Act. For the
purposes of broadband, one of the most important aspects of the TRO was the
FCC’s decision not to require the unbundling of the broadband capabilities of

Please note: All $ are US$ unless stated otherwise

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Broadband market

Incumbent Local Exchange Carriers (ILECs) hybrid copper-fiber loops or FttP

loops. Only the unbundling of the narrowband portion of hybrid loops was
required. The majority of the FCC determined that the potential benefits of
unbundling, in terms of removing barriers to competition, would be outweighed by
costs, in the form of disincentives for ILECs and supposedly Competitive Local
Exchange Carriers (CLECs) to invest in advanced infrastructure. The FCC majority
reasoned that CLECs would continue to have access to alternative ILEC facilities
and that intermodal broadband competition would be provided by cable
companies.

In 2005 the FCC issued its Broadband Internet over Wireline decision that
determined that DSL broadband access services offered over a provider’s own
facilities are, like a cable modem service, an information service and not a
telecommunications service. The FCC’s 2005 decision meant that all broadband
internet access services were thus subject to the lesser level of regulation under
Title I of the Communications Act 1934 which did not require mandatory
interconnection. With these two decisions however, the FCC potentially handed to
the owner’s of those networks monopolies of the sort which the
Telecommunications Act 1996 sought to reform.

In December 2015 the FCC determined that the ILECs, including AT&T, Verizon,
CenturyLink and others, must continue to make their existing brownfield
infrastructure available to competitors, including cable operators, but that similar
access was not required in greenfield build outs where competitors have equal
opportunity to build. The decision was criticised by some telcos as well as by the
American Cable Association, which believe that ILECs should have to share both.

Broadband stimulus package

In early 2009 Congress passed the American Recovery and Reinvestment Act,
aimed at kick-starting an economy in deep recession. Included in the fiscal
stimulus package was a relatively modest $7.2 billion for broadband and wireless
in unserved and underserved areas, of which approximately two-thirds was to be

Please note: All $ are US$ unless stated otherwise

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Broadband market

administered by the National Telecommunications and Information

Administration (NTIA) and approximately one-third by the Rural Utilities Service
(RUS). The funding was aimed at the estimated 5-8% of homes which have no
access to affordable broadband.

Much uncertainty about the broadband stimulus package emerged and in

particular about the risk that if the programs were not properly implemented they
would merely exacerbate the digital divide in the country. This and other aspects
of the package raised serious concerns in early 2009.

Nevertheless, by late 2010 all broadband stimulus funding awards had been
made. A total of 553 projects were successful, amounting to $7.5 billion in federal
funding. The total number comprised 233 NTIA programs ($3.9 billion),
collectively entitled the Broadband Technology Opportunity Program (BTOP),
while 320 projects ($3.6 billion) have been administered by RUS, with these
projects collectively known as the Broadband Initiatives Program (BIP).

In early 2012 providers and other organisations which had been awarded stimulus
funding from the NTIA reported on their progress. In all, there are 123 network
infrastructure projects, 66 public computer centre projects, and 44 broadband
adoption projects funded. Unlike the RUS, which has some flexibility to extend
deadlines, the NTIA deadlines are set by the 2009 American Recovery and
Reinvestment Act.

The latest quarterly BTOP status report (published in February 2016 with data to
October 2015) noted that by June 2015:

 16 projects remained active, while 264 projects had been completed.

 BTOP recipients connected or improved service to about 25,860 anchor

institutions;

 BTOP recipients had deployed more than 114,697 miles of network;

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 Sustainable Broadband Adoption (SBA) projects had delivered broadband to

671,585 households and businesses.

Meanwhile, the FCC recommended to Congress an expansion of federal funding

for broadband in underserved areas. The success or otherwise of the current crop
of funded broadband programs is likely to play a part in the Congress’ decision
about whether to consider this possibility.

A number of other broadband projects have benefited from stimulus package

funds. These include NTS’s FttP network in southern Louisiana which was funded
with $36 million in federal stimulus grants and loans. It includes a WiMAX service
overlay to deliver broadband to outlying towns.

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FCC’s National Broadband Plan

As mandated by the American Recovery and Reinvestment Act, in early 2009

Congress directed the FCC to develop a national broadband plan to bring
broadband to the nation. In early 2010 the FCC proposed its National Broadband
Plan, which included the following goals:

 to connect 100 million households to affordable 100Mb/s service, by building the

world's largest market of high-speed broadband users; and

 to provide affordable access in every American community to ultra-high-speed

broadband of at least 1Gb/s at anchor institutions such as schools, hospitals, and
military installations.

The FCC soon afterwards released its 2010 Broadband Action Agenda, detailing
the purpose and timing of over 60 rulemakings and proceedings recommended
for FCC action. Included in the agenda was the plan to create a ‘Connect America
Fund’ that would extend broadband services to under-served and high-cost areas.
Accordingly, in March 2012 the FCC unveiled its Connect America Fund (CAF)
whereby the FCC was able to reform its Universal Service Fund (USF) and carrier
compensation policies to redress the disparity between the availability of
broadband in urban and rural communities. The USF, updated in late-2011, is
aimed at helping connect all Americans to broadband by 2020. Up to $300 million
saved from reforms will be targeted to extend broadband to about 400,000
previously unserved homes, business and anchor institutions in rural America.

The reforms are designed to improve fairness and incentives for the efficient
operation of High Cost Loop Support (HCLS), a type of universal service support
intended to make broadband more affordable for consumers. HCLS provides
about $800 million annually to help offset capital costs and operating expenses
faced by rural providers. The reforms will release additional funding for smaller
rural carriers, which in turn will connect more households: about 500 carriers
serving over two million lines will benefit from funding.

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The CAF is aimed at delivering broadband to an estimated 23 million Americans

in rural uncovered areas. The requirement for a minimum 4Mb/s services made
in 2013 was later increased to 10Mb/s (despite the FCC having a benchmark
speed of 25Mb/s). In 2013, five companies accepted a total of $255 million in
funding from the first round of CAF, which should lead to more than 500,000 rural
areas being reached by 2020. AT&T, CenturyLink, FairPoint, Frontier and
Windstream all received funding, while Verizon had opted out. In August 2018
operators accepted a total of $1.49 billion in funding for the second round of CAF
(CAF-II), affecting some 713,000 people in 45 states. Each carrier was required to
build out 40% of funded locations within three years, and then a further 20%
annually. More than half (53%) of recipients will receive download speeds of
100Mb/s while 99.7% will receive speeds of at least 25Mb/s. The principal
operators include CenturyLink (which received $506 million), AT&T ($427 million)
and Frontier ($283 million) while the remaining funds were divided among
Cincinnati Bell, Consolidated, Fairpoint, Hawaiian Telecom, Micronesian Telecom,
Windstream and a number of smaller regional players. Verizon had accepted $48
million in federal funds though this was transferred to Frontier after Frontier
acquired Verizon’s California and Texas subsidies.

In a sign that it agreed with the FCC’s proposal, from late 2010 the government
outlined its broadband ambitions on its ‘broadband.gov’ web site. The
administration’s goals included, amongst other things, that by 2020 at least 100
million homes should have affordable access to actual download speeds of at
least 100Mb/s and actual upload speeds of at least 50Mb/s.

Despite the FCC’s attempts to encourage competition (though without doing

much to encourage network access) broadband adoption has seen only modest
gains. About 65% of US households had broadband in 2009, rising to just 68% by
the beginning of 2012. One of the difficulties of the Broadband Plan is that there
is insufficient coordination among policymakers and private sector stakeholders
with the result that there is no clear understanding about which plans are more
effective. In addition, there remains a lack of competition in large areas where
operators exist as monopolies or duopolies, and these players have in many
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instances successfully resorted to the courts to prevent local communities from

developing independent networks.

In mid-2014 the FCC launched a program to explore how broadband can be

expanded at lower cost in rural areas. The program is aimed at improving the
efficiency of money spent through the Connect America Fund Phase II and taking
better advantage of technological advances. The FCC set aside up to $100 million
to fund experiments, divided into three groups: $75 million to test the building of
networks which provide 25Mb/s, $15 million to test consumer interest in
delivering 10Mb/s services in high cost areas, and $10 million to deliver 10Mb/s
services in areas deemed very costly to serve

The FCC’s 2018 Broadband Deployment Report (released in February 2018) found
that despite the progress made, some 24 million people lacked access to the
25Mb/s benchmark speed for broadband (3Mb/s for uploads). This compared to
55 million people in 2013.

At the end of 2016 92.3% of Americans had access to a 25Mb/s fixed broadband
service (compared to 81% in 2012) and mobile broadband services of at least
5Mb/s.

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Table 6 – Fixed broadband subscribers by data rate – 2012 – 2016

Year 10Mb/s 25Mb/s 50Mb/s

2012 290.73 254.39 155.69

2013 294.24 263.97 187.41

2014 297.82 284.27 270.77

2015 303.20 286.91 282.36

2016 309.61 297.76 292.80

Source: BuddeComm based on FCC data

Table 7 – Fixed broadband population coverage by data rate – 2012 – 2016

Year 10Mb/s 25Mb/s 50Mb/s

2012 92.8% 81.2% 49.7%

2013 93.2% 83.9% 59.4%

2014 93.7% 89.4% 85.2%

2015 94.7% 89.6% 88.2%

2016 96.0% 92.3% 90.8%

Source: BuddeComm based on FCC data

Private networks

A number of networks have emerged in response to poor infrastructure

investment from the main telcos. These have received funding from American
Recovery and Reinvestment Act resources as also from public municipal funds
via municipalities or through private-public partnerships.

One example is a Maine network developed by University of Maine System and

Great Works Internet. The network is managed by an independent company
(Maine Fiber Company) regulated as a public utility by the state. The Company is
obliged to provide open access to the network.

In January 2015 the Governor of New York state issued a $1 billion broadband
program as part of the 2015 State of Opportunity Agenda. This would leverage
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public and private funding to deliver broadband to all residents by 2019. The
project would involve a $500 million New NY Broadband Program funded by the
private sector. Broadband providers seeking to tap into this fund must provide
equal funding, so pushing the total pot available to at least $1 billion. Providers
must deliver data of at least 100Mb/s (in some cases affecting remote
communities a 25Mb/s service may be allowed). Each Regional Economic
Development Council (REDC) would submit a local plan which identifies unserved
and underserved areas, details the most cost-effective means to provide universal
broadband access, and leverages state-owned assets where possible.

Network neutrality

In late 2007 the FCC’s guidelines on how it expected the telecom industry to
operate were tested when a number of public interest groups complained about
the slowing or blocking of network traffic by both mobile and broadband
providers. The FCC responded in early 2008 by launching three inquiries into
network traffic management practices being conducted by mobile and broadband
providers.

However, in mid-2010 the US Court of Appeals for the District of Columbia Circuit
ruled that the FCC did not have the jurisdiction to make decisions on network
neutrality. Despite this, in late 2009 the then newly appointed FCC chairman Julius
Genachowski brought in new network neutrality rules, including the following:

 operators must allow consumers to access any legal internet content they wish;

 operators must allow consumers to use any networked application or service they
wish;

 operators must allow consumers to use any safe wireless device they wish;

 consumers are entitled to competition among local service providers;

 operators may not discriminate against internet applications or content beyond

'reasonable' network management; and
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 operators must publicise their network management practises.

An updated version of the rules was adopted by the FCC in 2010. The ‘Open
Internet’ rules required fixed and mobile operators to be open and transparent to
customers regarding their management of network congestion, prevented ISPs
from blocking content, and prohibited unreasonable discrimination against traffic.

In January 2014 the US Court of Appeals for the District of Columbia Circuit
overturned the rules, asserting that though the FCC had the authority to regulate
broadband access its net neutrality regulation was based on the notion of
‘common carriage’ which did not apply to ISPs. Since ISPs were classified by the
FCC differently than were telcos, it could not use law pertaining to telcos to
regulate broadband services. (In 2005 the Supreme Court ruled that broadband
services should not be classified as telecom services, and thus the infrastructure
of broadband providers cannot be regulated under common carrier principles).

In February 2015 the FCC ruled in favour of net neutrality by reclassifying

broadband access as a telecommunications service under Title II of the 1934
Communications Act and Section 706 of the 1996 Telecommunications Act,
rather than as an information service. This recognised that broadband services
are understood by the public to be a transmission platform through which
consumers can access content, applications, and services. It also supported the
FCC’s authority to address interconnection disputes, since the right of consumers
to make use of the internet includes the duty of ISPs to ensure that access is not
compromised.

The new Chairman of the FCC in April 2017 started the process of repealing
neutrality rules, returning to the former classification of ISPs as Title I services.
Network neutrality rules were repealed effective from June 2018. Despite this,
some states (including Washington, California, Illinois and New York) aim to pass
legislation which will require telcos to abide by similar laws.

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■ HYBRID FIBRE COAX (HFC) NETWORKS

Between 1996 and 2011 the MSOs invested an estimated $184 billion in building
out and upgrading their HFC cable networks and launching new broadband
services. The upgrades included rebuilding around 1.6 million kilometres of cable
plant.

Since the upgrade started in 1996, the cost of fiber transmission and digital
switching has reduced, and demand for digital services such as High Definition
TV (HDTV), VoD, VoIP, broadband internet access and iTV has grown, raising
potential profit margins and making more areas feasible for HFC upgrades.

The strength of cable broadband can in part be explained by the context of the
wider analogue and digital cable markets. The US cable TV network has the most
extensive penetration in the world. Since the 1990s cable networks have had
almost universal availability: by 2010 cable passed more than 99% of US TV
households. The take-up of US pay TV services, with around 85% of all US
households subscribing to cable TV, is also well above OECD averages. Around
two thirds of these were cable subscribers. The remaining one third were DTH
satellite subscribers.

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Table 8 – Top 10 cable MSOs’ subscribers – 2010; 2012 – 2018

Year Million subscribers

2010 39.9

2012 (Jun) 45.33

2013 (Sep) 47.96

2014 (Sep) 51.22

2015 55.269

2016 58.380

2017 61.165

2018 (Sep) 63.614

Source: BuddeComm based on Leichtman Research Group data

In late 2012 Canada’s Cogeco Cable acquired Atlantic Broadband from private-
equity firms Abry Partners and Oak Hill Capital Partners for $1.36 billion. Atlantic
Broadband, formed in 2003, claims to be the 12th largest cable TV operator in the
US. Its network covers parts of Pennsylvania, Florida, Maryland, West Virginia,
Delaware, South Carolina, New York, New Jersey and Connecticut.

In December 2015 the Altice Group completed its acquisition of a 70% stake in
Suddenlink Communications from BC Partners, CPP Investment Board and
Suddenlink’s management for $9.1 billion. BC Partners and CPP Investment Board
retained a 30% stake. One of the largest cablcos in the US, the operator serves
customers in Arkansas, Louisiana, North Carolina, Oklahoma, Texas and West
Virginia.

The cable broadband sector is dominated by a few major players, with 17 of them
alone accounting for 93% of cable broadband subscribers. They operate in
franchise areas, so there is no practicable competition between them.

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Table 9 – US cable modem subscribers – 2000 – 2018

Year Subscribers (million)

2000 3.58

2001 7.06

2002 11.37

2003 16.44

2004 21.35

2005 26.47

2006 31.98

2007 36.50

2008 40.25

2009 42.43

2010 45.33

2011 48.26

2012 51.64

2013 54.34

2014 56.545

2015 59.9

2016 63.9

2017 (e) 64.67

2018 (e) 66.9

Source: BuddeComm based on NCTA, FCC, ITU, and industry data

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New technologies

From about 2009 cablecos began upgrading their networks with DOCSIS3.0
technology, enabling them to offer broadband speeds 100Mb/s or higher:
DOCSIS3.0 can be scaled higher depending on distance and the number of
premises served by a node. In many European markets a 500Mb/s service is
common. The solid growth in the number of cable broadband subscribers is
largely at the expense of the DSL sector, which has seen subscribers churn to
cable in order to secure faster download speeds.

More recently, cablecos have deployed the DOCSIS3.1 standard, which uses
orthogonal frequency-division multiplexing (OFDM) to make existing spectrum
more efficient. This enables operators to widen the upstream spectrum range
from 5MHz to 42MHz and deliver up to 10Gb/s downstream and 1Gb/s upstream.

CableLabs completed the specifications for DOCSIS3.1 in mid-2014. By early 2015

Cox had developed its own modems based on DOCSIS3.1, which were made
available commercially from early 2016.

The National Cable & Telecommunications Association (NCTA), working with the
Cable & Telecommunications Association for Marketing (CTAM), CableLabs and
Cable Europe, in mid-214 began using ‘Gigasphere’ as the public name for
DOCSIS3.1.

In mid-2016 Comcast deployed DOCSIS3.1 in Atlanta and Nashville, followed by

Chicago, Detroit and Miami in the second half of the year.

Liberty Global and Videotron have also invested in DOCSIS3.1, while Atlantic
Broadband had deployed the standard across its Eastern Connecticut footprint by
the end of 2016. The company secured an additional 70,000 customers in Eastern
Connecticut following its $200 million acquisition of MetroCast in mid-2015.
Atlantic Broadband is a subsidiary of Cogeco Cable and is the 12th largest
cableco in the US. It deployed a 1Gb/s broadband service Miami in late 2014.

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The cableco RCN in late 2016 launched a 1Gb/s service in Chicago via DOCSIS3.1.
The company expected to extend the service to its other service areas, including
Boston, Chicago, New York City, Philadelphia and Washington, DC.

Mediacom Communications claimed at the end of 2016 that its entire broadband
network could provide a 1Gb/s service based on DOCSIS3.1. The company covers
three million premises across 22 states. The company invested about $1 billion
in the project over three years.

Charter Communications launched a 1Gb/s DOCSIS 3.1 service in Hawaii in

December 2017 under the ‘Spectrum Internet Gig’ banner.

While DOCSIS3.1 is gaining traction, CableLabs is also working on specifications

for Full Duplex DOCSIS, though trials are not expected until late 2018. Operators
including Comcast, Charter and Cox are looking to Full Duplex DOCSIS to enable
multi-gigabit symmetrical speeds of up to 10Gb/s further into the future, coherent
optics technology could boost the capacity of HFC networks to 1,000Gb/s and
above.

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Cable operators

Altice USA
Altice USA, formerly the cableco Cablevisión, was established as a subsidiary of
the Netherlands-based Altice Group. The unit was split off from Altice effective
from June 2018. Under the terms of the split, Altice divested its 67.2% interest in
Altice USA to Altice shareholders. Altice itself was renamed as Altice Europe.

Altice USA provides broadband, pay TV, telephony services, proprietary content
and advertising services to approximately 4.9 million customers across 21 states
through its Suddenlink Communications and Optimum brands. Fibre-based data
and voice services for the business sector are offered in New York under the
Lightpath brand.

Altice acquired Cablevision Systems Corporation in June 2016 for $17.7 billion,
and thereafter the Cablevision brand was replaced with Altice USA, though
Optimum remains as the customer-facing brand of the company.

Cablevision Systems Corporation had been founded in 1973. In September 2015

Altice agreed to acquire Cablevision for about $17.7 billion. The deal, completed
in June 2016, created the country’s fourth largest cableco (Altice at the time had
only recently bid for a 70% stake in Suddenlink). The acquisition also included
News 12 Networks (a local news network), Newsday Media Group, and the
company’s advertising sales division, Cablevision Media Sales. In March 2017
Altice USA acquired Audience Partners, a provider of data-driven, audience-based
advertising solutions.

Altice USA reported a 1.2% increase in revenue for the first quarter of 2018, year-
on-year, while EBITDA increased 4%. The company has invested in network
upgrades and new service offerings. Its Altice One service (which provides VoD
access to Netflix and other online content) has attracted more than 100,000
customers. Altice One is available across the Optimum service area and is being

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extended across the Suddenlink footprint. Where available, over 80% of video
customer net adds take the service.

Altice USA’s network upgrades include FttP and DOCSIS3.1 which provided up to
400Mb/s to about 87% of customers by March 2018, while a gigabit service was
available to 29% of customers. Over 90% of new subscribers take a service of at
least 100Mb/s. higher data speeds have translated into higher data use, with the
average customer using over 220GB of data in March 2018 (a 25% increase year-
on-year).

Table 10 – Historic - Cablevision subscriptions by service – 2011 – 2015

Year Video Broadband Voice Total

Subscribers (thousand)

2011 3,250 2,965 2,357 3,611

2012 3,197 3,055 2,433 3,601

2013 2,813 2,780 2,272 3,188

2014 2,681 2,760 2,229 3,118

2015 2,594 2,809 2,193 3,120

Source: BuddeComm based on company data

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Table 11 – Historic - Cablevision financial data – 2011 – 2015

Year Revenue Op. Income Net income

$ (million)

2011 6,700 1,228 292

2012 6,705 795 233

2013 6,232 699 465

2014 6,460 921 310

2015 6,509 848 187

Source: BuddeComm based on company data

Note: Includes cable tv and telecom services.

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Table 12 – Altice USA RGUs by service – 2016 – 2018

Year Pay TV Broadband Voice

Subscribers (thousand)

2016 3,534.5 3,962.5 2,559.0

2017 3,405.5 4,046.2 2,557.4

2018 (Sep) 3,322.8 4,096.3 2,533.5

Source: BuddeComm based on company data

Table 13 – Optimum RGUs by service – 2015 – 2018

Year Pay TV Broadband Voice

Subscribers (thousand)

2015 2,487 2,562 2,007

2016 2,427.8 2,618.9 1,962.0

2017 2,363.2 2,670.0 1,965.0

2018 (Sep) 2,306.6 2,682.9 1,942.8

Source: BuddeComm based on company data

Table 14 – Suddenlink RGUs by service – 2015 – 2018

Year Pay TV Broadband Voice

Subscribers (thousand)

2015 1,093.0 1,223.0 577.0

2016 1,087.0 1,343.7 597.0

2017 1,042.4 1,376.2 592.3

2018 (Sep) 1,016.2 1,413.4 590.7

Source: BuddeComm based on company data

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Table 15 – Altice USA financial data – 2016 – 2018

Year Revenue EBITDA Cash capex

$ million

2016 9,039.4 3,358.8 955.7

2017 9,307.0 3,981.4 951.3

2018 (9M) 7,111.7 3,057.0 832.8

Source: BuddeComm based on company data

Table 16 – Altice USA revenue by type – 2016 - 2018

Year Pay TV Broadband Telephony

$ (million)

2016 4,283.1 2,354.4 751.9

2017 4,274.1 2,608.6 700.8

2018 (9M) 3,122.8 2,143.7 490.9

Source: BuddeComm based on company data

Table 17 – Suddenlink financial data – 2016 – 2018

Year Revenue EBITDA

$ (million)

2016 2,573.2 1,154.9

2017 2,659.4 1,254.6

2018 (9M) 2,062.3 944.2

Source: BuddeComm based on company data

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Table 18 – Cablevision financial data – 2016 – 2018

Year Revenue EBITDA

$ (million)

2016 6,466.3 2,203.9

2017 6,650.3 2,726.8

2018 (9M) 5,058.7 2,112.8

Source: BuddeComm based on company data

Comcast Corporation
Formerly known as Comcast Holdings, Comcast Corporation is the largest
broadcaster and cableco in the US. The company provides TV, broadband and
voice services across 40 states, passing some 54.6 million premises. Comcast
has owned the media company NBCUniversal since 2011 (the deal brought with
it the film production studio Universal Pictures as well as broadcast and cable TV
networks. Comcast took full control of NBCUniversal from General Electric in
2013. It also operates a number of theme parks.

In February 2014 Comcast made a bid to acquire TimeWarnerCable for some

$45.2 billion. The deal was subject to scrutiny from regulators and the Justice
Department antitrust authorities, which expressed concerns about how a merged
operator would conduct business in relation to online video distributors (such as
Netflix) and other networks, as well as cable programmers and studios which
license content to competitors. In April 2015 the Justice Department indicated its
concerns that the deal would give Comcast too much power in the broadband
market and too much leverage over TV channel owners and SVoD providers.
Comcast is a part-owner of the streaming site Hulu.

Comcast ended its bid to acquire TimeWarnerCable in late April 2015, in

anticipation of regulators rejecting the deal. It was evident that the FCC would not
treat the merger favourably, given that it would have created a dominant pay TV
operator with about 40% share of the broadband market. The FCC asserted that
the merger would have negatively affected competition and innovation, including
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to the ability of online video providers to reach and serve consumers. Effectively,
the FCC’s concern centred not on the effect which the merger would have had on
the cable TV market (where both companies have complementary footprints) but
on the broadband market, where the dominance of the merged operator would
have flown in the face of government efforts to encourage market competition.

The company in July 2018 turned its attention to Sky, placing a bid which valued
Sky at around £26 billion ($34 billion). A higher bid, of £17.28-a-share, was
prompted by other bids placed by Disney and Fox, raising the deal to $38.8 billion.
In the following September Fox ceded the remainder of its existing 39% ownership
to Comcast for $15 billion, granting Comcast full control of the broadcaster.

Comcast reported a 3.4% increase in cable revenue for the third quarter of 2018,
year-on-year, while EBITDA increased 2.5% and net profit grew 9.3%. The number
of broadband customers increased by 363,000 in the quarter

Table 19 – Comcast financial data – 2015 – 2018

Year Revenue Operating income

$ (million)

2015 74,510 15,998

2016 80,403 16,831

2017 85,029 18,018

2018 (9M) 66,661 14,495

Source: BuddeComm based on company data

Note; revenue includes the Olympics and Super Bowl

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Table 20 – Comcast revenue by service– 2012 – 2018

Year Video Broadband Voice Total cable

$ (million)

2012 19,952 9,544 3,557 39,604

2013 20,535 10,334 3,657 41,836

2014 20,783 11,321 3,671 44,140

2015 21,526 12,471 3,608 46,928

2016 22,204 14,421 4,159 50,577

2017 22,874 15,681 4,090 53,070

2018 (9M) 16,878 12,740 2,982 41,015

Source: BuddeComm based on company data

Chart 2 – Comcast revenue by service– 2012 – 2018

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 21 – Comcast subscriptions by service – 2012 – 2018

Year Video Broadband Voice Total

Subscribers (thousand)

2012 22,844 19,367 9,955 26,462

2013 22,577 20,685 10,723 26,677

2014 22,383 21,962 11,193 27,035

2015 22,347 23,329 11,475 27,710

2016 22,508 24,701 11,678 28,577

2017 22,357 25,869 11,552 29,347

2018 (Sep) 22,015 26,871 11,482 29,802

Source: BuddeComm based on company data

Chart 3 – Comcast subscriptions by service – 2012 – 2018

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 22 – Comcast bundled services subscriptions – 2014 – 2018

Year Single Double Triple/quad

Subscribers (thousand)

2014 8,409 8,750 9,876

2015 8,366 9,221 10,114

2016 7,756 8,797 9,980

2017 8,196 9,056 9,916

2018 (Sep) 8,912 9,045 9,860

Source: BuddeComm based on company data

Note: Data from 2016 is for residential customers

Chart 4 – Comcast bundled services subscriptions – 2014 – 2018

Source: BuddeComm based on company data

Note: Data from 2016 is for residential customers

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Charter Communications
Charter Communications is the second largest cableco in the US (after Comcast),
offering services to over 25 million customers in 41 states. Services are provided
under the Spectrum brand.

The company became the third-largest pay TV operator in 2016 after

TimeWarnerCable and Bright House. Time Warner had been formed in 1990
through the merger of Time and Warner Communications. The company acquired
Turner broadcasting in 1996 and had a large number of subsidiaries operating in
the film, TV and publishing sectors.

Turner broadcasting owns and operates cable TV networks both within the US and
internationally. These include TBS, TNT, CNN, Cartoon Network, Adult Swim, truTV
and Turner Sports. Home Box Office operates the pay TV services HBO and
Cinemax. Warner Bros is involved in the production and distribution of films, TV
programming, home entertainment, comic books, and video-games and licensed
several off-shoot brands for retail. Time remains principally a magazine publisher.

TimeWarner spun off its cable operations in March 2009 as part of a larger
restructuring. Between 2009 and 2016 Time Warner Cable was an independent
company which continued to use the Time Warner name under license from its
former parent company. In 2014 Comcast made a $45.2 billion bid for
TimeWarnerCable, but this was abandoned in April 2015 following opposition
from the government and other bodies.

In May 2015 Charter Communications made a $55 billion bid for

TimeWarnerCable. Charter also signed an agreement in mid-2015 to acquire
Bright House Networks for $10.4 billion. Opponents of the TimeWarnerCable
purchase claimed that it would create a cable giant with an overbearing influence
on the videostreaming market, with 35% of the cable pay TV sector and 36% of
the cable broadband market. The deal closed in May 2016. Charter briefly
continued to operate the business as TimeWarnerCable in its existing markets

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before rebranded the operations as Spectrum. Charter created a new partnership

to manage the business, 87% owned by Charter itself and 13% by
Advance/Newhouse, the owner of Bright House.

The following table incorporates legacy financial data from TimeWarnerCable and
bright House from May to December 2016.

Table 23 – Charter Communications financial data – 2015 – 2018

Year Residential SME Enterprise Total

$ (million)

2015 8,129 764 363 9,754

2016 23,244 2,480 1,429 29,003

2017 33,288 3,686 2,210 41,581

2018 (9M) 25,872 2,737 1,881 32,403

Source: BuddeComm based on company data

Table 24 – Charter Communications residential revenue by type – 2015 – 2018

Year Video Internet Voice

$ (million)

2015 4,587 3,003 539

2016 11,967 9,272 2,005

2017 16,641 14,105 2,542

2018 (9M) 12,987 11,286 1,599

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 25 – Charter Communications residential RGUs by type – 2015 – 2018

Year Video Internet Voice Total

Thousand

2015 17,062 19,911 9,959 46,932

2016 16,836 21,374 10,327 48,537

2017 16,544 22,545 10,427 49,516

2018 (Sep) 16,140 23,336 10,218 49,694

Source: BuddeComm based on company data

In July 2018 Charter launched its Charter Mobile MVNO on Verizon’s network. The
service is restricted to Charter’s existing and new fixed broadband customers.

■ DIGITAL SUBSCRIBER LINE (DSL) NETWORKS

Introduction

Since the early 1990s DSL has been the mainstay of the US telcos’ broadband
offering. More recent versions of the technology, such as ADSL2+, VDSL and
vectoring VDSL can achieve higher data transfer rates depending on the distance
from the DSLAM. Other iterations include VDSL2+, commonly used in conjunction
with fibre, and G.fast technology, and which can deliver data at 1Gb/s and above.

A number of emerging technologies have been instituted in a bid to enhance the

potential of copper. These include Dynamic Spectrum Management (DSM) which
reduce crosstalk and interference in a DSL network. Phantom Mode DSL creates
a ‘phantom’ channel that supplements the traditional two-pair copper line. Tests
have demonstrated transmission speeds of between 300Mb/s and 700Mb/s,
though the technology is optimum at short distances (up to 400 meters).

Naked DSL is DSL which does not require the subscriber to also have a traditional
wireline service. In the USA, it started becoming popular from the mid-2000s when
Qwest commenced its deployment and when AT&T and Verizon were mandated
to offer it following their mergers with SBC and MCI respectively. The decline in

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the number of fixed lines in the USA has increasingly driven subscribers towards
naked DSL.

Some DSL subscribers are migrating to Verizon’s FiOS service or AT&T’s U-Verse
service, though others are churning to cable providers where available. This is
partly because the upgraded FiOS and U-Verse networks have limited coverage:
U-Verse reaches only about 50% of AT&T’s DSL footprint, and where it is available
is does not match DOCSIS3.1 capabilities since insufficient investment has been
made in the last mile. For Verizon, the FiOS upgrade is largely complete, excepting
for a number of areas in which it is obliged to extend its network (including New
York, Washington DC, Philadelphia and a number of other cities). About 30% of its
DSL customers will likely do without FiOS. This appears to have been cemented
in the early 2012 co-marketing deal between Verizon and a number of cablecos
by which Verizon would not push FiOS into additional areas served by cablecos
and in return it would be given a free hand to sell LTE services to cable customers.

The merger of T-Mobile US and Sprint, approved by shareholders and competition

authorities in late 2018, will create a combined operator providing broadband
services to about 9.5 million premises by 2024. The company’s 5G network will
cover about 90% of the country by 2024 and the company expected that many
existing customers of the main cablecos will cut the cord and choose a T-
Mobile/Sprint service instead, based on mobile tethering.

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Table 26 – Broadband subscribers for major telco providers – 2009 – 2018

Year AT&T Verizon Century Frontier Windstream

Link

Subscribers (million)

2009 15.79 9.22 2.24 0.63 1.13

2010 16.3 8.39 2.39 1.70 1.30

2011 16.59 8.49 2.45 1.71 1.33

2012 16.39 8.79 5.85 1.75 1.21

2013 16.425 9.015 5.991 1.836 1.171

2014 16.028 9.205 6.082 2.342 1.131

2015 15.778 9.228 6.048 2.444 1.095

2016 15.605 7.038 5.945 4.271 1.051

2017 15.719 6.959 5.662 3.938 1.006

2018 (Sep) 15.746 6.958 5.435 3.802 1.015

Source: BuddeComm based on Leichtman Research Group data and company data
Notes: 1Data for 2009 reflects CenturyTel’s acquisition of Embarq. Previous years’ data are Embarq’s subscriber figures.
2Figures for 2011 are as at March 31.

Verizon

Verizon continues to sell DSL in areas where FiOS is not available though is edging
towards its HomeFusion offer for broadband, in rural areas, which is based on
LTE. The company is strategically moving away from DSL by encouraging
customers to move to LTE or to churn to competing cable operators. In early 2012
it stopped selling DSL as a standalone product, obliging potential customers to
buy a bundled package. This could affect up to 40% of its existing customer base,
which is considered a viable loss since the potential revenue from LTE (cheaper
to deploy than upgrading DSL) and its FiOS service will outweigh the capital outlay
in maintaining its copper network which provides little revenue.

Verizon plans to terminate its copper network in FiOS markets first, and by not
upgrading its DSL network it will thereby encourage customers to migrate to
cablecos. This would not be considered a loss, since Verizon has a $3.8 billion
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spectrum sharing and marketing deal with Comcast, the largest cableco, by which
Comcast would provide broadband services and Verizon LTE services. LTE is
traditionally priced higher than DSL, so ARPU would be expected to rise.
Furthermore, regulatory oversight has been eroded in most states, so where DSL
has been removed and LTE is unavailable or patchy customers have no recourse
but to accept the new status quo.

In 2005 Verizon sold its former-GTE Hawaiian Telecom to the Carlyle Group, and
in 2008 it sold its New Hampshire, Maine and Vermont DSL and landline networks
to Fairpoint Communications for $2.7 billion. The deal saddled Fairpoint with $1.7
billion in Verizon debt as well as obligations which the size of the company made
it impossible to meet, with the result that Fairpoint later filed for bankruptcy.

In 2009 Verizon also offloaded its DSL and landline networks in Arizona, Idaho,
Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina,
Washington, West Virginia and Wisconsin to Frontier Communications. Frontier
paid $5.3 billion in stock and took on $3.3 billion in debt.

Influenced by the FCC’s decisions on network neutrality in February 2015, Verizon

sold its wireline assets in California, Florida and Texas to Frontier
Communications for $10.5 billion. Separately, the company also sold off over
11,300 cell towers to American Tower Corporation, for $5 billion. The deal with
Frontier enables Verizon to concentrate on its wireline operations on the East
Coast, and help fund its acquisition of AWS spectrum, for which it paid $10.43
billion at auction in the previous month.

Verizon in June 2015 acquired AOL for about $4.4 billion. AOL is a leading player
in digital content and online advertising, with assets including The Huffington
Post, TechCrunch and Engadget, as well as video content and programmatic
advertising platforms. The acquisition formed part of Verizon’s strategy to provide
cross-screen digital content and advertising.

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In February 2016 Verizon Communications agreed to buy XO Communications’

fibre-optic network business for $1.8 billion. The latter’s fibre-based IP and
Ethernet networks will be deployed to improve Verizon’s service to business and
wholesale customers as well as augment wireless backhaul. The deal requires
regulatory approval and is expected to be completed in the first half of 2017. XO
operates metropolitan networks in about 30 major US markets. The company’s
intercity network spans 19,000 miles and connects 85 cities.

Verizon reported a 1.2% increase in revenue for the fourth quarter of 2015, year-
on-year, though service revenue fell 5.6%. For the full year, total revenue increased
4.6%, with service revenue increasing 2%.

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Table 27 – Verizon wireline (FiOS) operational data – 2010 – 2018

Year Video Broadband High Speed Digital voice
Internet

Subscribers (thousand)

2010 3,472 4,082 4,310 817

2011 4,173 4,817 3,853 1,884

2012 4,726 5,424 3,371 3,227

2013 5,262 6,072 2,943 4,248

2014 5,649 6,616 2,589 4,602

2015 4,635 5,418 1,667 3,872

2016 4,694 5,653 1,385 3,895

2017 4,619 5,850 1,109 3,905

2018 (Sep) 4,497 6,013 945 3,833

Source: BuddeComm based on company data

Chart 5 – Verizon wireline (FiOS) operational data – 2010 – 2018

Source: BuddeComm based on company data

Table 28 – Verizon wireline financial data – 2014 – 2018

Year Revenue Opex EBITDA Op. income

Please note: All $ are US$ unless stated otherwise

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$ million

2014 38,429 37,394 8,917 1,035

2015 37,720 35,545 8,853 2,175

2016 30,510 30,804 5,681 -294

2017 30,680 30,300 6,484 380

2018 (9M) 22,387 22,387 4,890 0

Source: BuddeComm based on company data

AT&T

AT&T commercially launched its FttP/N U-verse network services in 2006, and by
September 2012 the company had some 431 million IPTV customers, 2.7 million
voice customers and 7.1 million broadband customers (though many of these are
in bundles, so the total number of subscribers is lower than the sum). The service
is available in two forms: U-verse (TV, broadband and VoIP) and U-verse IP-DSLAM
(broadband, VoIP, but no TV service).

U-verse predominantly uses FttN with FttP in densely urban areas: in the former,
copper DSL, DSL2 or VDSL) is used for the last mile.

In late 2012 AT&T announced plans to invest $14 billion into its LTE and U-Verse
network over three years ($8 billion on wireless and $6 billion on wireline
initiatives). The project, dubbed Project Velocity IP (VIP), will extend LTE coverage
to 300 million people by the end of 2014 (compared to 250 million by the end of
2013). Project VIP is to provide up to 75Mb/s data rates on its U-Verse network,
expanding network coverage to 75% of current customer locations (about 57
million people).

A corollary of investment in mobile infrastructure is that AT&T is beginning to shut

down certain wireline network assets as it continues with it transition to an all-IP
network. In the fourth quarter of 2014 the company filed a $2.1 billion charge with

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the Securities and Exchange Commission (SEC) for its abandoning unspecified
copper network assets.

AT&T’s acquisition of DirecTV gave the company additional scale as well as

leverage to secure cheaper broadcasting rights. The deal had less to do with
DirecTV’s satellite services than AT&T’s desire to build an OTT streaming
platform, and so win over those customers who are ending their pay-TV
subscriptions. AT&T will not cannibalize DirecTV and U-Verse TV customers, so
its OTT is unlikely to be competitive.

AT&T has three OTT video service offerings: DirecTV Now, DirecTV Mobile (both
available via an app), and DirecTV Preview (a free ad-supported service). DirecTV
Now offers between 60 and 120 TV channels in four tiers, ranging in price from
$35 to $70 per month.

In March 2017 AT&T tested a 400Gb/s Ethernet data transfer on its network
between New York and Washington, D.C. The series of tests being undertaken
during the year are aimed at developing interoperability between vendors’
equipment in the different markets.

AT&T remains essentially a wireless services provider first, and a pay TV provider
second. Although its residential fixed line assets are extensive (encompassing Ma
Bell’s former areas of Bellsouth, Ameritech, Southwestern Bell and Pacific Bell),
revenue growth is principally from mobile services and from DirecTV satellite
services.

In October 2016 AT&T announced a bid to acquire TimeWarner. The purchase

price implied an equity value of $85.4 billion and a transaction value of $108.7
billion, including TimeWarner’s net debt. Under the terms of the deal TimeWarner
shareholders would own between 14.4% and 15.7% of AT&T shares. AT&T
anticipated a range of benefits from the deal, including diversification of revenue
in that Time Warner would represent about 15% of the combined company’s

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revenue. TimeWarner owns a majority stake in HBO Latin America, which is

available in 24 countries in the region, while AT&T is the leading pay TV distributor
in the region following its acquisition of DirecTV. TimeWarner claimed that the
deal would only need approval from the Justice department, and not the FCC
though the latter can block a merger which it deems not to be in the public interest.

In June 2018 a federal judge approved the merger despite Justice Department
efforts to block it on competition grounds.

Following a reorganisation of reporting segments, data in the table below from

2017 is for the Entertainment business unit.

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Table 29 – AT&T fixed-line operational data – 2011 – 2018

Year Voice Broadband Video

Subscribers (million)

2011 36.33 16.42 3.91

2012 32.184 16.390 4.536

2013 28.489 16.425 5.460

2014 14.381 16.028 5.943

2015 12.498 14.286 25.398

2016 11.278 14.179 25.265

2017 9.996 14.350 25.244

2018 (Sep) 8.901 14.441 25.152

Source: BuddeComm based on company data

Chart 6 – AT&T operational data – 2011 – 2018

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 30 – AT&T financial data – 2011 – 2018

Year Wireless Wireline Total

$ (million)

2011 63,215 60,149 126,723

2012 66,763 59,537 127,434

2013 69,899 58,814 128,752

2014 73,992 58,425 132,447

2015 73,705 73,934 146,801

2016 72,821 82,663 163,786

2017 71,090 79,288 160,546

2018 (9M) 52,575 54,598 122,763

Source: BuddeComm based on company data

Note: Wireless includes consumer and business segments.
Wireline from 2015 includes Business Wireline and Entertainment Group.

Chart 7 – AT&T financial data – 2011 – 2018

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Frontier Communications

Frontier Communications offers broadband, fixed-line voice, satellite video,

wireless broadband access, data security solutions, bundled offerings and
bundles services for both residential and businesses customers. The company
operates in 28 states, and provides FttP services in Washington, Oregon, Indiana
and South Carolina.

Frontier has expanded through a series of acquisitions. In 2010 it acquired assets

from Verizon in 14 states, while in December 2013 it bought AT&T’s wireline
business and fiber network in Connecticut, for $2 billion. Frontier also acquired
AT&T’s U-verse video and satellite TV customers.

In February 2015 Frontier acquired wireline assets in California, Florida and Texas
from Verizon for $10.5 billion. The deal included Verizon’s FiOS broadband and
video customers in these three states: Frontier also provides FttP (FiOS) services
in Washington, Oregon, Indiana and South Carolina. Data for 2016 incorporates
these customers acquired from Verizon, included with Frontier’s subscribers as
of March 2016.

About 4% of Frontier’s revenue in 2017 (some $395 million) was derived from
federal and state subsidies from the CAF II and other programs. Federal subsidies
accounted for 92% of all subsidy revenue in the year, with the remainder being
state subsidies.

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Table 31 – Frontier Communications revenue – 2008 – 2018

Year Revenue ($ million)

2008 2,237.0

2009 2,117.9

2010 3,797.6

2011 5,243.0

2012 5,011.8

2013 4,761.5

2014 4,772.4

2015 5,576.0

2016 8,896.0

2017 9,128.0

2018 (9M) 6,473.0

Source: BuddeComm based on company data

Table 32 – Frontier Communications customers by sector – 2011 – 2018

Year Residential lines Business lines Broadband TV

2011 2,887,060 309,900 1,764,160 527,560

2012 3,103,760 286,100 1,782,560 346,630

2013 2,803,480 270,800 1,866,670 385,350

2014 3,214,830 304,730 2,373,890 586,620

2015 3,124,000 289,000 2,462,000 554,000

2016 4,891,000 - 4,271,000 1,145,000

2017 4,397,000 - 3,938,000 961,000

2018 (Sep) 4,152,000 - 3,802,000 873,000

Source: BuddeComm based on company data

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Chart 8 – Frontier Communications customers by sector – 2011 – 2018

Source: BuddeComm based on company data

G.fast developments

G.fast is an iteration of copper-based transport which can deliver data at 1Gb/s or

higher. Though a relatively recent technology, it is commonly deployed across
Europe as a cheaper alternative to FttP, or as an interim measure while operators
work on deploying FttP.

AT&T is at the forefront of G.fast within the US, where it is deploying the service
in multi-dwelling units (MDUs). G.fast is a distance related technology which
works best at distances below about 300 metres.

CenturyLink has also deployed G.fast in a number of MDUs, delivering data at up

to 500Mb/s, while Windstream has a limited deployment in areas of Lincoln,
Nebraska.

Frontier Communications has partnered with Nokia to deploy G.fast technology in

apartments and Multiple Dwelling Units (MDUs), with initial deployments in
Connecticut.

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■ OTHER FIXED BROADBAND SERVICES

The USA has led the world in adopting Wi-Fi Local Area Network (LAN) services.
Wi-Fi outlets have become commonplace, not only in restaurants, airports and
shopping malls, but also in offices and homes. In addition, Wi-Fi modems are now
in-built in practically all new laptop computers, most smartphones and an
increasing proportion of standard mobile handsets. With cheap VoIP telephony
available over Wi-Fi in business premises and public places, some customers are
choosing to save on cellular tariffs and to use Wi-Fi to place their calls or to send
email messages.

The fixed wireless WiMAX standard, IEEE802.16-2004, was approved by the

WiMAX Forum in 2004. Since then an increasing number of WiMAX devices have
been brought to market. The fixed-wireless WiMAX business model stands up well
in comparison with DSL and cable in metropolitan areas and is even more
pertinent to areas underserved by wireline incumbents. However WiMAX is not a
direct competitor to the fixed NGNs, particularly as high-bandwidth fiber is
increasingly deployed across the nation.

Apart from the fixed networks, WiMAX offers materially faster speeds than the
current 3G technologies. However WiMAX faces challenges from the LTE
networks to which Verizon and AT&T have committed. The success of WiMAX in
the main urban markets will also depend heavily on the pace with which laptops
and handsets embedded with WiMAX chips become available.

While WiMAX promises more than Wi-Fi networks in the long term, by 2010 the
ongoing growth in public Wi-Fi hotspots and Wi-Fi-enabled devices left little doubt
that Wi-Fi is currently a much more widely available and more heavily utilised
technology than WiMAX and will likely remain so for the next five years. Wi-Fi also
continues to play an important role in muni-Wi-Fi developments and is also
emerging as a technology relevant to smart grids.

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Though not strictly regarded as fixed-wireless broadband, satellite broadband is

also discussed. Although it plays an important role for some communities, the
high cost of satellites, ground stations and customer receiver equipment, and the
entrenched position of cable and DSL in most urban areas, is likely to confine the
success of satellite broadband to remote and underserved areas.

In late 2012 the FCC revised rules to allow Wireless Communications Service
(WCS) license holders to use 30MHz of spectrum in the 2.3GHz band for wireless
broadband services. The rules also protect the Satellite Digital Audio Radio
Service (SDARS) operator Sirius XM Radio (Sirius XM), which sits in an adjacent
band from interference. The move is part of the FCC’s efforts to lift regulatory
barriers limiting the flexible use of spectrum for broadband and was partly made
possible through a compromise between AT&T and Sirius XM to enable WCS and
SDARS to coexist. Of the 30MHz, 20MHz can be used for mobile broadband
services and 10MHz for fixed broadband services, with its possible future use as
downlink spectrum to serve mobile broadband.

Wi-Fi

Wi-Fi is the brand name for products compatible with standards for Wireless Local
Area Networks (WLAN) based on the IEEE 802.11 standard. In recent years Wi-Fi
has been widely taken up in US workplaces and broadband households. Although
the public Wi-Fi market was initially hampered by problems with data security and
a failure by operators to establish roaming agreements across each other’s
networks, most of these hurdles have been overcome. Indeed, the USA is the
leading country in adopting Wi-Fi services.

Hotspots are generally sited in areas such as hotels and resorts, as well as cafes,
restaurants, public spaces/buildings, stores and shopping malls, office buildings,
hotzones, pubs and airports.

An increasing number of connections in public Wi-Fi hotspots are via handheld

devices, including smartphones, tablets and laptops.

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In terms of online activities on hotspot networks, the research indicates that news,
search and social activities are the top activities, while almost 50% of users shop
online outside the home or workplace. The growth of internet-enabled handheld
devices will continue to drive the growth in use of Wi-Fi hotspots.

In early 2012 the US’s first public ‘WhiteFi’ network went live in North Carolina,
leveraging spectrum previously occupied by analogue TV. The service will initially
be used for municipal functions such as surveillance cameras and transmitting
water quality data. Use of such white spaces had been approved by the FCC at the
end of 2011. The network uses Agility White Space Radio transceivers which
support VHF frequencies from 174 to 216MHz (TV channels 7-13), UHF
frequencies from 470–698MHz (TV channels 14-52), and unlicensed frequencies
from 902MHz to 928MHz.The devices do not actually connect to the white spaces
network directly, but instead WhiteFi is used as a backhaul link for separately
installed 2.4/5GHz base stations.

The CableWi-Fi Alliance, originally made up of Cablevision, Comcast, Time Warner

Cable, Cox Communications and Bright House Networks, managed a combined
Wi-Fi network of more than 150,000 hotspots in major cities across the US. The
number of hotspots has tripled since the operators’ tie-up was first unveiled in
mid-2012.

The US government has encouraged the installation of Wi-Fi hotspots in all of its
buildings. Legislation introduced in 2010 requires all public federal buildings to
install Wi-Fi base stations in order to free up cell phone networks. All new
buildings are required to comply, while older buildings must have been retrofitted
by 2014. Some $15 million from the Federal Buildings Fund was allocated for the
work.

WiMAX

World Interoperability for Microwave Access on Metropolitan Area Networks

(WiMAX) is the brand name given to the 802.16 wireless broadband standard

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approved by the IEEE in 2002. The standard has been updated almost annually
since then. Revisions have eliminated the need for a line-of-sight, and added
support for more spectrum bands.

WiMAX refers to two generations of technology – fixed WiMAX (known as 802.16-

2004) and mobile WiMAX (known as 802.16e and, from 2010, 802.16m). Fixed
WiMAX has played a role in filling cable and DSL gaps in emerging markets where
WiMAX is a cost-effective last-mile solution, but this role in developed countries
is being taken up by 4G/LTE networks.

WiMAX in North America is transmitted over the 2.3GHz band. However, the
standard is flexible enough to work over other bands including 2.5GHz, 3.4GHz,
3.6GHz, 5.4GHz and 5.8GHz. Operators in the US have also been examining the
700MHz and 900MHz bands for potential wireless data use. These lower bands
are ideal for mobility yet their data rates are not as high as some of the other
bands.

Two of the major US proponents of WiMAX in the US were Sprint Nextel and
Clearwire Corporation. In mid-2006 Sprint Nextel announced that by the end of
2008 it would deploy a 4GHz wireless network using mobile WiMAX in 85% of
America’s top 100 markets, covering 100 million people. Many saw Sprint’s
decision as legitimising mobile WiMAX’s superiority over other technologies such
as EV-DO and HSPA for 4G wireless broadband. In early 2007 Sprint entered an
agreement with Clearwire Corporation to deploy a joint WiMAX network through a
newly created company, Clearwire Communications. Sprint soon extended its
ownership in Clearwire Communications from 51% to 56%, while other investors
included Clearwire Corporation (27%), Intel Capital, Time Warner Cable, Bright
House, Google and Comcast.

Commercial services were launched in late 2008 by Sprint, Comcast and Time
Warner Cable (operating as MVNOs on Clearwire’s Clear WiMAX network).
However, by mid 2010 it had become clear that the 4G offerings had attracted
fewer subscribers that Sprint had hoped, largely due to the deployment of LTE
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technology (offering materially faster data rates) by competitors such as AT&T

and others, which had significantly limited Sprint’s 4G subscriber growth. Since
then, Verizon’s rapid deployment of LTE networks also stripped Sprint’s
anticipated time-to-market advantage. In addition, Sprint’s partnership with the
WiMAX operator Clearwire cost the company considerable investment and
became a significant drain on its revenue, while its merger with Nextel cost the
company millions of customers when the two operators failed to integrate iDEN
customers into Sprint’s user base.

In mid-2013 Clearwire’s was approached by both DISH Network and Sprint, which
made a $5 per share offer for the roughly 50% of Clearwire that it does not already
own. The share offer valued the company at about $14 billion.

At the same time, in mid-2010 Clearwire began trialling LTE in a bid to create a
‘multi-mode’ WiMAX/LTE network. The company uses both TDD (time-division
duplex) and FDD (frequency-division duplex) technologies.

In mid-2011 Sprint began switching to LTE as its preferred technology, engaging

LightSquared to deploy an LTE network over a 15 year period. With LTE emerging
as the dominant 4G technology over the coming years, the future of mobile
WiMAX in the US market is uncertain. Given that few WiMAX devices are expected
to be launched in coming years (and none from Sprint), in contrast to the large
range of LTE-enabled handsets coming to market, the consumer switch to LTE for
mobile broadband is clear.

In late 2011 SpectrumCo, a joint venture between Comcast Corporation, Time

Warner Cable, and Bright House Networks sold its 122 Advanced Wireless
Services (AWS) spectrum licenses covering 259 million POPs to Verizon for $3.6
billion. The cablecos had originally bought spectrum to develop wireless services.
Instead, the companies will resell Verizon Wireless services.

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Municipal wireless broadband

Municipalities in the US are increasingly promoting broadband as an essential

service along the lines of basic municipal infrastructure such as water and power.
Local governments are also regarding wireless broadband networks as important
to public safety and increased government efficiency. Thus cities and towns
around the US have been exploring ways of funding and building Wi-Fi
infrastructure.

The vast majority of municipal wireless networks currently deployed, or proposed,

use Wi-Fi for broadband service due to its low deployment cost, its transmission
reliability and its more than adequate speeds. In addition, it is well suited for
general public access as Wi-Fi cards are now commonplace, being standard in
new laptops, PDAs, smartphones, high-end cell phones, many handheld gaming
devices, tablet PC devices, netbooks and ebooks.

Most new municipal Wi-Fi deployments use 802.11b or 802.11g for user access
while using 802.11a for backhaul. However, an increasing number of
municipalities are considering a fiber component to their broadband network.
Furthermore, in coming years, WiMAX may begin to supplant 802.11a in municipal
Wi-Fi deployments that favour wireless for backhaul as opposed to wired
technologies. In addition, microwave access may prove to be more versatile in
cities with extreme weather where fiber backhaul is not feasible.

Despite the large number of muni Wi-Fi projects in operation or planned, a number
of issues with muni-Wi-Fi are apparent. Given the difficulties experienced by some
projects in 2007/8, and the sheer number of projects under consideration, it was
not surprising to witness different approaches emerging during 2009. Indeed it
became evident that the significant demand for iPhones, smartphones, netbooks
and other Wi-Fi-enabled devices would outstrip the capacity of the cellular
networks and would reinvigorate the business models for muni-Wi-Fi networks.

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There are about 120 municipalities with citywide Wi-Fi networks accessible to the
general public. Furthermore, there are 56 cities with citywide or near citywide
coverage but these networks are for government applications only such as for
public safety. There are also 84 cities with large outdoor Wi-Fi hotzones which are
mostly located in parks and downtown areas.

In mid-2012 Seattle aborted its plan for a city-wide Wi-Fi network after a decade
of commissions and feasibility studies. The network was intended to offset the
near monopoly of Comcast in the area. However, in late 2012 Seattle reached an
agreement with Gigabit Squared to develop and operate an FttP broadband
network, dubbed Gigabit Seattle, initially in 12 areas. The project aims to stimulate
business opportunities, and develop advancements in health care, education and
public safety.

Thus far, few cities have completed Wi-Fi networks, given the financial challenges
and the blocking strategies employed by the powerful telecoms industry which
have in 19 states pushed state laws blocking or preventing municipalities from
offering Wi-Fi or broadband services.

Next Century Cities

Next Century Cities is a group of about 50 municipalities formed in late 2014
aimed at revamping internet infrastructure on a community level and addressing
poor quality of service. The aim is to promote affordable 1Gb/s services.

Cities that have joined the Next Century Cities program include Chattanooga,
Lafayette, Santa Monica, Austin, Boston, Kansas City, Lexington, Portland and San
Antonio.

Los Angeles
In November 2013 the Los Angeles City Council approved plans to roll out a free
Wi-Fi service offering data at up to 5Mb/s, scaled up to 1Gb/s for paying
customers. The network would also provide Wi-Fi in public areas. The city

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expected the project to cost between $3 billion and $5 billion, to be financed by

vendors who would derive revenue from offering additional services as part of a
bundle.

The network must be open to competitors on a wholesale basis. In sum, the

Council intends to make the provision of broadband universal while providing
regulatory oversight on pricing and the terms and conditions for encouraging
competition.

The City Council acknowledges that it needs universal and affordable broadband
to safeguard economic growth.

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Other developments
In June 2014 Ruckus Wireless launched a large-scale municipal Hotspot 2.0
service in San Francisco and San José. Visitors and residents automatically join
Wi-Fi Hotspot 2.0 services when entering a service area, and do not have to
connect to and sign onto a network manually. Ruckus Wireless is also engaged in
a number of municipal deployments in Australia, including those in Perth and
Brisbane.

State and municipal deployments

In late 2012 the Vermont Telecommunications Authority (VTA) received $3.1

million to extend broadband services to rural areas, affecting 2,850 locations
throughout the state. Commercial operators in the state include FairPoint and
Vermont Telephone Company (VTel). FairPoint is investing $6 million to extend
broadband to 19 rural communities, as well as $2.2 million secured from the
Connect America Fund (CAF) to extend broadband to 53 towns that without
access. VTel is meanwhile building its hybrid wireless/wireline Wireless Open
World (WOW) FttP network which will provide 1Gb/s services to over 15,000
customers across the southern part of the state.

In January 2015 New York City unveiled plans to roll out a free city-wide municipal
Wi-Fi network which would make use of up to 10,000 kiosks. The network is
expected to provide up to 1Gb/s data within a radius of 150 feet and can offer free
national VoIP calls. The first of the kiosks is expected to begin service in late 2015.

The network, dubbed LinkNYC, is to be built by the CityBridge consortium, which

includes Qualcomm and Titan (the latter operates the largest network of pay
phones in the city, an infrastructure which will be incorporated within the network
of kiosks), as well as Control Group and Comark.

The City of Minneapolis operates a free wireless network with blanket coverage
provided from 117 hotspots. The system was built and is managed by USI
Wireless.
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Satellite broadband

The principal satellite broadband providers in the US are HughesNet and ViaSat.
HughesNet has about 630,000 residential and small business subscribers,
making it the leading satellite broadband provider. ViaSat, which provides satellite
broadband services to consumers and small businesses in the USA, provides
services under its WildBlue brand to about 430,000 subscribers.

In early 2008 ViaSat contracted Space Systems/Loral, a subsidiary of Loral Space

& Communications, to build ViaSat-1, then the world’s highest capacity broadband
satellite. ViaSat-1, designed to expand the quality, capability and availability of
broadband satellite services for the US and Canada, became operational in mid
2011.

The satellite TV operator Dish Network in late 2012 was given permission by the
FCC to convert its 40MHz block of AWS-4 satellite spectrum (bought in 2011 for
$2.9 billion) for wireless use, but with power level restrictions to ensure that it
does not interfere with adjacent blocks. This restriction may jeopardize the
company’s ability to develop a mobile broadband service.

Despite these developments, satellites suffer from latency and provide

comparatively slow upload speeds, that coupled with the increasing speeds and
take-up of cable, DSL and mobile broadband mean that the platform will remain
relatively confined to rural and regional areas that are unserved or underserved by
the other platforms.

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PLC

Powerline Communication (PLC, also known as Broadband Powerline, or BPL)

technology has been relegated to niche markets such as telecom services within
smart grids. High expectations generated a decade ago have come to little, partly
the result of interference and other technical issues, as also the ubiquity and
success of mobile broadband.

■ FIBRE-TO-THE-PREMISES (FTTP)

Market analysis

Along with an increasing number of governments around the world, the US is

taking the view that a trans-sector use of broadband infrastructure is a key driver
for economic growth. This requires a first-class telecoms infrastructure – most
importantly based on Fibre-to-the-Premises (FttP) – as well as an understanding
on the part of the various sectors that they will need to use this infrastructure to
build e-health, e-learning, smart grids, smart city and other smart applications.

Many of these new applications cannot be developed according to the way their
industries have traditionally been organized. In the US, infrastructure-sharing and
PPPs with other sectors could be the most appropriate way to embark on this new
journey that will take many years to complete. From this base, other tools and
further government policies and industry strategies can be developed to take it to
the next level. The US is providing the vision for this new national purpose
development and sees the enormous social and economic benefits of such an
approach. It is currently finding its own unique way to now generate strategies
based on that vision.

It seems very likely that large parts of the country will eventually see the
development of shared FttP networks. There is very little economic benefit in
telcos, cable companies – and municipalities for that matter – each building their
own competing FttP networks. Despite interesting developments in DOCSIS3.1,
as also in DSL technologies such as VDSL vectoring and G.fast, the international

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consensus is that FttP is the infrastructure needed to develop an efficient and

effective digital economy. Wireless certainly will continue to play a key role but
this technology will be unable to shoulder the entire burden of the national digital
economy.

In 2012 Google entered the FttP arena with its launch of a 1Gb/s network in
Kansas City. Significantly, the network is operated on an open and non-
discriminatory basis, and thus it promised significant scope to harness the cross-
sectoral benefits such as e-health and smart grids. Google subsequently launched
a Google Fiber product (managed by Alphabet’s new Access business unit) in a
number of markets, and its business model has inspired a number of other
providers across the country.

However, Google Fiber soon began to scale down its fixed-line access program,
partly due to the cost of deploying fibre, though it remains active in a number of
markets.

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Market overview

Following a decade of unrealised fibre projects, by 2008 the fibre rollout plans
from the Regional Bell Operating Companies (RBOCs) were underway. The
incentive appears to have largely come from competition from the cable
companies, also known as Multiple System Operators (MSOs), who were by that
time making strong inroads into VoIP and bundled services (voice, video, data) via
their Hybrid Fibre Coax (HFC) networks.

Among the more important fibre providers in the US are AT&T, Verizon
Communications, CenturyLink, Frontier, Charter and Level 3 Communications. The
first two provide the widest footprints, while others are more regional.
CenturyLink, for example, has networks in the Midwest and the Northwest regions.
Cox Communications, Birch and Comcast, by contrast, have local operations
scattered in different markets scattered among a number of states.

Verizon adopted primarily an FttP PON deployment, whilst AT&T has

predominantly adopted a Fibre-to-the-Node (FttN) approach involving an upgrade
to ADSL2+ (in fact using two ADSL2+ lines) for new developments and in
particular large multi-development units (MDUs). In addition AT&T has some
Fibre-to-the-Curb (FttC) deployments which it obtained in the acquisition of
BellSouth.

FttP commonly supports speeds of between 100Mb/s and 1Gb/s, with the
potential to be scaled higher. Verizon and Altice USA intend to provide a 10Gb/s
service in a number of markets. In late 2010 Verizon the company sold its fixed
networks, including FiOS connections, across 14 states to Frontier
Communications. The rationale behind this was to shed low value, debt-laden
aspects of the network, particularly in areas where Verizon was expanding its LTE
infrastructure. The sale highlighted the importance of public FttP networks and of
strong government policy to encourage FttP investment, particularly in rural and
regional areas.

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While the RBOCs currently claim the lion’s share of FttP connections, Independent
Local Exchange Carriers (ILECs), Competitive Local Exchange Carriers (CLECs)
and Municipalities are playing an increasingly important role in the deployment of
fibre networks. Around 880 ILECS, ISPs, municipalities and cablecos deliver fibre
services, representing about a quarter of all FttP connections nationally.
Additionally, around 70% of small independent telephone companies that had not
already upgraded to FttP were likely to do so in future. Many fibre players have
fewer than 10,000 subscribers.

FttP network rollout

According to December 2018 data from the Fibre Broadband Association

(formerly the FttH Council), fibre connections became the second most common
connection platform in 2018, behind cable and ahead of DSL. In the US fibre
passed about 41 million premises (a 17% increase year-on-year) and there were
about 18.6 million connected premises.

The take-up rate for services is high by international standards, at more than 50%.
Commonly operators look to about 20% to 30% take up before work will begin on
rolling out on new fibre infrastructure to communities, though once the cable is in
place a greater proportion of people tend to sign up to services when the improved
experience of fibre, against DSL and cable alternatives, is understood and
broadcast. The Association has suggested that some 1,000 FttP providers in
North America expect to offer a 1Gb/s by 2020.

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Table 33 – FttP homes passed and connected – 2001 – 2018

Year Homes passed Homes connected

2001 30,000 8,000

2002 90,000 30,000

2003 185,000 70,000

2004 1,000,000 180,000

2005 2,700,000 500,000

2006 6,100,000 1,100,000

2007 9,500,000 2,100,000

2008 13,800,000 3,800,000

2009 15,300,000 5,300,000

2010 16,570,000 6,500,000

2011 18,900,000 7,700,000

2012 20,800,000 9,400,000

2013 22,100,000 9,700,000

2014 23,200,000 10,550,000

2015 26,000,000 12,330,000

2016 30,200,000 15,200,000

2017 36,000,000 17,300,000

2018 41,000,000 18,600,000

Source: BuddeComm based on Fiber Broadband Association, RVA and TIA sources

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■ POLICY AND REGULATION FRAMEWORK

National Broadband Plan

In 2004 the government released its ‘New Generation of American Innovation’

report which recognised FttP as a key technology for promoting innovation and
economic security for the country, and the benefit of high-bandwidth applications
such as telecommuting, distance learning and remote medical diagnostics. The
policy document called for economic incentives and the removal of regulatory
barriers to stimulate broadband infrastructure investment. Significantly, the
document supported the FCC decision to free FttP investments from legacy
regulations and remove barriers to new capital investments. Despite the short-
sighted nature of failing to mandate open-access networks, the policy was
designed to grant the major telcos the regulatory freedom they demanded before
investing in fibre networks. Major deployments thus started in earnest in 2005.

Despite rapidly growing fibre deployments, most notably by Verizon, the US still
lags behind many other OECD nations in terms of broadband connectivity and
speeds. Rather than first place, the US is ranked 15th in the OECD in terms of
broadband penetration.

In early 2009 Congress passed the American Recovery and Reinvestment Act,
aimed at kick-starting an economy in deep recession. Included in the fiscal
stimulus package (which broadly comprised $275 billion in tax cuts and $550
billion in government investment) was a relatively modest $6 billion for broadband
and wireless in underserved areas.

More broadly, the government has formulated policies to improve America’s

broadband penetration and speed levels. As mandated by the American Recovery
and Reinvestment Act, in early 2009 Congress directed the FCC to develop a
national broadband policy. In 2010 the FCC duly delivered its proposal for a
National Broadband Plan, which included among its goals:

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 connecting 100 million households to an affordable 100Mb/s service, by building

the world’s largest market of high-speed broadband users;

 providing affordable access in every community to ultra-high-speed broadband of

at least 1Gb/s at anchor institutions such as schools, hospitals, and military
installations.

The FCC’s subsequent Broadband Action Agenda detailed the purpose and timing
of over 60 rulemakings and proceedings recommended for action. Included in the
agenda was the creation of a Connect America Fund (CAF) to extend broadband
services to under-served and high-cost areas. Through the CAF, the FCC was able
to reform its Universal Service Fund (USF) and carrier compensation policies to
redress the disparity between the availability of broadband in urban and rural
communities.

In April 2014 the FCC committed an additional $9 billion over five years ($1.8
billion annually) to broadband by transferring subsidies from telephony services
to broadband services. The investment is aimed at enabling up to five million
residents to access broadband. Operators which are contracted to do the work
must deliver download speeds of at least 10Mb/s.

Gigabit City Challenge

Following the success of Google’s FttP offering in Kansas City, the FCC in early
2013 called for all 50 states to build at least one community offering a 1Gb/s
service. The so called ‘Gigabit City Challenge’ is aimed at encouraging broadband
providers and state and municipal officials to collaborate in developing faster
networks which would serve as hubs for innovation and drive economic growth
and competitiveness.

As part of its support, the FCC planned to hold workshops on best practices for
lowering costs and building networks.

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In tandem with municipal efforts, the GigU initiative has helped develop gigabit
networks in a number of university campuses.

■ PUBLIC (ILEC, CLEC AND MUNICIPAL) FTTP NETWORKS

Although the RBOCs surpassed all other providers’ combined fibre deployments
during 2006-2009, and account for around 70% of the FttP market, the role of
public FttP networks is likely to become increasingly important in the next five to
ten years.

Several years before the RBOC FttP deployment started, FttP networks were being
built by CLECs, ILECs and municipalities (or municipal utilities). Some of these
deployments had started before 2001. By mid-2006 ILEC and CLEC (including
CLEC combined with developers) deployments made up about 56% of all
deployments, though by mid-2008 this had fallen significantly. The share
accounted for by municipalities has stayed relatively stable at around 3% to 4%.

Municipal FttP deployments are typically undertaken when private enterprise fails
to invest in network upgrades. Most providers have relatively small networks, of
about 5,000 subscribers. In addition to network expansion, there are also new
municipal FttP networks continually coming on line. Nevertheless, there are
restrictions in some 21 states limiting or restricting such municipal FttP systems.
Thus the Community Broadband Act has been introduced into both Houses of
Congress which would pre-empt state and local laws that ban or restrict the
provision of broadband services by public entities.

Research into municipal FttP systems, commissioned by the Fiber Broadband

Association, found a number of significant community and economic benefits
from municipal FttP systems. The benefits of municipal FttP networks to local
economic development include, in particular, the enhanced ability to attract new
businesses to the community and to facilitate the expansion of existing
businesses.

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Municipalities

Community FttP networks are deployed by a number of municipalities, CLECs and

new residential developments, which lay their own fibre and build their own
communications infrastructure in order to enable their residents and businesses
to become more productive and innovative, to attract new investment into the
community, to improve employment opportunities and more generally to improve
their quality of life. Strong community support is the driver behind these projects.
Support at that level provides free marketing and promotion, a sympathetic
regulatory environment and often in-kind support from councils.

Many communities are turning to local telephone or cable companies or indeed

their local municipality to deploy FttP networks in their area. In some areas the
availability of rural broadband loan programs and stimulus funds has also
provided an incentive to providers to build FttP networks at the local level. Another
significant incentive for non-RBOCS to deploy FttP is the impressive take-up rates
of these deployments, averaging at around 50%.

In late 2012 Maine Fiber Co completed its Three Ring Binder project, a state-wide
fibre-optic backbone that will provide economic development opportunities and
will extend broadband services to a number of under-served rural communities.
The 1,100-mile network runs from York County to Calais and Presque Isle via
30,000 telephone poles. Customers include telcos such as GWI, Oxford Networks,
Axiom Technologies and Pioneer Broadband, as also the University of Maine, Mid
Coast Hospital (Brunswick) and municipalities including Scarborough and
Greenwood.

The open network enables any other enterprise to lease the cable.

In 2013 Palo Alto in California rekindled its longstanding effort to build a citywide
fiber network. In its earlier incarnation, the fiber project was viewed as a utility,
requiring low costs and few risks. To this end, the city in 2008 set up a partnership
with a consortium including by Axia Netmedia Corporation to build the $45 million

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network. This failed following the economic crash, with the city refusing to
subsidize the network at up to $5 million annually.

There is a growing trend for utilities to develop gigabit services, albeit to smaller
towns. SandyNet Fiber launched a gigabit service in Sandy, Oregon, in 2011, and
by late 2014 had covered all 4,000 premises in the town of 10,000 people. The City
of Sandy initially installed a fibre network connecting municipal buildings, given
that the local telco would not provide a DSL link and instead built a Wi-Fi mesh
network. From May 2014 the fibre infrastructure was extended to residences.
SandyNet offers 100Mb/s for $39.95 and 1Gb/s for $59.95.

In June 2015 Los Angeles City Council began the process of identifying operators
to deploy a 1Gb/s network across the city, including a free Wi-Fi service providing
data at up to 5Mb/s. A five-year time frame was considered for the network to be
completed. The City Council initiated the fibre project in July 2013, when it
assumed a project cost in the range of $3-$5 billion. To reduce engineering costs,
the chosen operator would make available physical assets such as drainage
systems, street lights and existing fibre infrastructure such as that managed by
the Los Angeles County Metropolitan Transit Authority (Metro). Given to the size
of the city, it has been divided into four zones, with bidders able to bid any of them.

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Google Fiber

The prospect for increased municipal involvement improved with Google’s launch
of 1Gb/s services, initially in Kansas City. However, despite early promise Google
has recently scaled back its gigabit program.

Subscribers have access to a 1Gb/s broadband service for $70 per month, or
broadband with TV for $120 per month. There is also an option for a free 5Mb/s
connection if subscribers pay an up-front $300 installation fee.

The second Google Fiber city was Austin, Texas (the city had narrowly lost out to
Kansa City in its earlier bid). The city was chosen partly because of its tech
communities, University and medical research hospital, all of which would benefit
from gigabit access. Google started connecting homes in mid-2014.

The third connected city was Provo, Utah, where Google acquired the municipal
fibre-optic system iProvo which had been set up in 2004 before running into
difficulties.

In March 2016 Google tried a different business model in Huntsville, Alabama,

leasing dark fibre built and owned by the electric utility.

In late 2016 Google started recalibrated its fibre deployments, guided by its parent
company Alphabet which has made management changes to Access, the unit
which runs Google Fiber.

Google indicated that fibre rollouts were too expensive (80% of the cost of
deploying fibre is taken up by labour) and that it was looking at cheaper, wireless
deployments instead, though fibre is still required for backhaul connectivity.
However, it continues to develop cheaper engineering methods for fibre including
micro-trenching. Google remains active in Kansas City (though in early 2017 it
cancelled new build-outs in some areas of the city), as well as in as Nashville,
Louisville and San Antonio.
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If Google does retreat from its fibre ambitions, the company would have left in its
wake a number of valuable benefits. Firstly, it highlighted the possibilities for
operators other than the main telcos and cablecos to be involved in delivering
fibre to urban areas, while stimulating municipal governments to get involved in
such projects. Google’s activities also prompted telcos and cablecos to reduce
pricing and expedite their own rollouts.

FCC ruling on municipal fiber networks

Many cities across the US have significant fibre infrastructures which lay dormant,
with municipal authorities not allowing networks to be used by denizens. The
reasons for this are varied, and are often associated with a lack of expertise
among municipal authorities. Yet it is also often related to the pressure on
authorities wielded by the main telcos. Operators including Comcast, Time Warner
Cable, CenturyLink and Verizon have agreements with authorities which prevent
local governments from becoming ISPs or from selling or leasing their fibre plant
to regional telcos which would compete.

An example is provided by Washington DC, where since 2006 a 100Gb/s network

has been available to non-profit organizations but not to residents. This state of
affairs dates to 1999 when Comcast threatened to cut off cable service to the city,
but agreed to provide some access to fibre infrastructure to the city for the
government’s exclusive use. In return, the city agreed not to lease or sell the fibre,
or engage in a business competing with Comcast.

Despite the efforts of the telcos, a growing number of cities value the economic
benefits of broadband: at least 90 offer fibre to residents as a publicly owned
utility. Many of these are relatively small, including Chattanooga, Tennessee,
which offers gigabit fibre to some 39,000 residents, and Wilson, North Carolina,
which offers the service to 50,000 residents.

In February 2015 the FCC ruled 3-2 against state laws in Tennessee and North
Carolina which sought to prevent community broadband networks (in

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Chattanooga, Tennessee, and Wilson, North Carolina) from broadband as a public

utility. The FCC move was an enforcement of its mandate under the 1996
Telecommunications Act which authorises it to remove barriers to the
deployment of broadband ‘in a reasonable and timely fashion’. Tennessee and
North Carolina are two of 19 states which have restrictive legislation in place
preventing municipalities from building separate broadband infrastructure to
deliver services. The new ruling allows any municipality to offer a broadband
access. Greenlight Community Broadband in Wilson and Chattanooga Gig both
offer bundled services including broadband at up to 1Gb/s.

The ruling acknowledges that many communities in rural areas have no effective
broadband service, and there a large number of others are tied to a single provider,
and so have no competitive choice for broadband. The dominance of Comcast,
Verizon, AT&T and Time Warner in their service areas has kept the cost of internet
access high and access speeds low.

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Other projects/providers

United Services, the subsidiary of United Electric Cooperative (UECI), is building

an FttP network in rural Missouri, marketed under the ‘United Fiber’ brand. In 2013
United Services contracted Entone to provide its FusionTV platform to deliver
video services over its network.

The economic development organization Gigabit Squared planned to launch an

FttP service in Seattle in 2014, with plans ranging from 5Mb/s to a symmetrical
1Gb/s option. Customers who sign a one-year contract for 100Mb/s or higher
service will have the $350 installation fee waivered. The operator’s Gigabit Seattle
program is being mirrored in a number of other cities, including Chicago.

UTOPIA, the open access FttP provider in Salt Lake City, in late 2013 reduced its
1Gb/s access price to be on a par with the $70 charged by Google Fiber. Similarly,
EPB Fiber, operating in Chattanooga, also reduced its pricing, suggesting Google’s
influence in pricing structures. Google’s approach is to find not only cities where
there was strong demand for fibre-based services but also where the local
government and citizens can commit to the network as a condition of its
construction.

C Spire, based in Mississippi has adopted the Google Fiber business model to
deliver a 1Gb/s network to parts of the state. The move is significant for
illustrating the influence of Google’s approach to developing roadmaps between
operators and municipal governments to achieve viable networks. C Spire has
invested more than $1 billion in network infrastructure since 2003, having a
network which includes more than 4,000 miles of fibre connecting some 1,800 cell
sites around the state.

Australia’s investment bank Macquarie Group planned to operate an FttP network

in Utah through its subsidiary Macquarie Capital under a public-private
partnership. The network could reach 11 cities in the state by the end of 2017.

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The move builds on the Utah Telecommunications Open Infrastructure Agency

(UTOPIA) which launched in 2002 with the aim of providing open access fibre to
16 cities. Construction began in 2004, but then stalled through capital constraints:
by early 2014 only about 10% of the infrastructure had been completed, passing
about 40%, of the 160,000 premises intended. Macquarie planned to finance and
construct the remainder of the network, then contract to operate and maintain it
through a concession agreement over the next 30 years. In Provo, Utah, Macquarie
would compete against Google Fiber.

In 2014 councils representing at least 46 local municipalities in Connecticut

(about a quarter of the total) began work on developing a gigabit network in the
state. Although Connecticut is not one of the states restricted by legislation
banning muni-broadband, the local providers (principally Comcast) are not
investing in broadband infrastructure sufficiently to meet consumer demand.

Indianola, Iowa (a suburb of Des Moines) has been furnished with gigabit access
through the municipally owned utility Indianola Municipal Utilities (IMU), which
formed a public/private partnership with Mahashka Communication Group
(MCG). Residential services were launched in January 2015.

In Maine, the town of Orono is working with the University of Maine to deploy an
open access fiber network in an area being developed as a technology park. Other
towns in the state with gigabit ambitions or deployments include Rockport, South
Portlan, Sanford and Isleboro.

The Nevada County Connected Project, launched in early 2013 with funding from
the California Advanced Services Fund (CASF) and partly modelled on Google
Fiber, provides a Gb/s service to 3,400 households and 400 businesses. The
project was opposed by Comcast, Suddenlink and Verizon Wireless. The county
also hosts the SmarterBroadband Project, required under public funding rules to
connect 25,000 underserved households with a 6Mb/s service by September
2015.

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In November 2015 the cableco Cable ONE announced plans to launch a 1Gb/s
service across more than 200 cities and towns during 2016, making it available to
the majority of its customers by the end of the year. This work is an extension to
the residential sector of the 1Gb/s service already offered to business customers.

The Colorado-based cableco WOW! at the end of 2016 launched a 1Gb/s service
(branded ‘Gigtopia’) in five markets in Alabama, Indiana; Tennessee and Michigan.
These markets represent about 10% of WOW!’s footprint. A number of additional
markets will be served during 2017, all using DOCSIS3.1 technology.

RCN, covering boroughs in New York, also launched DOCSIS3.1 in late 2016.

Altice USA offers a 1Gb/s service in a number of markets. In February 2017 it

extended the service to markets in North Carolina and Louisiana as part of
Suddenlink’s Operation GigaSpeed program.

Altice USA is planning to deliver a 10Gb/s service across its footprint between
2017 and 2022, largely using its proprietary technologies. Altice provides services
via its Suddenlink Communications and Optimum subsidiaries, both acquired in
2016. These cablecos were previously focussed on DOCSIS3.0 but will adopt FttP
rather than DOCSIS3.1 for upgraded infrastructure.

■ RBOC FTTP ROLL-OUT

Verizon

Verizon markets its high-speed fibre optic services under the brand name FiOS.
The jewel in the FiOS bundled offering is FiOS TV, launched in late 2005 and
offering hundreds of digital video channels, High-Definition (HD) programming,
VoD content, music channels, an interactive programming guide and other
features. Its upstream speeds give customers multimedia and interactive
capabilities such as sharing family videos, 3-D gaming and setting camera angles
for sporting events.

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In mid-2010 Frontier Communications, a Connecticut-based company focused on

small towns and rural areas, acquired Verizon’s wireline operations across 14
states (Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio,
Oregon, South Carolina, Washington, West Virginia, Wisconsin and parts of
northern and eastern California). The cash, share swap and debt assumption deal
valued at around $8.6 billion resulted in Verizon shareholders owning
approximately 68% of Frontier Communications’ common stock.

The deal highlighted that for certain parts of its footprint Verizon at the time did
not regard FttP as offering sufficiently high value. By contrast, the company is now
fully focussed on FttP. It had deployed FttN in some markets but customer
dissatisfaction with the service prompted Verizon to switch to FttP as the default
architecture.

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AT&T

In 2005 SBC acquired AT&T with the merged entity retaining the AT&T brand
name. The transaction combined the nation’s first (AT&T) and second (SBC) long-
distance carriers, which together controlled an estimated 37% of the market. In
allowing SBC’s acquisition of AT&T, the DOJ required divestiture (through 10-year
indefeasible rights of use) of AT&T’s interest in fibre serving certain specified
commercial buildings where both companies were the only facilities-based
providers.

In late 2004 the then SBC announced that it would invest up to $6 billion in building
fibre networks to reach around half of its 13-state footprint. In 2007 AT&T revised
its capex estimate to $6.7 billion to be spent by 2008.

In late 2006 AT&T bought BellSouth Corp for $67 billion, giving AT&T an additional
21.5 million access lines (of which about 14 million were residential). The
combined carrier at the time accounted for some 71 million access lines, about
half the lines in the US. With 9.8 million combined DSL lines, the new company
became the largest provider of broadband in the US, ahead of Comcast’s 8.5
million subscribers. Significantly, the acquisition gave AT&T an enormous
footprint into which it could build its fibre network.

AT&T’s fibre deployment strategy was initially to use primarily FttN and FttC
technology for developed areas and FttP for new developments and multiple
tenant dwellings. FttN brings fibre to a node less than 5,000 feet from homes and
uses advanced forms of DSL and data compression to maximise the capacity of
the remaining copper lines. For large MDUs AT&T has been upgrading to paired
ADSL2+ i.e. using two copper pairs.

AT&T’s decision to use FttN was guided by the significantly lower per-subscriber
investment than the FttP strategy adopted by Verizon. Consequently, AT&T’s
costs per home were about one-fifth those of Verizon’s. The company launched
commercial U-verse services (the brand of services delivered over Project

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Lightspeed) in mid-2006 and by mid-2007 it had more of its footprint covered by

state franchises than Verizon.

Between 2013 and 2016 AT&T invested some $14 billion in its LTE and U-Verse
network ($8 billion on wireless and $6 billion on wireline initiatives). Project VIP
was aimed at providing up to 75Mb/s on its U-Verse network and expanding
network coverage to 75% of customer locations. It was expected that the
remaining 25% of customers would be connected through LTE, though the latter
is much more expensive for customers and has far lower data caps than do DSL
deals. As with Verizon, AT&T is investing in its IP network (U-verse) rather than
DSL and is by switching to an IP network is looking to decommission its copper
network.

More recently, AT&T has migrated from FttN to FttP, understanding that its FttP
investments will service its needs for decades to come. It has extended its fibre
footprint to some 100 cities, including 21 major metropolitan areas, and in the
process has decommissioned DSL services. As with Google Fiber, AT&T has
relied on interest from local communities to gauge which will become candidate
cities. In late 2016 AT&T rebranded its fibre-based GigaPower service to AT&T
Fiber.

In November 2015 AT&T began extending its 1Gb/s service to 23 additional cities,
including the large metro markets of Houston, Miami, Nashville, and Orlando. As
of February 2017 AT&T’s 1Gb/s service covered 51 major metro areas nationwide.
These developments form part of AT&T’s bid to deliver FttP to 12.9 million
premises by mid-2019 (which was one of the conditions agreed with the FCC to
gain approval of its acquisition of DirecTV). AT&T markets a 1Gb/s service to
nearly four million premises, of which more than 650,000 are apartments and
condo units. About a third of customers take up the 1Gb/s service where offered
while more than half take a service tire of at least 100Mb/s.

For AT&T, the move to IP eliminates the cost of maintaining a copper network
which provides diminishing revenue while enabling it to streamline its network and
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reduce the overheads and complexities of managing multiple applications and

networks. Its conviction that LTE can serve as a replacement for fixed-line
broadband in rural regions is materialising as fact, since the company does not
intend supporting the wireless (LTE) strategy in these regions while maintaining
its copper infrastructure. The move presents a number of potential regulatory
hurdles, as well as inconveniences for customers and other operators which
currently rely on AT&T’s infrastructure.

More than four million consumers connected to its fibre network. About a third of
these customers take the top-tier 1Gb/s service, while more than half take a
service of 100Mb/s or higher.

Table 34 – AT&T wireline operational data – 2013 – 2018

Year U-verse Fibre broadband DSL broadband

Subscribers (thousand)

2013 5,442 10,375 6,047

2014 5,920 11,383 3,059

2015 5,614 12,356 1,930

2016 4,253 12,888 1,291

2017 3,631 13,462 888

2018 (Sep) 3,669 13,723 718

Source: BuddeComm based on company data

Note: Data from 2014 is for the new Entertainment Group.

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Chart 9 – AT&T wireline operational data – 2013 – 2018

Source: BuddeComm based on company data

Note: Data from 2014 is for the new Entertainment Group.

In addition to its fibre and G.fast efforts, AT&T operates its Project AirGig, aimed
at offering multi-gigabit wireless services along power lines. The technology has
urban and rural applications, but would be particularly useful in service remote
sites which cannot be covered with conventional fixed and wireless technologies.
The service utilises plastic antennae and devices placed along the power line to
boost millimetre wave signals.

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CenturyLink

Qwest International provided local telecom services in 14 western states. In early

2011 the operator was bought by CenturyTel in a stock-for-stock transaction. The
deal represented a continuation of a trend of consolidation among rural telephone
companies and comes two years after CenturyTel purchased Embarq
Telecommunications, the wireline spin-off from Sprint Nextel, in a deal valued at
$11.6 billion. The company’s wholesale segment operates more than 15,500 fiber-
connected towers. It operates a domestic fibre network running to some 250,000
miles as well as a 300,000 mile international transport network.

The company’s first fibre deployment, an FttP network built in a mixed-use

greenfield housing development in Denver, was in 2005. It then developed a
combination of FttP in partnership with new or ‘greenfield’ housing developers and
FttN to less densely populated areas. CenturyLink offers a 1Gb/s service in a
number of areas.

By mid-2015, CenturyLink extended symmetrical 1Gb/s services to parts of Iowa,

Idaho, North Carolina, Ohio and Wisconsin, taking the number of states covered
by the service to 17.

CenturyLink in late 2016 sold its 59 data centres and also acquired Level 3
Communications, deals which were expected to be completed by the third quarter
of 2017. Level 3 Communications, based in Colorado, provides core transport, IP,
voice, video, and content delivery for medium-to-large internet carriers in North
and South America as well as in Europe, and a number of cities in Asia. The merger
deal was valued at around $34 billion, including debt. The transaction will see
CenturyLink shareholders own 51% of the combined entity and Level 3
shareholders the remaining 49%. The deal will enable CenturyLink to provide its
customers with Level 3’s international access network which reaches to more
than 60 countries. The

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The company reported a 2.4% fall in revenue for 2016, year-on-year, while net
income fell 14.5%. The decline in revenue was attributed to lower voice traffic and
data services revenues among low-bandwidth users.

Table 35 – CenturyLink financial data – 2015 – 2017

Year Revenue Operating income Net income

$ (million)

2015 17,900 2,605 878

2016 17,470 2,333 626

2017 17,656 2,009 1,389

Source: BuddeComm based on company data

Table 36 – CenturyLink subscribers by platform – 2015 – 2018

Year Broadband Access lines TV

Thousand

2015 6,048 11,748 285

2016 5,945 11,090 325

2017 5,662 10,282 -

2018 (Sep) 4,843 - -

Source: BuddeComm based on company data

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Cincinnati Bell

Cincinnati Bell is looking to fibre in its consumer and business markets to drive
revenue in coming years. Since 2010 the company has built FttP networks under
the Fioptics brand name, mainly in Cincinnati and parts of Kentucky. The Fioptics
network provides data at speeds ranging from 5Mb/s to 100Mb/s, with 20Mb/s
being the most population among customers. The network can be scaled up to
provide 1Gb/s services.

The company’s investment in Fioptics since 2014 has resulted in a turnaround in

revenue, which increased 22% in 2017, year-on-year. By September 2018 FttP
services were available to about 56% of Greater Cincinnati.

Table 37 – Cincinnati Bell Fioptics revenue – 2012 - 2017

Year Revenue ($ million)

2012 68.2

2013 100.8

2014 142.4

2015 190.8

2016 254.1

2017 309.8

Source: BuddeComm based on company data

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Table 38 – Cincinnati Bell Fioptics subscribers – 2012 – 2018

Year Broadband Entertainment Voice

2012 56,800 55,100 40,800

2013 79,900 74,200 53,300

2014 113,700 91,400 61,000

2015 153,700 114,400 77,400

2016 197,600 137,600 96,200

2017 226,600 146,500 105,900

2018 (Sep) 237,000 142,000 107,000

Source: BuddeComm based on company data

Comcast

Comcast in April 2015 extended its Gigabit Pro 2Gb/s service in Florida to 1.3
million customers in the Miami, Fort Lauderdale, West Palm and Jacksonville
areas. It had already launched the service in Atlanta and California.

Comcast also plans to offer multi-gigabit broadband through its Xfinity

Communities program, which serves residents living in multi-dwelling units such
as apartment complexes.

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Altice USA

Altice USA, which has concentrated on cable broadband solutions, began a five-
year investment program in late 2017 to deploy fibre across its Cablevision and
Suddenlink footprint. The service is based on GPON technology and is rendered
more cost effective by using aerial rather than underground cabling.

By the end of 2017 the company had four ‘Gig Cities’ in Suddenlink’s service area:
Batesville and El Dorado (Arkansas), Maryville (Missouri) and Conroe (Texas). A
gigabit FttP network was also launched on Long Island in December 2018.

Note: all dollar amounts are US$ unless otherwise stated.

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Digital economy
■ E-ENTERTAINMENT

Online entertainment in North America continues to grow rapidly, both in terms of

choice of online entertainment available and in terms of numbers of users. The
popularity of online social games found on Facebook and other social media
platforms continue to increase dramatically.

Online gambling is also rapidly growing. In the US, the Unlawful Internet Gambling
Enforcement Act 2006 renders it illegal to gamble in states where it is prohibited
and for financial institutions to transfer money to businesses or individuals that
may conduct gambling operations in these states. In 2010, however, the House
Committee on Financial Services approved the Internet Gambling Regulation and
Consumer Protection and Enforcement Act. This effectively legalised online poker
and online casino games including blackjack, slots, table games and other non-
sports betting. The Congressional Joint Committee of Taxation estimated that
regulated online gambling could generate as much as $42 billion in revenue over
the first ten years of the Act’s implementation.

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■ E-HEALTH

The Obama administration used the 2009 economic stimulus package to drive e-
health reform. About 2% of the total stimulus package was earmarked for e-health,
the legislation for which is known as the Health Information Technology for
Economic and Clinical Health Act (HITECH). The Act establishes within the
Department of Health and Human Services a new Office of the National
Coordinator for Health Information Technology, with the aim of providing
incentives to doctors, hospitals, insurers and the government to use electronic
formats for health information, as well as moving every US citizen across to
electronic health records by 2014. New regulations regarding health data security
and the consequences for breaches of health care information regulations came
into effect in late 2009.

The development of employee personal health record systems provides another

illustration of the types of developments in e-health. Thus in 2008 Wal-Mart
became the first member of the Dossia employer-coalition to offer the
consortium’s personal health record (PHR) system to employees. Non-profit
organisation Dossia was launched in 2006 by Wal-Mart, Intel and other large
employers as a secure, Web-based platform providing patient-controlled,
electronic PHRs to more than 2.5 million workers, retirees and their dependents.
In mid-2009 Wal-Mart began offering an e-health package comprising hardware,
software, installation, maintenance and training for under $25,000, thereby
bringing e-health patient record technology to physicians in small practices. Many
other companies, including Google and Revolution Health, continue to explore
other wide-ranging e-Health initiatives where health and communications
technology meet.

In spite of difficulties many practices have had in finding and implementing the
most effective electronic health records (EHR) software for their business, a
growing number of physicians in the US are recognising the value of e-health and
switching from paper records to EHR. A 2011 report found that 55% of primary
care physicians in California used EHRs. Yet this is above the national average: a

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2012 study by the Commonwealth Fund found that US primary care doctors still
lag behind most other developed nations in their adoption of EMR, with fewer than
half actively using EMR despite the government having injected money to
implement medical records systems. The federal HER Program is managed by the
Office of the National Coordinator for Information Technology (ONC), created in
2004 by the Bush Administration but without having a significant impact until a
2009 Act granted $2 billion to create the Nationwide Health Information Network.
Since then, the adoption of health IT by US doctors has developed rapidly, largely
due to ONC initiatives such as the Medicare and Medicaid EHR Incentive
Programs. These enable eligible doctors to receive up to $44,000 in incentive
payments and hospitals to receive base payments of $2 million annually.

The total cost for the EMR incentive program over the next decade is estimated
at $22.5 billion, with EHR incentive payments of about $14.6 billion made by May
2013 to healthcare professionals and hospitals which have deployed EHRs. There
were about 395,000 eligible hospital providers out of a pool of about 532,000.

The question of how information technologies can improve the delivery of health
services, such as the use of electronic health records, remote medical monitoring
and technologies for alerting patients about GP/hospital appointments,
prescriptions and test results, is increasingly being explored.

A 2016 report by Grand View Research suggested that the e-health market could
reach $2.8 billion by 2022, with growth stimulated by increasing access to
healthcare supported by early detection and diagnosis. Demographic shifts will
also increase the use of e-health services, with the rising demand for self care and
independent living going hand-in-glove with a rising geriatric population requiring
round-the-clock monitoring in homes.

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■ E-GOVERNMENT

The US has had a well-developed e-government strategy since 2001. Its basic
principles include reforming government to make it citizen-centred, results-
oriented and market-based.

The day after his inauguration, President Obama issued an open government
directive calling on his chief technology officer (CTO) to coordinate a plan with
the various agencies within four months making the mechanics of Washington
more transparent, participatory and collaborative. This open government initiative
aimed to provide greater impetus to the development of e-government in general.

The primary vehicle for accomplishing President Obama’s open government goal
was the internet. In 2009 the government opened a section of its official site,
WhiteHouse.gov/Open. The Obama administration also created several other
sites including recovery.gov to track the economic stimulus bill and
transparency.gov to monitor spending. Furthermore it established data.gov, a site
which is aimed to make a wide range of US government data available to the
public.

The main objective underpinning the establishment of an open government

directive was to ensure that the notion of an IT-enabled open government is not
tethered to a particular administration or agency head. Rather, the OGD aimed to
affect a more fundamental shift where transparency becomes the standard way
of doing business in Washington.

In late 2009 the White House issued its Open Government Directive (OGD),
requiring federal agencies to ‘take immediate, specific steps to achieve key
milestones in transparency, participation, and collaboration.’ Such key milestones
included, for example, the requirement to post an Open Government webpage, as
well as the requirement to publish three new high-value datasets on Data.gov.
Another key milestone requires that each Open Government webpage include a
mechanism whereby the general public may engage with federal agencies by way

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of feedback or providing input into the creation of the agency’s Open Government
Plan.

A report released in early 2011 by the Congressional Research Service in which it

assessed the effectiveness of the administration’s transparency initiatives, stated
that although each executive branch agency had met the deadlines set down in
the 2009 OGD, they had done so with varying degrees of success. While some
government agencies had gone ‘above and beyond the requirements’ set out,
others fell short by, for example, establishing agency websites but providing
limited information on them.

Although the OGD is still in the early stages of implementation, generally speaking
it holds great promise for a new era of e-government that enables a more
participatory and accountable federal system.

■ E-EDUCATION

While the dot-com bust dampened some of the bold online education ventures
founded in the late 1990s, in recent years many North American educational
institutions have been aggressively entering into the online education sector.
Accordingly, in the past 10 years, there has been substantial growth in the North
American E-Education sector, with online learning growing at an average rate of
approximately 30% per annum.

The popularity of e-education is expected to increase over the coming years, with
the number of post-secondary students taking some classes online having
increased by more than 12% between 2010 and 2015. Conversely, the number of
students attending traditional classrooms exclusively fell by 20% over the period.
Perhaps more significantly, the number of students taking classes exclusively
online increased 24% between 2010 and 2015. At such rates, there is likely to be
more full time online students than exclusively classroom students by 2018.

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Online education is also making inroads in schools, with one million US

elementary and high school students, or some 4% of the total, learning online.
Some students take remedial or advanced placement courses not available at
their schools, and some are being home-schooled or live in isolated rural areas.

As with other online service sectors, the deployment of broadband networks, such
as the expanding FttP network, will continue to underpin growth in e-education
and will in particular benefit rural and remote communities by improving their
access to education. In addition, government policy will continue to influence e-
education.

■ E-COMMERCE

The increasing popularity of social media, that is of social networking sites, blogs
and other user-generated sites is influencing the content delivery and navigation
patterns of users. Specifically, users of social media are increasingly researching
online to purchase products, often via what is commonly regarded as trustworthy
sources including blogs, message boards and review sites. It is likely that this shift
in navigation patterns and the accompanying increased trust in social media
sources of product information will lead to a greater inclination amongst social
media users to engage in e-commerce. Retailers and companies in turn are
beginning to make strategic use of the features and tools specific to social media
sites, prompting media analysts to talk of an imminent ‘social commerce
revolution’.

Online retail sales remain a fraction of total sales, though the proportion to total
sales is growing annually. The leading players include Groupon, Gilt Groupe,
LivingSocial, Rue La La, HauteLook and Beyond the Rack.

According to data from the Census Bureau of the Department of Commerce,

estimated retail e-commerce sales for the second quarter of 2015 grew 4.2%
quarter-on-quarter to $83.9 billion. Total retail sales for the quarter were
estimated at $1,171.5 billion (a 1.6% increase quarter-on-quarter). Year-on-year e-

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commerce growth was 14.1% while total retail sales grew by only 1%. E-commerce
sales in the second quarter thus accounted for 7.2% of total sales, compared to
5.8% at the end of 2014. It is expected that e-commerce sales growth will continue
at about 12-13% annually to 2018, reaching about 9% of total sales by then. By
contrast, physical sales are expected to have grown by only 3-3.5% annually to
2018.

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Digital media
■ VIDEOSTREAMING

The US market is at the forefront of global videostreaming developments, with

operators such as Netflix being pioneers in the genre and having given rise to a
plethora of similar OTT operators. Most have adopted a similar strategy of
securing content from studios and other providers and selling services at
affordable prices. Profits are made by undercutting rivals, particularly the
established cable pay TV and satellite TV operators, and so developing sustained
customer growth.

In the US, videostreaming was inaugurated in 1995 when ESPN SportsZone

streamed a live radio broadcast of a baseball game using technology developed
by Progressive Networks (later renamed as RealNetworks). The difficulty in these
early days was the lack of infrastructure, with broadband unavailable and
operators such as Microsoft and RealNetworks having to cope with slow
networks and modems.

A range of technologies and protocols were developed to cope with bandwidth

limitations, including Content Delivery Networks (CDNs), Microsoft’s Smooth
Streaming (2008), and Netflix’s own Watch Instantly streaming service (also
2008). Standardisation began to take shape from 2010 under the auspices of
3GPP, resulting in the Dynamic Adaptive Streaming over HTTP standard being
adopted in 2012 (MPEF-DASH).

Netflix traffic has also grown as a result of interconnection agreements which the
company signed with a number of ISPs in 2014. Adaptive bitrate streaming and
Netflix’s calibration were tuned to available bandwidth, and when bandwidth was
increased following the interconnect agreements the bitrates were automatically
raised. This improved connections and with it video streaming quality, resulting in
a surge in Netflix traffic to fill up newly available bandwidth.
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The main alternative operators include Hulu, Amazon Prime, iTunes, HBO Go and
XFINITY.

Amazon has invested considerably in its video infrastructure during the last two
years. The company offers two solutions for its streaming service – Fire TV and
the Fire TV Stick. Fire TV, a separately sold console, includes dual-band, dual-
antenna Wi-Fi and supports a range of apps including Netflix, iheartradio,
Showtime, Hulu, WatchESPN, MLB, Crackle, NBA, YouTube and others. Amazon’s
SVoD subscriber may increase from 30 million in 2015 to 49 million by 2021.

Several studies in recent years have pointed to the extent to which consumers are
choosing to subscribe to streaming services rather than traditional cable services.
The number of subscribers to streaming services increased 68% in 2016, year-on-
year, pushing the number of subscribers to the same level as the number of pay
TV subscribers for the first time, and reflecting the shift in consumption habits
(particularly among millennials).

Data from eMarketer suggested that the number of cord-cutters (those who have
cancelled a pay-TV service) could have increased 33% in 2018, reaching 33
million. In all, about 187 million adults subscribed to pay TV services at the end of
2018, down about 4% year-on-year. In response to this shift, many of the major
providers (Charter, Comcast, Dish) have imbedded ways to integrate with Netflix
through partnerships though this is likely to slow the decline rather than arrest it.

The popularity of streaming services has also been pushed by customer

dissatisfaction with pay TV. A 2017 Parks Associates report, TV Services:
Changing the Channel Package, found that 20% of US pay TV subscribers were
dissatisfied with their pay-TV service (up from 10% in 2013). Only a third of pay
TV subscribers were very satisfied with their service, compared to 57% in 2013.

Leichtman Research Group (LRG) in late 2018 found that 69% of US households
had an SVoD service from Netflix, Amazon Prime, or Hulu (compared to 52% in

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2015), and of these about 63% subscribed to more than one service (compared to
38% in 2015).

■ MUSIC STREAMING

The digital music market was revolutionised with Apple’s iTunes Music Store,
launched in 2003. For the industry, the market was further transformed by the
founding of SoundExchange as a non profit performance rights organisation.
SoundExchange collects and distributes royalties on behalf of sound recording
copyright owners (SRCOs, or record labels).

By early 2015 digital music distribution accounted for more than 70% of music
revenue in the US, compared to about 21% for CDs. According to data from the
Recording Industry Association of America, revenue from digital downloads fell
8.7% to $2.58 billion in 2014, though this was offset by the growth from streaming
services. Total digitally distributed formats grew 3.2% in the year to $4.51 billion,
accounting for 66% of the market by retail value. Sales of digital albums fell 6.6%
in the year while sales of individual tracks fell 10.1%.

Revenue from streaming music services grew 29% in 2014, to $1.87 billion,
accounting for 27% of total industry revenue. Streaming music includes
subscription services (such as Rhapsody and Spotify, as well as streaming radio
distributed by SoundExchange and non-subscription on-demand streaming
services (such as YouTube and Vevo).

Digital albums accounted for 45% of the market for music downloads in 2014.
Total streaming revenue, including revenue from subscription-based and ad-
supported on-demand services as well as non-interactive online radio services,
grew 28% in 2014 to $860 million. In the same period CD sales fell to $719 million.

Music industry revenue has become more balanced as the emphasis shifts from
physical to digital download and streaming. Between 2008 and 2013 revenue from
downloads grew 54% while revenue from subscription streaming grew 367% and

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revenue from ad-supported streaming grew 293%. At the same time, revenue from
physicals shrunk dramatically, and now no longer dominated the overall revenue
mix.

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Mobile communications
■ MARKET ANALYSIS

The US mobile sector has shown considerable growth in recent years, with
penetration reaching about 127% by the end of 2018. There are four national
mobile carriers: AT&T Mobility, Verizon Wireless, Sprint Corporation and T-Mobile
US. AT&T Mobility and Verizon Wireless between them control about 70% of the
market by subscribers. The remaining 30% is split among other carriers, including
T-Mobile US, C Spire, US Cellular and the MVNO TracFone.

Some sector consolidation over recent years has been successful, while a number
of high-profile deals have been thwarted by regulators. In early 2011 AT&T sought
to acquire T-Mobile US from Deutsche Telecom for $39 billion (with Deutsche
Telekom to receive $25 billion in cash and $14 billion in AT&T shares): the deal
would have cemented AT&T’s position as the dominant wireless provider in the
country, with the acquisition of a further 33 million subscribers. It was opposed
by Sprint, the Federal Communications Commission (FCC) and the Department of
Justice (DoJ) on competition grounds. AT&T withdrew its bid, with the result that
T-Mobile received $3 billion in cash and $1 billion in other assets as
compensation: assets included spectrum licences in 128 markets in the
Advanced Wireless Service band (AWS).

Since then, T-Mobile US has shown considerable resurgence in the market,

particularly following its merger with MetroPCS and its launch of popular data
plans. In late-2018 T-Mobile US secured shareholder and regulatory approval to
merge with Sprint.

Competition between the main carriers remains relatively strong, with the FCC and
the industry association CTIA estimating that around 97% of the population lives
in areas served by at least three mobile carriers, compared to 88% in 2000. Pricing

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pressure is expected to increase as major operators continue to battle for market

share.

In recent years the focus among MNOs has shifted to LTE and 5G technologies.
Spectrum auctions since 2014 have helped operators improve their network
capabilities, a process which was supported following the February 2017 auction
of spectrum in the 600MHz band. As a result, LTE population coverage has
reached 97% among some carriers. In addition there are deployments of LTE-U
technologies, using unlicensed spectrum in conjunction with operators’ existing
concessions, while in May 2017 AT&T launched services based on LTE-M
technology. US carriers are among the most advanced in the world in preparing
for services based on the 5G standard, with wide-spread deployments expected
from several operators during 2019 as devices become more readily available to
consumers.

Investment in mobile networks aimed at keeping pace with consumer demand for
data requires considerable upgrades to fiber backhaul. This is mainly because
most traffic, up to 80%, is sent from the home or office and is offloaded onto Wi-
Fi networks rather than being carried on mobile networks. To keep pace with
demand, backhaul between a cell tower and the wired internet will need to cope
with far higher traffic volumes in coming years, particularly after 2020 when the
number of devices connected to 5G networks will grow rapidly. The wireless
industry association CTIA estimated that by 2022 a quarter of US mobile
subscriptions will be on 5G networks.

■ MOBILE STATISTICS

General statistics

The US has one of the largest mobile markets in the world, at an estimated 406
million subscribers as of the end of 2018. This equates to a population
penetration of about 127%.

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Table 39 – Mobile market revenue, roaming revenue, ARPU – 2000 – 2017

Year Revenue Monthly ARPU ($) Cell sites
($ billion)

2000 52.4 45.15 81,700

2001 65.3 45.56 104,400

2002 76.5 47.42 127,500

2003 87.6 49.46 139,300

2004 102.1 50.64 163,000

2005 113.5 49.98 178,000

2006 125.4 49.30 197,500

2007 138.8 49.94 213,300

2008 148.0 48.54 242,100

2009 152.5 49.04 247,080

2010 159.9 47.36 253,080

2011 169.7 46.11 283,300

2012 185.0 48.99 301,780

2013 189.2 48.79 304,360

2014 187.8 46.64 298,000

2015 191.95 44.65 307,620

2016 188.52 41.50 308,330

2017 179.09 38.66 323,450

Source: BuddeComm based on CTIA data

Mobile industry revenue declined in both 2016 and 2017 as the market responded
to competitive pressure on pricing despite the steady rise in the number of
subscribers and the considerable growth in mobile data traffic.

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Table 40 – Mobile subscribers and penetration – 2002 – 2019

Year Subscribers (million) Penetration

2002 139.2 49%

2003 155.2 55%

2004 179.0 62%

2005 207.8 68%

2006 233.0 76%

2007 254.8 82%

2008 270.4 87%

2009 285.6 88%

2010 302.8 91%

2011 313.4 96%

2012 326.48 102%

2013 335.65 104.3%

2014 355.4 111.9%

2015 382.3 119.5%

2016 395.88 122.8%

2017 402.6 124.8%

2018 (e) 406.2 126.7%

2019 (e) 410.3 129.7%

Source: BuddeComm based on CTIA and industry data

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Chart 10 – Mobile subscribers and penetration – 2002 – 2019

Source: BuddeComm based on CTIA and industry data

Mobile voice

Table 41 – Mobile voice traffic – 2012 – 2018

Year Trillion minutes

2012 2.30

2013 2.618

2014 2.455

2015 2.55

2016 2.62

2017 2.18

2018 (e) 2.22

Source: BuddeComm based on CITA data

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Voice-over-LTE (VoLTE)
With LTE available to about 97% of the population, operators have had to embrace
mobile VoIP as a core mobile data service.

VoLTE turns voice calls into digital packets which are sent over LTE networks.
Since there is more bandwidth for calls, there is higher quality sound (seven
octaves against four octaves on circuit-switched 3G networks).

All the major carriers are using the same standard for VoLTE, and thus work
together to make sure customers can make VoLTE calls across networks.

MetroPCS first launched a commercial VoLTE service at the end of 2012 and has
since extended the service to all 14 of its markets.

T-Mobile US trialled VoLTE services in May 2014 and launched services in Seattle
in mid-2015. VoLTE was deployed across its entire network by the end of the year.
It uses Enhanced Single Radio Voice Call Continuity (eSRVCC) technology, part of
the LTE-Advanced set of standards. This initially was intended to ensure that calls
did not get dropped when users moved into areas which were not supported by
LTE.

Verizon Wireless pushed back its launch of VoLTE to August 2014, two years after
its initial launch date. The delay coincided with outages in its LTE network at the
end of 2011, prompting the operator to install more Diameter router signalling
capability. From 2016 Verizon will begin shipping phones that rely solely on LTE
for voice calling. The 3G infrastructure is expected to close by 2020 or shortly
after, by which time all the handsets sold will be VoLTE-only.

Verizon Wireless in December 2015 also turned on Wi-Fi calling (VoWi-Fi) for
devices. This followed a similar move by AT&T. Sprint and T-Mobile have
supported VoWi-Fi since early 2015.

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Mobile data

According to data from the CTIA, the amounted of mobile data sent in 2015
increased 14% year-on-year, driven by the large number of smartphones and
tablets in use.

Table 42 – Mobile data traffic – 2011 – 2017

Year Annual Monthly

MB (billion)

2011 867 70

2012 1,468 122

2013 3,230 269

2014 4,060 338

2015 9,650 804

2016 13,719 1,430

2017 15,675 1,650

Source: BuddeComm based on CTIA data

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Table 43 – Mobile data-only devices in use – 2013 – 2017

Year Devices (million)

2013 51.1

2014 68.2

2015 85.7

2016 105.7

2017 126.4

Source: BuddeComm based on CTIA data

SMS and MMS

Non-voice messaging systems employed over mobile networks include text or
SMS messaging, mobile instant messaging (MIM), multi-media messaging
services (MMS) and mobile email services.

The use of SMS has become increasingly population since operators generally
include a large number of free messages within monthly plans.

The CTIA reported that the number of SMS began to fall in 2012 (by 4.9% in the
year alone), largely attributed to the popularity of OTT messaging services
including WhatsApp, Viber and Skype, as also to social media messaging
services. The number of MMS sent has continued to grow, generally because
some of these OTT services are less capable of multimedia.

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Table 44 – Messaging traffic (SMS, MMS) – 2005 – 2018

Year SMS MMS

Billion

2005 81 1

2006 159 3

2007 363 6

2008 1,005 15

2009 1,563 35

2010 2,052 57

2011 2,304 53

2012 2,190 74.4

2013 1,910 96.1

2014 1,920 152.0

2015 1,890 218.5

2016 1,660 240.0

2017 (e) 1,570 246.0

2018 (e) 1,480 254.0

Source: BuddeComm based on industry and CITA data

Mobile broadband

The FCC in its 2018 Broadband Progress Report noted that only 1% of the
population (1.68 million) had no access to mobile broadband via LTE networks,
however 53% (171 million) did not have access to LTE services providing data of
at least 10Mb/s.

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Table 45 – Active mobile broadband subscribers and penetration – 2008 – 2018

Year Subscribers (million) Penetration

2008 26.5 8.7%

2009 123.7 40.4%

2010 187.5 60.7%

2011 242.5 78.0%

2012 282.9 90.3%

2013 313.6 99.4%

2014 331.3 104.3%

2015 375.5 117.3%

2016 409.1 127.0%

2017 431.2 132.9%

2018 (e) 442.5 136.3%

Source: BuddeComm based on ITU and FCC data

Chart 11 – Active mobile broadband subscribers and penetration – 2008 – 2018

Source: BuddeComm based on ITU and FCC data

Table 46 – LTE mobile broadband coverage broadband subscribers and penetration – 2012
– 2016

Year Subscribers (million) Penetration

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2012 281.3 89.8%

2013 308.5 99.8%

2014 315.5 99.2%

2015 318.9 99.6%

2016 321.3 99.6%

Source: BuddeComm based on FCC data

Note: Data relates to a service of at least 5Mb/s

Forecasts – mobile subscribers – 2019; 2020; 2022

During the next few years the number of subscribers is expected to continue to
grow, albeit at a slower pace in line with higher market penetration. Growth will be
supported by the popularity of mobile data applications and services, such as
mobile TV and mobile music subscription services. The improved ease of use of
m-payment platforms will also mobile use. In particular, from 2019 the launch of
services based on 5G will help to increase mobile data use and will enable millions
of devices to be connected.

Table 47 – Forecast mobile subscribers – 2019; 2021; 2023

Year Subscribers (million)

2019 (e) 410

2021 (f) 419

2023 (f) 430

Source: BuddeComm, forecasts

■ REGULATORY ISSUES

In late 2012 the FCC conducted auctions to fund a number of projects aimed at
boosting mobile phone coverage in rural areas. Projects include providing mobile
coverage to up to 83,000 miles of highway. The government contributed $300
million from Universal Service Program funds, with winning bidders required to
complete their assigned projects within three years and to make roaming facilities
on their networks available to other providers.

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The FCC expected that its contributions would be partly matched by the private
sector. An additional $50 million has been provided for Tribal Lands, as well as
$500 million annually to support mobile services in Phase II of the Mobility Fund
(also to be derived from the Universal Service Program).

Public Safety Network

One of the key aims of the wireless broadband plan in the new stimulus package
concerned the public safety network.

The plan includes reallocating the D Block for public safety (costing $3 billion) and
allocating $7 billion to support the deployment of this network, along with
technological developments to tailor the network to meet public safety
requirements. This is part of a broader deficit-reducing wireless initiative that
would free up public and private spectrum and enable the private sector to deploy
high-speed wireless services to at least 98% of Americans, even those living in
remote rural and farming communities. In addition, freeing up spectrum from the
private sector through voluntary incentive auctions would raise money to pay for
these investments in public safety and also reduce the deficit.

The lower 700MHz band includes the public safety broadband block (PSB) and
the adjacent D Block. The original 2006-2007 plan, sponsored by Frontline
Wireless, was to combine the two operationally. The operator (only Frontline was
really a contender) would run the network for public safety agencies and
simultaneously provide wholesale commercial services to MVNOs. The
commercial share of capacity would be capped in normal circumstances at
around half, but in emergencies it would be lowered to around a quarter, giving
PSB users more access. This would have worked. The focus was not on
commercial designs, but on giving PSB users what they needed, which is more
reliability under certain failure modes.

The FCC then wanted to auction off the D block, expecting Frontline to bid for it.
The terms, however, were unbalanced, requiring Frontline to pay for the licence

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up-front and to then negotiate with the PSB licensee, the Public Safety Spectrum
Trust (PSST).

The PSST had no downside risk if the negotiations failed, while Frontline would
lose its money. Frontline could not accept these and other terms, so it withdrew
at the last minute – although the FCC later in 2008 issued a Second and Third
Further Notice of Proposed Rulemaking which re-examined options for achieving
an interoperable national public safety network, the D Block was never re-
auctioned and remains unlicensed.

Following the auction failure, the FCC received predictable responses. T-Mobile
and other carriers wanted the D block to be auctioned without letting Verizon and
AT&T buy it. However, the incumbents wanted to give the entire spectrum to
Public Safety, or to let them buy it and run it, but they did not want the FCC to
reserve it for small players or newcomers such as Frontline.

Since then the FCC gave advance licences to some public safety agencies (states,
cities) to start building their own LTE networks for public safety broadband. So
the Administration’s latest plan seems to cancel the whole D block concept and
simply expand the PSB to include the D block, so the public safety agencies will
have generous reserved spectrum, and no newcomers will be allowed this
‘beachfront’ (good for longer ranges) spectrum.

In early 2011 the FCC adopted a Third Report and Order which codified the use of
LTE for public safety broadband spectrum, while a Fourth Further Notice of
Proposed Rulemaking considered additional technical rules for the public safety
broadband network. In early 2012 the Public Safety Spectrum Act detailed the
development of the long-awaited network, and altered the regulatory landscape
for the 700MHz band to allow it to be used for the public safety broadband
network. The Act also established FirstNet as an independent authority within the
National Telecommunications and Information Administration (NTIA), and
required the FCC to license FirstNet to use existing public safety broadband

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spectrum as well as the adjacent D Block, which has been reallocated for public
safety use.

Mobile Number Portability (MNP)

It is not yet possible for subscribers to port a number to any wireless or wireline
provider, and so there is no nationwide number portability facility. To help address
this the FCC in June 2018 ended ‘dialling parity’ rule (which allowed consumers to
access a long-distance provider without dialling extra digits) and amended the ‘N-
1’ rule to allow all carriers on a call chain (not just the penultimate carrier, as
before) to check the number portability database.

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Spectrum

AWS spectrum
The US spectrum market is complicated by the lack of national licences, obliging
operators to hold a patchwork of regional licences and coverage from particular
networks which vary widely between regions.

The FCC’s auction of AWS H-Block spectrum was undertaken in stages, begun in
November 2014 and completed in January 2015. The auction proceeds have
helped to fund the national public safety network. There were 1,614 licences
available, covering 65MHz. All but three licences were sold. The paired spectrum
in the auction included the G Block (1755-1760/2155-2160 MHz), H Block (1760-
1765/2160-2165 MHz), I Block (1765-1770/2165-2170 MHz), and J Block (1770-
1780 MHz /2170-2180 MHz). The G Block is licensed in 734 Cellular Market Area
(CMAs) franchises and the other paired spectrum blocks are licensed for 880
geographically larger Economic Area (EA) franchises. The FCC had set a reserve
price of $10.5 billion.

Both Verizon and AT&T already owned spectrum adjacent to the new blocks.
Spectrum in these bands is also used in Europe for wireless data, which will
facilitate international roaming. It also means that there are already a number of
handsets on the market which are suitable for the bands.

Not all of the AWS spectrum was immediately available since the Department of
Defense and other government agencies occupy some of it. Most of this should
be released by the end of 2016. Given that AWS spectrum was auctioned off by
market there was varied interest among operators, depending on their existing
market presence and strategies to fill gaps in certain geographic areas.

The auction, lasting 341 rounds, raised $44.899 billion, though discounts reduced
net proceeds to $41.329 billion. A total of 65MHz of spectrum was auctioned,
including 50MHz of paired spectrum and 15MHz of unpaired uplink spectrum.
Only 31 of the original 70 eligible bidders secured spectrum.
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AT&T secured the J Block in New York (paying $2.76 billion), as also the 10x10
MHz J Block in Chicago, Boston, Houston, Miami, Atlanta, Orlando, San Antonio,
Cleveland, and other markets. In all, AT&T secured 251 licenses, enabling it to
provide 96% population coverage with AWS-3 spectrum.

Verizon secured the J Block in Los Angeles, Washington (DC), San Francisco,
Philadelphia, Detroit, Phoenix, Seattle, Denver, Portland, San Diego, Indianapolis
and other markets. It also secured the H and I Blocks in Dallas and the H Block in
Orlando. In all, Verizon secured 181 licenses, covering about 192 million people,
or 61% of the population.

Dish secured the I and G Blocks in New York, the G Block in Los Angeles, the H
and I Blocks in Chicago, the G Block in Dallas, and the I Block in Boston, as well as
other blocks. The FCC subsequently criticised DISH Network’s bidding tactics and
its claim more than $3 billion in discounts due to a technicality. Rather than bid
directly, DISH acquired an 8% stake in SNR Wireless and NorthStar Wireless, which
acted as bidding partners. Through the Designated Entity (DE) program, the
collective bids from these two was reduced from $13.327 billion to $9.995 billion.
The DE program is intended to assist smaller operators compete against the
majors, rather than operators such as DISH.

T-Mobile secured 157 licenses, principally of 5x5MHz blocks which it can utilise
in markets where it holds 15x15MHz AWS-1 spectrum, thus enabling it to create
20x20 MHz channels. T-Mobile won the H Block in Houston, Miami, Cleveland and
New Orleans, the G Block in Phoenix and Salt Lake City; the I Block in Indianapolis,
Oklahoma City, Memphis, San Antonio and Austin, as well as other blocks.

The FCC at the end of 2012 had also opened up 30MHz of AT&T’s spectrum in the
Wireless Communications Service band, for use with LTE. In addition, the L band
(historically reserved for satellites) may also be opened up for LTE. This is the
band in which the recently bankrupted LightSquared had sought to deploy a
national LTE network.

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Exhibit 1 – AWS spectrum auction – January 2015

Bidding name Amount paid ($ million) Price per MHz / POP

AT&T 18,189.28 2.88

Verizon 10,430.01 2.92

Dish 9,995.56 1.68

T-Mobile 1,774.02 1.63

US Cellular 338.30 -

TerreStar 291.81 -

América Móvil (Puerto Rico 170.90 -

Telephone)

Tristar 47.10 -

NE Colorado Cellular 30.71 -

Joseph Sofio 13.48 -

Source: BuddeComm based on FCC data

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600MHz
At the end of 2013 the FCC announced plans to auction broadcasting spectrum
(mainly in the 600MHz band) for mobile use by mid-2015. However, in October
2014 this was set back to March 2016. The delay was partly attributed to a lawsuit
filed by the National Association of Broadcasters. The multi-step auction required
some broadcasters to give up concessions or move signals to new spectrum
bands in exchange for a portion of the proceeds of their sale. Stations which did
not participate in the auction could have their spectrum allocations moved to
create contiguous blocks of spectrum for sale to mobile phone companies.

In August 2015 the FCC established bidding procedures for the auction, billed as
a ‘Broadcast Television Spectrum Incentive Auction’. A market-based spectrum
reserve of up to 30MHz was intended to promote competition. T-Mobile had
appealed for the reserve to be at least 40MHz. Only providers who held less than
a third of available spectrum in a given licence area were eligible to utilise the
600MHz reserve.

Under the reverse auction rules, broadcasters could bid to relinquish UHF
spectrum rights voluntarily in exchange for a portion of the proceeds from the
forward auction – which was when mobile broadband providers could make their
bids for the released UHF spectrum in the band. Under the ‘repacking’ process,
channels were reorganised and assigned to the remaining TV stations to create
contiguous blocks of cleared spectrum. The reverse and forward auctions were
held in stages.

The initial spectrum clearing target was determined by the willingness of

broadcasters to relinquish spectrum usage rights at prices set by the FCC. Then
the reverse auction process determined the incentive payments to broadcasters
needed for the relinquished spectrum. Following this, the forward auction could
be held for the spectrum.

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The complex process was started in March 2016 with the reverse auction. An
initial price was set at $86.4 billion for an anticipated 126MHz of spectrum, but as
the bidding rounds continued the spectrum available was reduced, as was the
price offered. The forward auction began in August 2016 and was concluded in
February 2017, with the FCC raising $19.63 billion for 84MHz of spectrum. TV
broadcasters which relinquished frequencies during the reverse stage of the
auction will receive $10.05 billion, with the remainder assigned to fund the rollout
of the national public safety communications network, and to provide cash to
some broadcasters affected by spectrum reallocations to invest in services. Of
the 84MHz made available, successful bidders will have access to 70MHz while
the remaining 14MHz will be used for guard bands to address interference
concerns.

The next stage will see the bidders assigned specific blocks of spectrum in each
market, while broadcasters are moved to other frequencies.

800MHz
In early 2012 the FCC proposed revising the licensing model for the 800MHz band
from being site-based to geographically-based, in line with the 700MHz band. The
move is intended to make it easier for operators to roll out mobile broadband
services. Overlay Licenses would allow network build-outs in unlicensed areas
and in areas vacated by existing incumbents.

2GHz
In late 2012 the FCC agreed to open for mobile broadband an additional 40MHz
of spectrum in the 2GHz band which is currently assigned to the Mobile Satellite
Service (MSS).

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700MHz
Within the 700MHz band there exists considerable incompatibility. Verizon’s LTE
networks network run mainly in the 746-787MHz range, while AT&T’s operate
mainly in the 704-746MHz range. Spectrum allocations held by the two operators
overlap only marginally, which inhibits devices being used between them. The FCC
in early 2012 has argued that the entire 700MHz range should be made
interoperable to encourage LTE roaming and competition. The move has long
been supported by smaller players including MetroPCS, C Spire, the Competitive
Carriers Association (formerly the Rural Cellular Association) and T-Mobile.

In mid-2013 the US and Canadian telecom regulators agreed on ten interim

spectrum sharing arrangements to promote the deployment of mobile broadband
in both countries. Arrangements were reached on the 3650-3700MHz band for
wireless broadband services to coexist along the border. Arrangements reached
on the 700MHz band harmonise the countries’ public safety plans and allow
licensees to implement their 700MHz narrowband systems. Arrangements also
include Personal Communications Services; Advanced Wireless Services, public
safety operations in the 4940-4990MHz band, and railway communications
systems.

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1900MHz
The FCC auctioned a 1900MHz H block spectrum in March 2014. This was the
first significant spectrum sale since 2008. The spectrum is for 176 Economic
Areas across the country.

The H block is a 10MHz (2x5MHz) allocation of paired airwaves running from

1915MHz-1920MHz (uplink) and 1995MHz-2000MHz (downlink). The block is the
first of three auctions to raise money for the broadband interoperable public
safety network, FirstNet, proposed by the 9/11 commission and to which the US
government has committed $7 billion. It forms part of 65MHz of spectrum which
Congress mandated the FCC to auction by February 2015.

The auction drew 23 bidders, with the satellite service provider Dish Network
paying the reserve price of $1.564 billion for a nationwide licence. Earlier, the FCC
had agreed to Dish’s request to allow it to use its neighbouring AWS-4 concession
in the 2000-2020MHz band for downlink, rather than uplink, in return for bidding
the reserve price in the H Block auction. Dish was also granted a one year rollout
extension using AWS-4 spectrum.

Dish is required to provide 40% population coverage within four years and 70%
within ten years.

3.5GHz
The FCC in April voted to proceed with the Citizens Broadband Radio Service, a
plan first proposed in 2012 whereby operators will be provided with free access
to 100MHz of spectrum in the 3.5GHz-3.7GHz band currently used by military
radars and other government organisations. Operators can already make use of
50MHz in that range. The spectrum is suitable for high data throughput over short
distances, and could potentially boost the capacity of mobile networks or be used
for M2M services.

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Free access is provided under the ‘General Authorised Access’ tier while short-
term licences in high-demand areas can be paid for under the ‘Priority Access’ tier.

28GHz
The FCC issued a guide to its 28GHz auction in August 2018 (with 3,072 country-
based licenses on offer), and the auction started in the following November. After
this auction is completed there will be another for spectrum in the 24GHz band
(involving 2,909 licences) followed by three other auctions (for 37GHz, 39GHz and
49GHz spectrum) to be held in the second half of 2019 as the FCC endeavours to
increase the amount of spectrum available for 5G. In the 28GHz band the FCC has
approved 40 bidders for the licenses.

By mid-December 2018 the auction had hit $688.7 million with 133 licenses
remaining.

Spectrum swaps and acquisitions

T-Mobile US
T-Mobile in 2012 bought and exchanged AWS spectrum from Verizon (a deal by
which the FCC subsequently approved Verizon’s purchase of spectrum from a
group of cablecos). The licenses cover 60 million people in 218 markets across
the US and have improved T-Mobile’s spectrum position in 15 of the top 25
markets. Some of the licenses were acquired by Verizon from SpectrumCo, Cox
and Leap Wireless. The agreement also included exchanges in some markets
which allowed the operators to swap licenses and so to create more contiguous
blocks of spectrum.

T-Mobile also exchanged spectrum in various markets with Leap Wireless in late
2012 in a bid to improve wireless coverage in certain areas. The deal also involves
Cook Inlet/VS GSM VII PCS, a joint venture between T-Mobile and Cook Inlet (in
which T-Mobile has a non-controlling majority interest) as well as Leap’s majority-
owned venture Savary Island Wireless. Leap acquired 10MHz of AWS spectrum in

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areas of Arizona and Texas while T-Mobile and Cook Inlet secured spectrum in
parts of Alabama, Illinois, Missouri, Minnesota and Wisconsin.

In late 2013 T-Mobile acquired additional 700MHz A-block spectrum licenses

from Verizon Wireless for about $2.37 billion. Verizon in turn secured AWS and
PCS licenses, with a combined value of about $950 million. The deal provided T-
Mobile with crucial lower-band frequencies in nine of the top ten markets across
the US, while Verizon can use AWS spectrum to manage network traffic
congestion in urban areas.

This was followed in January 2016 with the acquisition of additional 700MHz
blocks covering nearly 20 million people in seven metropolitan markets, for about
$600 million. In addition T-Mobile US in January and February 2016 entered into
agreements with third parties for the exchange of spectrum licences and the
acquisition of 700MHz A block spectrum licences covering 48 million people, for
about $700 million. As part of these deals T-Mobile US gave up concessions worth
around $200 million.

In addition, T-Mobile and AT&T in October 2015 swapped 1900MHz PCS and
2100MHz/1700MHz AWS-1 spectrum licences in a number of markets. The
swaps provided both operators with larger blocks of contiguous spectrum and
helped aligned spectrum blocks across these affected markets (including Boston,
Phoenix, Sacramento, Austin and San Antonio).

T-Mobile offers 700MHz LTE services in around 170 major metropolitan areas.

AT&T
AT&T at the end of 2011 secured regulatory approval for its $1.93 billion deal to
buy spectrum from Qualcomm. The licenses, covering the Lower 700MHz D and
E Blocks (which cover all of the US with 6MHz or 12MHz spectrum, along with five
6MHz Economic Area licenses in the Lower 700 MHz E Block that cover New York,
Boston, Philadelphia, Los Angeles, and San Francisco, accounting for more than

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70 million people), will help AT&T build out its LTE services (Qualcomm had been
using the spectrum for its Flo TV services). As for the failed T-Mobile acquisition,
at the time AT&T claimed that it needed T-Mobile’s spectrum in order to expand
LTE to 80% of the population, though the operator has been able to plan coverage
to 97% of the population without the acquisition.

In early 2013 AT&T acquired spectrum in the 700MHz range from Verizon
Wireless for $1.9 billion (as well as AWS licences in several states), helping bolster
its network in 18 states (including California, New York and Florida) covering 42
million people. Verizon sold the spectrum after acquiring unused airwaves from
SpectrumCo (a group including Comcast, Time Warner and other cablecos) for
$3.6 billion. In all, AT&T signed more than 50 spectrum deals in 2012 (including
spectrum and subscribers from Atlantic Tele-Network for $780 million), and more
are expected during 2013.

In May 2014 AT&T agreed to purchase 19 Wireless Communications Service

(WCS) spectrum licences from Sprint, with the concessions covering a number of
locations across the Southern States, including markets in Florida, Louisiana,
Texas, Alabama and Georgia. AT&T had previously acquired WCS frequencies
from NextWave Wireless, Comcast, Horizon Wi-Com and San Diego Gas & Electric
Company.

Verizon
Cincinnati Bell Wireless (CBW) in March 2014 agreed to sell its wireless spectrum
licences and some related assets to Verizon for $194 million (including liabilities
the total value of the deal was about $210 million). CBW will lease back the sold
spectrum for up to twelve months while it winds down its wireless operations and
migrates its customers to Verizon Wireless or other providers. CBW had 340,000
wireless subscribers at the end of 2013, down from 398,000 at the end of 2012.

In the following month Verizon agreed to acquire the spectrum, network assets
and subscribers from California-based Golden State Cellular and Hawaii’s Mobi

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PCS. Mobi PCS will lease back 10MHz of spectrum as it transitions from being a
facilities-based service provider.

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■ MOBILE INFRASTRUCTURE

Much of the recent growth in mobile data has been facilitated by wide take-up of
smartphones and other devices. By early 2016 some 90% of MNOs’ subscriber
base used smartphones. Between 80% and 90% of all new subscribers choose
smartphones over feature phones.

Despite the growth in data use, Americans still pay far more for services than do
those in many other countries, particularly in Europe where the average mobile
data plan can be about half the price of that in the US. The high cost in the US is
partly due to the lack of effective competition in many areas, with the dominance
of AT&T and Verizon enabling these companies effectively to charge what they
like despite the falling cost in delivering mobile bandwidth.

5G

While several groups of vendors continue to work on possible standards for 5G,
the FCC is aiming to make use of spectrum assets which are not made use of for
LTE, including both higher and lower frequency bands. One band includes 126MHz
in the 600MHz range. Other bands under consideration include 27.5-29.5 GHz, 37-
40.5 GHz, 47.2-50.2 GHz, 50.4-52.6 GHz, and 59.3-71GHz. For the incentive
auction within the 600MHz range, the FCC in May 2016 published a final list of
participants. The incentive auction will be split into two parts: the reverse auction
and the forward auction. In the reverse auction (which started at the end of May
2016) the FCC will pay broadcasters to give up their spectrum, with the lowest bid
winning. In the more conventional forward auction bidders will bid for spectrum
blocks around the country, with the highest bidder winning. The forward auction
will require sufficient money to be raised to pay the broadcasters for the spectrum
which they had relinquished during the reverse auction.

In July 2016 the FCC approved a plan to release almost 11GHz of spectrum above
the 24GHz range for 5G use, including licensed and unlicensed spectrum.
Spectrum would include 3.85GH licensed spectrum in the 64-71GHz bands and
7GHz unlicensed in the 28GHz, 37GHz and 39GHz bands. Normally, regulators
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release blocks of 5MHz to 10MHz, but for 5G the regulator is looking a blocks
200MHz and above, which will enable networks to carry much more traffic per
user.

The auction for spectrum in the 28GHz band was started in November 2018.

The potential for 5G is enormous, given that one of the premises of the technology
is its ability to connect millions of devices, and so support platforms used in smart
cities as well as for monitoring sensors in a wide range of applications. The
potential speed of 5G could also enable customers to drop fixed-line broadband
contracts, if providers are willing to offer comparatively priced services with a
generous data allowance.

Verizon
Verizon Wireless was the first MNO to trial 5G, with partners Alcatel-Lucent, Cisco,
Ericsson, Nokia, Qualcomm and Samsung, at the end of 2016. The company
anticipated a commercial launch of services in 2020. Pre-commercial 5G services
are expected to be made available in eleven markets by mid-2017 (Ann Arbor,
Atlanta, Bernardsville, Brockton, Dallas, Denver, Houston, Miami, Sacramento,
Seattle and Washington DC).

Verizon in October 2018 claimed to be the first operator in the world to launch a
commercial 5G service, dubbed 5G Home, initially in Houston, Indianapolis, Los
Angeles and Sacramento and expanding to 45 cities by the following month. The
service is based on an open 5G TF network standard based on Wi-Fi. A mobile
version of 5G is expected in the first half of 2019

US Cellular
At the end of 2016 US Cellular and its vendor partner Ericsson achieved data rates
of up to 9Gb/s in 5G technology trials. Ericsson used a block of spectrum in the
15GHz band which US Cellular is licensed to use on a trial basis.

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AT&T
AT&T in early 2016 applied for a three-year 5G trial licence using spectrum in the
3.5GHz, 4GHz, 15GHz and 28GHz bands. The company in late 2016 AT&T began
trialling a range of 5G technologies in 11 cities, including enabling technologies
such as millimetre-wave, software-defined networking (SDN) and NFV. The trials
were undertaken in conjunction with Intel, Ericsson and Qualcomm, and
separately with Nokia.

In February 2017 AT&T also trialled 5G using spectrum in the 39GHz band,
deploying Nokia’s AirScale radio access platform. The companies have looked at
the 39GHz and 28GHz bands for 5G, given the large amount of bandwidth still
available. In September 2018 AT&T contracted Ericsson, Nokia, and Samsung as
vendors for its 5G network. The operator’s first 5G markets are Atlanta, Charlotte,
Dallas, Indianapolis, Oklahoma City, Raleigh and Waco. They will be followed by
Houston, Jacksonville, Louisville, New Orleans and San Antonio, and then by Las
Vegas, Los Angeles, Nashville, Orlando, San Diego, San Francisco and San Jose.

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T-Mobile US
T-Mobile US trialled 5G in late 2016, in collaboration with Nokia and Ericsson. The
trials used spectrum in the 28GHz band.

Nokia was already a partner for T-Mobile US’s LTE infrastructure. In November
2018 T-Mobile US and Nokia trialled 5G using spectrum in the 600MHz band.
Among the first such trial globally, one benefit of using this band is that it can
provide 5G coverage across a wide area from a single tower.

A $3.5 billion deal with Ericsson (signed in September 2018) will help T-Mobile US
migrate to 5G nationally using Ericsson’s New Radio hardware and software.

T-Mobile US planned to provide national 5G coverage by 2020, partly using its

600MHz assets which already provide LTE coverage to more than 1,500 cities and
towns in 37 states.

Sprint
For its part, Sprint in July 2016 showcased a 5G demo with Nokia which provided
sufficient throughput to support 4K ultra-high definition (UHD) video. Trials have
reached speeds of up to 2.3Gb/s. Sprint expected to launch 5G services in the first
half of 2019, and planned to sell a 5G-compatible smartphone from LG. The initial
markets are likely to be Atlanta, Chicago, Dallas, Houston, Los Angeles and
Washington DC, followed by New York, Phoenix and Kansas City.

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4G (LTE)

Compared with 3G technology, LTE offers higher bandwidth throughput to mobile

terminals and lower latencies, enabling advanced services and applications. The
standard requires data downloads of at least 100Mb/s, though the adoption of
carrier aggregation technologies has pushed data speeds to 300Mb/s and higher.

One of the considerations for LTE expansion rests with infrastructure: to meet the
demand for mobile data, operators will need to upgrade networks to increase
capacity through adopting a range of solutions including RAN upgrades,
additional spectrum, Wi-Fi, small cells and distributed antennae systems (DAS).
Metrocells will be a key to this process, and the number of metrocells is expected
to outnumber the number of installed macro cell sites by the end of 2016.
Metrocells are low power cell sites that operate on an operator’s licensed
frequency to provide additional coverage or capacity in a given area. Residential
femtocells can improve coverage inside a home. Picocells are larger femtocells
that are deployed to businesses or venues, with a higher power output and a
longer range. As such they can support larger area, support greater traffic
capacity and manage up 32 concurrent users.

AT&T and Verizon both have a program in which LTE is being used as a
replacement for fixed-line broadband and voice services. However, data packages
from both operators are far below average fixed broadband usage, while data
speeds of between 5Mb/s and 12Mb/s are also far below the fixed-line broadband
speeds which many customers can expect. In this respect LTE as a proposed
alternative to fixed-line broadband is limited to rural areas or to areas where DSL
services are inadequate and where there was no cable broadband infrastructure.

In February 2016 the FCC approved further testing of LTE-U (Unlicensed) by

Verizon and Qualcomm. LTE-U enables devices to deploy LTE using spectrum
traditionally reserved for Wi-Fi. Detractors have argued that the use of LTE-U may
congest the airwaves at the expense of Wi-Fi. A year later, in February 2017, the

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FCC authorised the use of LTE-U devices in the under-utilised 5GHz band, which
is mainly used by Wi-Fi providers.

As for LTE-M, a Low Power Wide Area (LPWA) technology also known as category
M1, or Cat-M1, AT&T launched a service nationally in May 2017. Its extensive
footprint in Mexico is also being covered. AT&T Labs initially trialled LTE-M
technologies in San Francisco to assess their applications for smart water meters,
smart pallets, consumer devices, shipping container monitoring, connected
vehicles and fleet and asset management, and home security. LTE-M offers
speeds of up to 100kb/s and is suitable for a wide range of applications, while NB-
IoT technologies, typically providing speeds of 10kb/s, are more suitable for
applications such as meters and sensors.

LTE-M is one of three LPWA technologies licensed by 3GPP, alongside NB-IoT and
EC GSM IoT. Verizon launched its own LTE-M services earlier in 2017 while Sprint
planned to launch LTE Cat-1 services by mid-2017 and LTE Cat-M in 2018.

Verizon
Shortly after the 2008 wireless spectrum auction Verizon confirmed its intention
to use its newly acquired C-block ‘open access’ spectrum for LTE services.
Verizon’s 4G network was launched commercially across 38 US markets in late
2010. The company had upgraded its entire 3G footprint to 4G by the end of 2013.
By late 2016 the LTE-A service was available to more than 228 million people in
461 markets across the US (accounting for about 90% of the population). The LTE
footprint covers more than 99% of its 3G footprint.

In late 2011 Verizon bought AWS licences from cableco Cox for $315 million to
add to LTE-suitable frequencies it bought earlier from the cable consortium
SpectrumCo (a joint venture of Comcast, Time Warner Cable and BrightHouse),
Leap Wireless and US Cellular. Cox sold 20MHz of AWS spectrum though not its
700MHz licences. The spectrum covers 28 million people. Cox had only recently

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discontinued its mobile virtual network operator (MVNO) service, Cox Wireless,
since it was unable to compete effectively with the established players.

Through its ‘LTE in Rural America’ program, Verizon has partnered with a number
if rural operators to build and operate an LTE network covering over 2.6 million
people by sharing its 700MHz Upper C block spectrum. The program allows
Verizon to speed up its own LTE deployments: rural carriers roll out LTE networks
over which Verizon has roaming rights. The program participants are:

 Appalachian Wireless – Kentucky;

 Bluegrass Cellular – Kentucky;

 Cellcom – Wisconsin and Michigan;

 Chariton Valley – Missouri;

 Chat Mobility – Iowa;

 Clear Stream – North Carolina;

 Convergence Technologies – Indiana;

 Copper Valley Telecom – Alaska;

 Cross Telephone – Oklahoma;

 Custer Telephone Cooperative – Idaho;

 KPU – Alaska;

 Matanuska Telephone Association – Alaska;

 MTPCS – Montana, Louisiana, Texas;

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 NorthwestCell – Missouri;

 Pioneer Cellular – Oklahoma;

 Pioneer Cellular – Oklahoma;

 Sagebrush Cellular (Nemont) – Dakota, Montana;

 S and R Communications – Indiana;

 Strata Networks – Utah;

 Thumb Cellular – Michigan;

Verizon reported that its LTE network carried 90% of total mobile data traffic.

Table 48 – Verizon Wireless LTE devices on network– 2011 – 2016

Year Sales (million units) Proportion of contract

subscribers

2011 5.3 6.1%

2012 21.6 23.3%

2013 42.7 44.1%

2014 67.4 66.0%

2015 84.4 79.2%

2016 92.48 85.0%

Source: BuddeComm based on company data

AT&T Mobility
As with Verizon Wireless, AT&T Mobility is using its wireless spectrum for LTE.
The company had launched LTE services in 28 markets around the country by
early 2012 and provided national coverage by the end of 2013. In 2008 AT&T had
paid $6.64 billion for B Block spectrum in the coveted 700MHz band.

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AT&T Mobility in late 2012 launched its $14 billion Project Velocity IP (Project VIP)
initiative, through which LTE was expanded to 300 million people by the end of
2014. The initiative saw more than 10,000 macrocells, 40,000 small cells and
1,000 distributed antenna systems deployed throughout its network.

AT&T offers its Wireless Home Phone and Internet service as an LTE-based
landline and broadband replacement. It uses LTE to backhaul fixed voice, though
this costs an additional charge per month. The service is part of AT&T’s program
to use LTE as a replacement for fixed-line broadband in areas not served by its
FttN network, which represents about 25–30% of properties in its operating area.

The operator in early 2017 trialled gigabit LTE services using License Assisted
Access (LAA) technology, which combines licensed and unlicensed spectrum to
improve data rates and capacity. The trials were undertaken with Ericsson, Orange
and Qualcomm using up to 80MHz of spectrum in the 3.5GHz shared band.
Qualcomm provided wireless technology and chipsets, while Nokia provided base
stations and cloud services.

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Clearwire
Clearwire raised $734 million in late 2011 to fund its LTE rollout program ($402.5
million from a public offering and $331.4 million from majority-owner Sprint). The
company is deploying TD-LTE in high-density areas to complement its WiMAX
network.

Clearwire deployed LTE to some 2,000 sites by mid-2013 (down from 5,000 sites
as originally planned), rising to 8,000 by the end of the year. The program followed
an investment commitment of up to $350 million from Sprint to help build the LTE
network. Clearwire had raised some $1 billion in late 2011 despite anticipated
revenue losses from its Clear Internet brand, and expected to invest about $600
million in building its LTE infrastructure. The move to LTE is crucial for the
operator to keep pace with mobile broadband demand: about 60% of all traffic on
its WiMAX and LTE networks is video. Clearwire hosts a number of MVNOs, and
is also aligning its LTE rollout with Sprint Nextel, which plans to offload excess
LTE data traffic onto Clearwire’s network.

Despite the US House Permanent Select Committee on Intelligence’s

recommendation that the Federal government and US companies avoid using
equipment from Huawei Technologies and ZTE, on the grounds that they have ties
too close to the Chinese government (which potentially thus poses a security
concern), Clearwire in late 2012 contracted Huawei (with Samsung) as one of two
companies to build its Time Duplex (TD)-LTE network. Huawei, Samsung and
Motorola built Clearwire’s existing WiMAX network. Samsung and Huawei base
stations are deployed at the edge of the network, while the core network
equipment is to be provided by Cisco and Ciena.

In late 2012 Sprint agreed to buy the remaining 50% of Clearwire which it did not
already own, for some $2.2 billion. The deal effectively provided Clearwire with
about $800 million in additional financing for its network upgrades, and gave
Sprint control of Clearwire’s TD-LTE network, as well as its 160MHz portfolio of
spectrum in some 100 markets.

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Sprint
Sprint owns spectrum in the 800MHz band and 1850-1915MHz with 1930-
1990MHz bands (the PCS band) which is being used for LTE. The 800MHz band
had been used for the iDEN network (mothballed in 2013) which Sprint had
secured following the company’s merger with Nextel in 2005.

Under Sprint’s Network Vision the company launched commercial LTE services in
15 cities in mid-2012, with most of its rollout being completed during 2013. The
company’s tri-band carrier aggregation (CA) ‘Sprint Spark’ service is available in
18 markets, and is expected to be extended to 100 of the largest cities by mid-
2017.

In March 2017 Sprint launched a ‘Gigabit Class’ LTE services (supported by the
vendors Qualcomm Technologies and Motorola Mobility). The service uses tri-
band CA technology (combining 60MHz of spectrum in the 2.5GHz band) in
combination with 4X4 MIMO technology and 256-QAM modulation. The
technology deployment is part of a planned path to 5G in which the company is
building up its network with additional of small cells and smart antennae. Sprint
claims to have more than 160MHz of spectrum in the 2.5GHz band than any other
carrier.

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US Cellular
In mid-2011 the regional provider US Cellular trialled LTE services in select areas.
US Cellular had secured 152 regional concessions for 700MHz frequencies in
early 2008, paying $400 million. In early 2012 the operator (in association with its
subsidiary King Street Wireless) launched LTE services in cities in Iowa, Maine,
North Carolina, Oklahoma, Tennessee, Texas and Wisconsin, and in late 2012 it
launched services in more than 30 new markets, principally in Iowa, Wisconsin,
North Carolina and Oklahoma, as also in Illinois, Maryland, Missouri, New
Hampshire, Vermont, Virginia and West Virginia.

T-Mobile US
T-Mobile launched LTE services in early 2013 using AWS spectrum. The network
covered 209 million people by the end of the year, 265 million by 2014, 300 million
by 2015, and 314 million by 2016.

Deploying LTE in AWS spectrum involves transferring 3G from AWS to refarmed

PCS frequencies. T-Mobile has overlaid LTE on its 2G network, and utilised
700MHz spectrum acquired from Verizon. The entire 2G footprint was covered
with LTE by mid-2015. Gaps in the network have been filled by HSPA+ rather than
GSM/EDGE. The 2G network, operating in the 1.9GHz and 850MHz bands, has
been retained for now, mainly to support M2M services, but is likely to be closed
by 2025. Some of the 1.9GHz band has been refarmed for HSPA+.

T-Mobile US also now incorporates the assets of MetroPCS, the regional prepaid
mobile provider which launched LTE services in late 2010 (the first in the country
to do so). T-Mobile expected that it would invest $5.1 billion on LTE deployment
in 2017. The company had already invested $4.5 billion in 2015 and $4.6 billion in
2016.

Other players
LightSquared in mid-2012 filed for Chapter 11 bankruptcy protection after failing
to resolve regulatory issues which had prevented the company from launching its
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ground-based LTE network, supported by satellites. The FCC had blocked the
project on the grounds that the network would impact GPS services and that there
was no practical way to mitigate the potential interference.

Dish Network is also hoping to build a new network using LTE technology using
40MHz of satellite spectrum, though the FCC has thus far restricted the company
from using this asset. In order for H-Block auction to be made available for LTE
the FCC will need to move Dish’s spectrum allocation up the band by 5MHz,
though this may disadvantage Dish since its current holding suits the current LTE
standard.

A number of regional operators have launched LTE services. These include:

 Sprint's affiliate Shenandoah Telecommunications (ShenTel), which operates LTE

services in some 56 markets in the mid-Atlantic region (Maryland, Pennsylvania,
Virginia and West Virginia). The company contracted Alcatel-Lucent to supply
network equipment.

 Pioneer Cellular and Wisconsin-based Cellcom became the first two partners of
Verizon's 'LTE in Rural America' program to launch commercial services, in mid-
2012.

 Cellular One, serving customers in Louisiana, Texas, Montana and the Gulf of
Mexico, became a partner in Verizon Wireless's 'LTE in Rural America' program in
late 2012. Verizon leases to Cellular One its 700MHz 'Upper C-block' spectrum in
parts of Texas.

 Appalachian Wireless launched LTE in mid-2013 in populated areas of the

Appalachian Mountains. Appalachian Wireless had signed up to Verizon's 'LTE in
Rural America' program in late 2011. Under the terms of the agreement Verizon
leased the operator spectrum in the 700MHz Upper C block in service areas where
it had opted not to roll out its own LTE network. Its customers access to Verizon
Wireless's LTE network across the country.

 The subsidiary of Agri-Valley Communication, MiSpot, launched LTE in the

700MHz band in mid- 2013 to residents and SMEs in northern and central
Michigan.

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 Bay Area Regional Interoperable Communications System (BayRICS), formed by

the ten Bay Area Counties and the cities of San Francisco, Oakland and San Jose,
in 2006 created the Bay Area Wireless Enhanced Broadband (BayWEB) division
which acquired 700MHz spectrum through which it planned to offer an LTE-based
public safety system. The first trials, held in mid-2011, were held by the East Bay
Communications System Authority.

 BendBroadband in mid-2012 was the first in Oregon to offer commercial LTE

services. The operator shut down its HSPA+ network, and now only offers LTE-
based services.

 Cell C and Huawei in mid-2016 trialled LTE-U services which reached data rates of
630Mb/s. Cell C deployed 15MHz of spectrum in the 2100MHz band and 2x20MHz
in the 5GHz bans (normally used for Wi-Fi services).

C Spire Wireless, the sixth largest MNO in the US market by subscribers, launched
LTE services in the 1900MHz band in September 2012. The company in early 2016
began upgrading about 500 cell sites to use spectrum in the 700MHz and 850MHz
bands for LTE.

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3G

The first operator to launch 3G services was Verizon Wireless, in 2005. By mid-
2007 Verizon Wireless’s entire network was EV-DO Rev A compliant. Following
Verizon’s lead was Sprint with the launch of its EV-DO network in 2005: by the end
of 2007 the operator had upgraded its entire network with EV-DO Rev A.

The regional mobile provider US Cellular launched mobile broadband services in

late 2008 using EVDO technology.

In early 2012 the FCC issued a map of 3G availability, showing that large regions
in the mid-west lacked coverage. The FCC has tackled some of these 3G dead
zones with spectrum allocated following the Mobility Fund auction. Up to $300
million was made available to operators which committed to provide 3G or LTE
services in underserved areas. In July 2015 the recipients of Mobility Fund Phase
I funds filed reports on fund outlays. Some 16 recipients reported that they had
extended 3G or LTE coverage to 46% of the road miles to be covered.

The FCC intends to free up an additional 500MHz of spectrum by 2020, forming

part of the National Broadband Plan. Of this, some 70MHz of spectrum was
secured at the 600MHz spectrum completed in February 2017 (released by TV
broadcasters), while an additional 90MHz is expected to be made available from
mobile satellite providers, 10MHz from the 700MHz D block, 60MHz from the AWS
band and 20MHz from the Wireless Communications Service (WCS) band.

Other infrastructure developments

Machine-to-Machine (M2M)
Growth in the number of M2M connections will be concentrated in areas where
there is a good Return on Investment (ROI), such as cloud computing and hosted
applications.

Table 49 – M2M connections – 2009 – 2016

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Year Connections (million)

2009 9.4

2010 12.9

2010 16.1

2012 19.1

2013 22.3

2014 (e) 25.5

2015 (e) 30.2

2016 (e) 37.5

Source: BuddeComm based on industry data

NB-IoT
Narrowband-IoT is built on the 3GPP standard and uses low-power wide area
network (LPWAN) LTE-A technology that can be migrated to 5G IoT.

T-Mobile trialled NB-IoT in 2017 and launched the country’s first nationwide NB-
IoT network in June 2018, supported by its vendor partners Ericsson, Nokia and
Qualcomm. T-Mobile US also opened its ‘T-Mobile CONNECT’ partner program to
help IoT providers commercialise products and solutions using the network.

AT&T is expected to launch NB-IoT nationally in early 2019, largely based on its
exiting LTE infrastructure.

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■ MAJOR MOBILE OPERATORS

Industry body

The Rural Cellular Association was rebranded as the Competitive Carriers

Association in late 2012, acknowledging the fact that a number of operators such
as Sprint, T-Mobile and MetroPCS (which have an urban focus) are members. The
Association’s members represent about 100 million mobile subscribers. The
Association is concerned with a number of areas, including equal access to 4G
spectrum, interoperability, and mutually beneficial roaming agreements.

AT&T

AT&T is the largest provider of mobile and fixed-line telephony services in the US.
It emerged from Southwestern Bell Corporation, one of the regional Bell
companies created in 1983. Southwestern Bell was rebranded as SBC
Communications in 1995, and when SBC bought its former parent company AT&T
Corp in 2005 it took on the latter’s name (as AT&T Inc). AT&T includes ten of the
original 22 Bell operating companies.

Since 2007 the company has branched from fixed-line telephony to services
including mobile telephony and broadband, as also its bundled service offering
branded as U-verse. Part of its expansion model has been based on acquisitions,
including the late-2011 $1.93 billion purchase of spectrum from Qualcomm which
had formerly be used for the latter’s FLO TV service.

Also in 2011, AT&T made a play to buy T-Mobile USA for $39 billion ($25 billion in
cash and $14 billion in shares) from the latter’s parent company Deutsche
Telekom. The deal would have created the country’s largest MNO by subscribers,
providing it with a market share of about 43%. For AT&T, T-Mobile’s network
assets would have allowed it to add capacity through boosting the number of cell
sites in urban areas by some 30%, and so help extend its future LTE network to
95% of the population. For Deutsche Telekom, the deal would have provided some

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€13 billion to help it reduce its debt, with additional funds to be invested in
modernising its European networks.

The deal fell through in late 2011, and as a result T-Mobile received $3 billion in
cash as well as access to $1 billion worth of AT&T’s wireless spectrum.

As part of its migration to LTE, AT&T is planning to close its GSM networks (only
a few customers still use 2G-based handsets) and refarm its 2G spectrum
holdings for 3G and LTE services. By late 2016 most of its 2G infrastructure had
been shut down. Refarming spectrum has implications for the millions of M2M
connections across AT&T’s networks.

In mid-2014 AT&T merged its wireless and business divisions into a single unit,
and also restructured its wireless divisions into separate business and consumer
divisions. The move reflected the growing importance to AT&T of the mobile
business, which now accounts for about 50% of revenue. The business sector will
concentrate on popular trends including BYOD and managed services.

Following the acquisition of DirecTV, in October 2015, AT&T again reorganised its
operating business. Four divisions now operate under a new management
structure: Business Solutions, Entertainment and Internet Services (EIS),
Consumer Mobility (CM) and International. The Business Services unit provides
wireless and wireline services to business customers as well as certain types of
consumer (mainly those buying services through employers). The EIS segment
provides residential customers with video, broadband and voice services. This
segment include DirecTV US.

AT&T reported a 1.2% fall in wireless revenue in 2016, year-on-year, compared to

a 10.8% growth in 2015 and a 7.7% growth in 2014. Operating expenses fell though
operating income increased 4%.

Table 50 – AT&T Mobility financial data – 2004 – 2018

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Year Revenue Opex Capex Operating

income

$ (billion)

2004 19.565 18.037 5.099 1.528

2005 34.433 32.609 5.576 1.824

2006 37.506 32.929 8.320 4.567

2007 42.684 35.664 17.831 6.838

2008 49.335 38.251 20.290 10.834

2009 53.504 39.674 16.554 13.839

2010 58.500 43.243 19.530 15.266

2011 63.212 47.905 20.110 15.278

2012 66.763 50.169 19.465 16.532

2013 69.899 51.976 20.944 17.923

2014 73.992 56.865 21.199 17.015

2015 73.705 53.902 19.218 19.803

2016 72.821 52.178 21.516 20.643

2017 71.090 50.886 21.550 20.204

2018 (9M) 52.575 36.307 11.226 16.268

Source: BuddeComm based on company data

Note: Capex includes wireline.

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Chart 12 – AT&T Mobility financial data – 2004 – 2018

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 51 – AT&T wireless subscribers – 2002 – 2018

Year Subscribers (thousand)

2002 21,925

2003 24,030

2004 49,130

2005 54,100

2006 60,960

2007 70,052

2008 77,009

2009 85,120

2010 95,536

2011 103,247

2012 106,957

2013 110,376

2014 120,554

2015 128,640

2016 134,859

2017 141,201

2018 (Sep) 150,252

Source: BuddeComm based on company data

Note: Data includes consumer and business

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Acquisitions and sales

In mid-2013 AT&T bought Leap Wireless for around $1.2 billion. Taking into
account Leap Wireless’s net debt of $2.8 billion, the bid amounted to around $4
billion though Leap also had access to federal and state net operating loss carry-
forwards of about $2.7 billion and $2.1 billion, respectively, which could have been
used to reduce future income tax obligations. To address the FCC's concerns over
competitive issues in several local markets, AT&T made a range of commitments,
including spectrum divestitures. It also pledged to deploy LTE using unused Leap
spectrum.

Leap wireless is the seventh largest wireless operator in the US. It has focused on
the prepaid market though it has lost customers in recent quarters, with a
customer base now at about five million. AT&T planned to retain Leap's Cricket
brand and provide Cricket customers with access to the AT&T network.

Leap’s network covers about 96 million people across 35 states, using spectrum
in the PCS and AWS bands. Population coverage of the network is around 137
million people.

In late 2013 AT&T considered a takeover bid for Vodafone Group, but this was
withdrawn at the request of the UK Takeover Panel. The move suggested the
company’s interest in expanding into European markets.

In April 2014 AT&T agreed to acquire the satellite TV provider DirecTV in a cash
and stock deal valued at $48.5 billion. DirecTV has some 40 million digital TV
customers in the US and across several Latin American countries. The acquisition
has delivered a new source of revenue beyond AT&T’s telecom business. To
smooth regulatory concerns, AT&T agreed to sell its multi-billion dollar stake in
América Móvil: some markets in which DirecTV and América Móvil operated
overlapped, and thus caused regulatory concerns. DirecTV has a 93% stake in Sky
Brasil and a 41% stake in Sky Mexico, which serves Mexico, Central America and
the Dominican Republic. It also has a 100% holding in PanAmericana, offering

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satellite TV services under the DirecTV brand in countries including Venezuela,

Argentina, Chile, Colombia and Puerto Rico.

In November 2014 AT&T entered into an agreement with Grupo Salinas to acquire
Iusacell for $2.5 billion, inclusive of Iusacell debt. AT&T acquired Iusacell’s
wireless assets including licenses, network infrastructure and retail stores as well
as the operator’s 8.6 million subscribers. The acquisition required Grupo Salinas
to complete its purchase of the 50% stake in Iusacell which it did not already own.
Iusacell’s wireless service (offered under the Iusacell and Unefón brands) covers
about 70% of Mexico’s population.

In October 2014 AT&T sold its incumbent local exchange operations in

Connecticut to Frontier Communications for $2 billion. The deal, initially
announced in December 2013, included wireline network assets as well as
residential, business and wholesale customers. AT&T continues to provide
wireless services and networking in the state.

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Verizon Wireless

Verizon Wireless offers a full range of wireless voice, messaging and data
services. The company developed from the merger between a number of smaller
wireless operators. In 1995 Bell Atlantic Mobile merged with NYNEX Mobile
Communications to form Bell Atlantic-NYNEX Mobile while two years later their
respective parent companies merged to form Bell Atlantic, with the mobile
business rebranded as Bell Atlantic Mobile.

Verizon Wireless was a joint venture (JV) between Verizon Communications

(55%) and the UK-based Vodafone (45%): in the US, Vodafone merged with
AirTouch Communications in mid-1999 to form Vodafone AirTouch, and later in
the year it set up the Verizon Wireless JV with Bell Atlantic, comprise the two
companies’ wireless assets Bell Atlantic Mobile and AirTouch Paging. This grew
further in 2000 with the addition of GTE Wireless.

In August 2013 Vodafone began discussions with Verizon to sell its 45% stake in
Verizon Wireless, in a deal worth around $130 billion. The deal was agreed in
September 2013 and closed in February 2014. The deal also included a $5 billion
payment in Verizon loans, $3.5 billion from Verizon’s 23% minority interest in
Vodafone Italy (thereby enabling Vodafone to secure full ownership of the Italian
subsidiary), and $2.5 billion through Verizon taking on Vodafone’s net liabilities
relating to Verizon itself.

Verizon’s interest partly relied on its need to expand its wireless infrastructure
while it cuts back on copper plant. In a few areas the company has replaced
copper for its voice Link product. Voice Link is sold as a replacement for the
landline voice service (it cannot provide broadband). Verizon leased capacity from
Verizon Wireless to provide Voice Link, and 45% of funds paid to Verizon Wireless
was taken by Vodafone.

Verizon has grown through several acquisitions, including the purchase of West
Virginia Wireless (2006), Rural Cellular Corporation (2007), SureWest

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Communications (2008), Alltel Wireless and Centennial Wireless (2009), and New
Mexican wireless markets of Plateau Wireless (2012). In mid-2012 the FCC
approved the purchase Verizon’s $3.6 billion purchase of spectrum held by the
cablecos Comcast, Time Warner, Cox and Bright House which they had acquired
by auction in 2006.

At the end of 2011 Verizon bought 122 AWS spectrum licenses covering 259
million POPs from SpectrumCo, a joint venture between Comcast Corporation,
Time Warner Cable, and Bright House Networks. The $3.6 billion deal drew to an
end the cable companies’ initial plans to use the spectrum to develop their own
wireless services. Instead, they agreed to resell Verizon Wireless services.

The operator in late 2015 changed how it sold wireless services, ending its
practice of signing customers up for long-term service contracts and offering
subsidies to help reduce the cost of smartphones. The company now offers
slightly cheaper plans (in general) but requires customers to pay for their own
devices. By buying a phone outright, customers can expect to pay lower monthly
fees after a two-year contract period. Other MNOs have also moved away from
contract plans.

Verizon underwent a strategic reorganisation of its reporting units. The

Communications segment (which provides wireless and mobile voice and data
services as well as video and broadband services ) has three reporting units:
Mobility, Entertainment Group, and Business Wireline.

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Table 52 – Verizon wireless financial data by sector – 2010 – 2018

Year Revenue Opex Op. income EBITDA

$ (million)

2010 63.40 44.68 18.62 26.08

2011 70.15 51.62 18.52 26.49

2012 75.868 54.100 21.78 29.728

2013 81.023 55.026 25.997 34.199

2014 87.646 60.886 26.760 35.219

2015 91.680 61.707 29.973 38.953

2016 89.186 59.333 29.853 39.036

2017 87.511 58.304 29.207 38.602

2018 (9M) 52.575 36.307 16.268 35.825

Source: BuddeComm based on company data

Chart 13 – Verizon wireless financial data by sector– 2010 – 2018

Source: BuddeComm based on company data

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Table 53 – Verizon wireless subscribers – 2005 – 2018

Year Prepaid Contract Total

Subscribers (million)

2005 - - 51.33

2006 - - 59.05

2007 - - 63.65

2008 - - 70.07

2009 - - 85.44

2010 4.41 83.12 87.53

2011 4.78 87.38 92.17

2012 5.700 92.530 98.230

2013 6.047 96.752 102.799

2014 6.132 102.079 108.211

2015 5.580 106.528 112.108

2016 5.447 108.796 114.243

2017 5.403 110.854 116.257

2018 (Jun) 4.832 111.622 116.454

Source: BuddeComm based on company data

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Chart 14 – Verizon wireless subscribers – 2010 – 2018

Source: BuddeComm based on company data

In September 2014 Verizon Wireless contracted the bank TAP Advisors to advise
on the sale and lease-back of its 12,000 tower portfolio. TAP had earlier advised
on tower deals involving AT&T Mobility in October 2013 and T-Mobile US in
October 2012. In both cases Crown Castle acquired the towers. The $4.83 billion
AT&T deal saw the operator sell 600 towers and lease 9,100 towers over 28 years.
T-Mobile received $2.4 billion in exchange for the right to operate 7,200 towers.

Verizon Wireless sold 165 towers and settled on a lease-back arrangement with
11,324 towers to American Tower for $5.056 billion. The deal help fund Verizon’s
$10.4 billion purchase of AWS-3 spectrum licenses. Under the deal American
Tower will lease and operate Verizon’s towers for 28 years, and has the right to
acquire the towers at the end of the lease term. American Tower estimated that
the towers could generate about $410 million in rental revenue annually. Verizon
agreed to lease tower space for a minimum of ten years for $1,900 per site per
month (with the rate increasing 2% per annum).

T-Mobile US

T-Mobile US provides wireless voice and data services in the US as well as in its
dependencies Puerto Rico and the US Virgin Islands. The company emerged from

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the 1994 formation of VoiceStream Wireless, itself a subsidiary of Western

Wireless Corporation. Western Wireless sold its VoiceStream Wireless division to
shareholders in 1999: this created an independent company, VoiceStream
Wireless Inc. In 2001 Deutsche Telekom bought VoiceStream Wireless Inc for $35
billion as also the regional GSM network operator Powertel for $24 billion.
VoiceStream Wireless was renamed T-Mobile USA in mid-2002, forming part of T-
Mobile International. In 2007 T-Mobile USA bought SunCom Wireless Holdings for
$2.4 billion, which extended T-Mobile’s presence to Puerto Rico and the US Virgin
Islands.

In late 2012 T-Mobile signed a deal with Crown Castle on the lease-leaseback of
6,400 towers and the sale of a further 800 towers. The proceeds of the deal will
be used to upgrade the operator’s wireless network and further roll out LTE in the
US. Crown Castle paid $2.4 billion initially to use and lease out the towers for 28
years: T-Mobile will lease back required capacity from Crown Castle, while unused
facilities will be available for lease by third parties.

Commonly, mobile network operators either manage their own tower network or
lease capacity from tower owners which install a larger number of antennae of
different mobile operators on the masts per site. T-Mobile US’s national network
covers around 51,000 sites of which the vast majority are leased from third
parties. The operator’s $4 billion network upgrade includes upgrading 37,000 cell
sites and expanding HSPA+ and LTE services.

T-Mobile US has made a deep impression on the mobile market during the last
two years. This is partly due to policies which have gone far to attracting new
customers. The company has implemented no-interest device financing, free
international data, unlimited access to video streaming, and plans without service
contracts. This has resulted in low churn among existing customers.

Although its infrastructure was once known for having poor coverage outside the
major metro areas, the company has bolstered its sub-GHz holdings, particularly
in the 700MHz band.
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T-Mobile US in November 2015 completed the sale to Phoenix Tower International

(PTI) of more than 600 wireless tower sites. The proceeds may go towards
equipping T-Mobile with funds required to participate in the March 2016 auction
of 600MHz spectrum. In the same month T-Mobile had announced a $2 billion
debt sale to secure funds which the company suggested could be used for the
acquisition of additional spectrum.

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Table 54 – T-Mobile US wireless subscribers – 2003 – 2018

Year Contract Prepaid Total

Subscribers (million)

2003 - - 13.1

2004 - - 17.3

2005 - - 21.7

2006 - - 25.0

2007 - - 28.7

2008 - - 32.8

2009 26.765 7.026 33.790

2010 26.375 7.360 33.734

2011 24.797 8.389 33.186

2012 23.383 5.826 33.389

2013 22.299 15.072 46.684

2014 27.185 16.316 55.018

2015 31.695 17.631 63.282

2016 34.427 19.813 71.455

2017 38.047 20.668 72.585

2018 (Sep) 41.161 21.002 77.249

Source: BuddeComm based on company data

Note: Postpaid includes mobile broadband subscribers. Total includes M2M and MVNO.

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Chart 15 – T-Mobile US subscribers – 2009 – 2018

Source: BuddeComm based on company data

Table 55 – T-Mobile US own-branded subscribers – 2010 – 2018

Year Subscribers (million)

2010 29.071

2011 27.186

2012 26.119

2013 37.371

2014 43.501

2015 49.326

2016 54.240

2017 58.715

2018 (Sep) 62.163

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 56 – T-Mobile US ARPU (€, annualised) – 2009 – 2018

Year Contract Prepaid Blended

€ / month

2009 36 12 33

2010 39 14 34

2011 39 14 33

2012 43 21 33

2013 38 26 28

2014 35 27 27

2015 41 34 31

2016 42 35 31

2017 39 34 -

2018 (Q3) 36 32 -

Source: BuddeComm based on company data

Table 57 – T-Mobile US ARPU ($, annualised) – 2012 – 2018

Year Contract Prepaid

$ / month

2012 56.79 26.85

2013 52.60 34.59

2014 49.44 37.10

2015 47.68 37.68

2016 48.37 38.20

2017 46.38 38.63

2018 (Q3) 46.13 38.34

Source: BuddeComm based on company data

T-Mobile US reported a 6% increase in mobile service revenue for the third quarter
of 2018, the 18th consecutive quarter of growth. Total revenue increased 8% year-
over-year.
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Table 58 – T-Mobile US financial data – 2010 – 2018

Year Revenue Op. income Net income

$ (billion)

2010 21.347 2.705 1.354

2011 20.618 -4.279 -4.718

2012 19.719 -6.397 -7.336

2013 24.420 0.996 0.035

2014 29.564 1.416 0.247

2015 32.053 2.065 0.733

2016 37.242 3.802 1.460

2017 40.604 4.888 4.536

2018 (9M) 31.865 4.172 2.248

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Chart 16 – T-Mobile US financial data – 2010 – 2018

Source: BuddeComm based on company data

T-Mobile’s strategy in recent quarters has been focussed on its UnCarrier concept.
In September 2014 it announced ‘UnCarrier 7.0’ which embraced Wi-Fi calling. The
company also offers a proprietary ‘Cellspot’ router for customers’.

Merger with MetroPCS

In 2001 Deutsche Telekom tried to sell its US subsidiary to AT&T for $39 billion in
stock and cash, though this fell through after failing to secure regulatory
clearance. As a result, T-Mobile secured a $4 billion breakup fee as well as
valuable spectrum which T-Mobile has used to build its LTE network.

In late 2012 T-Mobile and MetroPCS signed a deal to merge their mobile networks.
MetroPCS shareholders received $1.5 billion in cash as well as 26% ownership in
the merged company, which will take the T-Mobile brand. T-Mobile retains the
remaining 74%. Crucially, the merger provides T-Mobile with at least 20x20MHz
of spectrum (20MHz for both download and upload) in many areas of the country,
suitable for LTE.

As part of the recapitalization structure, MetroPCS declared a one for two reverse
stock split, exchanging the cash payment and T-Mobile’s capital stock for 74% of
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MetroPCS’ common stock on a pro forma basis. T-Mobile’s parent company

Deutsche Telekom agreed to set its existing debt into $15 billion senior unsecured
notes of the combined company, provide a $500 million unsecured credit facility
and also provide a $5.5 billion commitment for MetroPCS’ financing transactions.
The merger was completed in May 2013, with the new entity trading as T-Mobile
US.

Customers on MetroPCS’s CDMA network were migrated to T-Mobile’s GSM and

LTE networks by June 2015. In September 2018 the prepaid MetroPCS service
(operated by T-Mobile) was rebranded as ‘Metro by T-Mobile’.

Table 59 – MetroPCS financial data – 2007 – 2012

Year Service revenue Net income EBITDA Total revenue

$ (million)

2007 1,919 100 667 2,236

2008 2,437 149 783 2,751

2009 3,130 177 956 3,461

2010 3,690 193 1,176 4,069

2011 4,428 301 1,332 4,847

2012 4,540 394 1,512 5,101

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 60 – MetroPCS subscribers – 2007 – 2012

Year Subscribers (thousand)

2007 3,963

2008 5,263

2009 6,639

2010 8,155

2011 9,346

2012 8,886

Source: BuddeComm based on company data

Interest from Softbank

SoftBank in early 2014 entered talks with Deutsche Telekom regarding the
acquisition of its 76% holding in T-Mobile US. The deal would have combined
Sprint and T-Mobile US and so faced some regulatory opposition since the
number of wireless carriers would have been reduced from four to three.

In May 2014 Deutsche Telecom requested a breakup fee in excess of $1 billion in

the event that the FCC blocked the planned merger. When the FCC blocked AT&T’s
bid in 2011, AT&T was obliged to pay a break-up fee of $3 billion as well as a
package of AWS spectrum in 128 Cellular Market Areas (CMAs). Sprint had
proposed $40 per share, but in August 2014 withdrew the bid.

Nevertheless, merger talks were rekindled in 2016 before being called off again in
November 2017 after no mutually agreeable terms could be found, particularly
since Deutsche Telekom’s plan did not provide SoftBank and Sprint with sufficient
control over the combined company.

Despite this set-back, in April 2018 T-Mobile US and Sprint agreed to merge,
creating a company 41.7% owned by Deutsche Telekom (with management
control) and 27.4% by SoftBank, with the remaining 30.9% for individual investors.
The deal secured approval from T-Mobile US’s shareholders in October 2018 and

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from the Committee on Foreign Investment (CFIUS) in the following December.

Other government departments (Justice, Homeland Security and Defence) have
also not objected to the merger, however as of January 2019 the temporary shut-
down of the US government delayed the FCC’s review of the merger.

Interest from Iliad

Coinciding with the withdrawal of Sprint’s bid, in August 2014 the French mobile
and internet provider Iliad made its own bid to acquire T-Mobile US. Iliad offered
$15 billion in cash for 56.6% of the operator priced at $33 per share, with the
remaining 43.4% priced at $40.5 per share. The deal would more be unlikely to be
rejected by antitrust authorities given that Iliad has no telecom assets in the US
market and so its purchase of T-Mobile US would not consolidate the market by
reducing the number of players.

The bid was initially rejected by Deutsche Telekom as being too low, which
prompted Iliad to form a consortium of investors to increase its offer, by which it
would have gained a 67% stake in T-Mobile US for about $36 per share. This was
also rejected, after which Iliad withdrew its bid.

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Sprint Corporation

Sprint Corporation (formerly Sprint Nextel) is the fourth largest cellular operator
in the US, with a subscriber base about half the size of those of Verizon Wireless
and AT&T Mobility. To compete, Sprint has created a number of partnerships with
innovative companies, including a mobile VoIP and devices deal with Google, an
agreement to host LightSquared’s LTE network, and a seven-year managed-
services agreement with Ericsson, signed in 2009 and dubbed Network
Advantage, valued at up to $5 billion. Sprint retains ownership and control of its
network assets while Ericsson manages engineering, operations and
maintenance of the CDMA, iDEN and fixed-line networks.

Sprint bought Nextel in 2005 for $36 billion, but delays in the takeover,
compounded by legal challenges from Sprint affiliates and the loss of customers
lead to a $29.7 billion write down of the takeover in 2008. The operator was
rebranded as Sprint Nextel, and subsequently as Sprint Corporation. The company
provides wireless and wireline data services to some 55 million people in the US,
Puerto Rico and the US Virgin Islands. It cellular service is offered under a number
of brands, while it also hosts several MVNOs. The merger with Nextel combined
Sprint’s CDMA network with Nextel’s iDEN network, as also the 2.5GHz spectrum
holdings of both operators. This resulted in reduced investment in both networks,
leading to higher customer churn and to a fall in the subscriber base, with
accompanying lower market share and revenue. The 2.5GHz spectrum asset
together with FCC network build-out requirements (made as part of its approval
of the merger) necessitated Sprint to launch a WiMAX network in 2008.

While the merger between Sprint and Nextel built a formidable portfolio of 2.5GHz
spectrum, it also left the operator with two mobile networks – CDMA from Sprint
and iDEN from Nextel – and led it to launch a third, Mobile WiMAX in 2008.
Although Sprint merged its WiMAX network into Clearwire in 2008, the operator
was still committed to three different mobile networks, which created
complexities and costs. One of Sprint's first moves to tackle these network
challenges was its Network Advantage outsourcing deal with Ericsson in mid-

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2009. Arguably, the second major move was its Network Vision modernization
project announced in late 2010, which has raised the stakes considerably given
that it represents capex of some $7 billion.

In late 2012 Sprint began removing the Nextel brand in line with its closure of the
iDEN network acquired in the merger. This move followed the deal by which
Japan’s SoftBank agreed to purchase 70% of Sprint Nextel for $20.1 billion, a deal
approved by the FCC in July 2013 following approval from Sprint shareholders and
US antitrust and security authorities. To provide security assurance SoftBank
asserted that it would limit the use of equipment from Chinese vendors. The
Nextel network was closed in June 2013, resulting in Sprint losing some
subscribers.

SoftBank’s injection of cash ($8 billion on infrastructure and $12.1 billion for
investors) helped Sprint’s financial position, though the operator remains
burdened with significant debt.

Also in late 2012 Sprint bought 585,000 customers from US Cellular as well as for
two blocks of spectrum (20MHz and 10MHz in the 1900MHz band) that will
enable the company to roll out LTE in previously unserved markets (including
Chicago; South Bend, Indiana; Champaign, Illinois). The deal remains subject to
FCC approval, expected by mid-2013.

In another deal, Sprint agreed at the end of 2012 to buy the 50% stake in Clearwire
which it did not already own, for some $2.2 billion. The deal will give Sprint a
stronger spectrum portfolio, with assets in the 800MHz), 1900MHz and 2.5GHz
bands.

As for Network Vision deployment, the operator had completed about 12,000 sites
by mid-2013.

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Sprint shut down its Clearwire-branded WiMAX service at the end of 2015. The
company acquired 17,000 towers as part of the Clearwire acquisition, of which
6,000 were considered redundant and would be decommissioned.

Sprint Nextel closed down its 800MHz iDEN network in mid-2013 as part of its
upgrading several networks into a single platform. When the iDEN network was
decommissioned, about 30,000 iDEN installations were taken off air. Most iDEN
customers were migrated onto the CDMA and LTE networks.

In recent quarters Sprint has struggled to cope with aggressive pricing from rivals,
which has contributed to falling revenue since 2013. In response, the operator in
January 2016 finalised plans to save up to $2 billion in overhead costs. Part of the
plan involves relocating radio equipment from towers leased from Crown Castle
and American Tower to infrastructure and property owned by the government,
which costs less. The company will also reduce its dependency on fibre cables
owned by AT&T and Verizon which provide the backhaul link to towers and mobile
switches. Rental charges for backhaul costs Sprint about $1 billion annually.
Instead of this backhaul Sprint planned to use microwave technology for data
transfer.

In March 2016 Sprint revealed plan to pay off its $34 billion debt (more than twice
the company’s market value). Under the plan a newly created subsidiary of
SoftBank will lend Sprint money, using Sprint’s wireless equipment and some
rights to spectrum as collateral. Sprint must make $2.3 billion in debt payments
by the end of 2016 and find $10 billion due by the end of 2020.

The company’s financial difficulties prevented it from taking part in the auction
for 600MHz spectrum, which ended in February 2017.

Table 61 – Sprint wireless financial data – 2009 – 2019

Year (to Mar) Service revenue EBITDA Capex

USD (million)

Please note: All $ are US$ unless stated otherwise

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2009 27,786 5,198 1,161

2010 28,597 4,531 1,444

2011 30,301 4,267 2,416

2012 32,334 4,147 4,884

2013 32,767 4,948 6,987

2014 26,396 6,034 4,685

2015 25,845 7,616 4,860

2016 23,371 8,051 4,089

2017 23,808 9,814 1,950

2018 23,834 11,307 3,319

2019 (H1) 11,502 6,284 2,398

Source: BuddeComm based on company data

Note: 2019 data is the six months to September 2018

Please note: All $ are US$ unless stated otherwise

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Chart 17 – Sprint financial data – 2009 – 2019

Source: BuddeComm based on company data

Table 62 – Sprint subscribers – 2010 – 2018

Year Sprint Nextel Total

Subscribers (thousand)

2010 40,502 9,408 49,910

2011 48,775 6,246 55,021

2012 53,540 2,086 55,626

2013 53,934 - 55,354

2014 54,888 - 55,929

2015 58,359 - 58,359

2016 59,515 - 59,515

2017 54,581 - 54,581

2018 (Sep) 54,547 - 54,547

Source: BuddeComm based on company data

Please note: All $ are US$ unless stated otherwise

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Table 63 – Sprint blended ARPU – 2011 – 2018

Year Sprint Sprint Nextel Nextel

contract prepaid contract prepaid

$/month/subscriber

2011 (Q4) 57.53 24.16 44.74 35.07

2012 (Q4) 63.04 26.30 37.27 35.59

2013 (Q4) 64.11 26.78 - -

2014 (Q4) 58.90 27.12 - -

2015 (Q4) 52.48 27.44 - -

2016 (Q4) 49.70 27.61 - -

2017 (Q4) 45.13 37.46 - -

2018 (Q3) 43.99 35.40 - -

Source: BuddeComm based on company data

Note: Q4 is the quarter to December.

MVNOs

There are several dozen MVNOs in the US market, most of them small and with a
regional focus.

Europe’s largest MVNO, Lycamobile, launched operations in the US and Canada

in late 2012. It claimed to be the first ‘full’ MVNO in the US given that most other
MVNOs host networks for their technology, billing and customer service
functions.

Lycamobile has more than 30 million customers across 16 countries (principally

in Europe, but also encompassing Australia and the Caribbean), all of whom can
make international calls across hosted networks without incurring roaming
charges. In the US it offers nationwide GSM coverage but is concentrated in 18
states. Lycamobile uses the network of T-Mobile USA and has been granted
access to its host’s LTE network.

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TracFone Wireless (98.2% owned by América Móvil) has become one of the
largest carriers in the US. It buys wholesale voice minutes and data from all of the
main MNOs, and manages a number of brands including Net10, TracFone,
Straight Talk, Simple Mobile, Telcel América, Total Wireless and SafeLink
Wireless, each targeted at niche markets. TracFone reported that its subscriber
base fell from 26.07 million at the end of 2016 to 23.132 million at the end of
2017. It fell by a further 8.2% in the second quarter of 2018, to 22.126 million. Most
losses were from the SafeLink unit, which saw a 35.9% drop in subscribers year-
on-year, to 3.265 million.

The MVNO Solavei (launched in late-2012 and operating on T-Mobile’s network)

created an economic incentive for its mobile subscribers: for every three friends
whom an existing subscriber signed up, that subscriber earned $50. For as long
as the new subscribers remained customers the original subscriber earned $20
per month. The pyramid structure progressed to a theoretical limit of $20,000 per
month. The structure was unsustainable: in mid-2014 Solavei filed for Chapter 11
bankruptcy protection. The company hopes to exit bankruptcy in early 2015. The
company reported having 101,500 customers in May 2014, down from a peak of
250,000.

In mid-2013 NetZero signed a five year MVNO deal with Sprint, giving it access to
the 276 million people reached by Sprint’s 3G network. An upgrade to Sprint’s LTE
network was expected towards the end of 2014.

The MVNO EnVie Mobile, hosted on the Verizon Wireless network, suspended
services in March 2017, having launched in October 2014.

In November 2017 Sprint announced an MVNO deal with Altice USA. Sprint also
secured access to Altice USA’s broadband network to support its own network
densification program. Altice USA’s mobile service is expected to be launched by
2019.

Please note: All $ are US$ unless stated otherwise

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Google
In April 2015 Google launched its mobile service, dubbed Project Fi. The service
operates on the networks of Sprint, US Cellular and T-Mobile US. It includes voice
calls and texts as well as Wi-Fi tethering and connectivity to over a million Wi-Fi
hotspots. The service automatically switches between networks depending on
signal strength and speed, and automatically connects to open Wi-Fi hotspots.
Phone calls placed over a Wi-Fi connection can be seamlessly passed to a mobile
network if Wi-Fi coverage is lost. Project Fi also allows users to send and receive
text messages and phone calls from devices connected with Google Hangouts,
which can include phones, tablets, and PCs.

In common with new Google projects, users of Project Fi were initially by invitation
only. Customer attraction to Google’s mobile service is clearly in its low cost
compared to plans offered by the other providers, while its innovation lies in
technology which allows connections to switch between mobile networks as well
as Wi-Fi, depending on which offers the best service. Subscribers can use voice
and text services using their phone numbers from any phone, tablet or laptop.

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■ MOBILE CONTENT AND APPLICATIONS

Mobile music

Music service to cellular handsets is another development gaining pace in the

USA. Music is typically accessed using on-demand streaming or over-the-air
download services to mobile phones over the internet via a mobile or Wi-Fi
connections. Users can either purchase individual songs or albums, or they can
take out a subscription whereby they can access music from a remote library for
the duration of the subscription.

Perhaps the most significant development in mobile OTA music occurred with the
release in 2007 of the iPhone with its offering of iPod functionality. In addition, by
2010 the use of interactive radio on mobile phones was growing rapidly. Mobile
music subscriber services will also become a key feature of the mobile music
market.

M-payment

The m-payment sector has undergone considerable upheaval in recent years, as

operators vie with solutions released by device manufacturers (Apple Pay and
Samsung Pay among them) as well as solutions devised by retailers.

In mid-2012 AT&T, T-Mobile and Verizon launched a joint m-payment service, Isis
mobile Wallet, in partnership with American Express, Barclaycard, Chase and
Capital One. In addition, the leading Point of Sale (PoS) terminal manufacturers
(including Verifone, Ingenico, Vovotech and Equinox) incorporated the payment
function within their hardware. Isis was renamed SoftCard in September 2014.

The carriers depended on their huge collective subscriber base to drive adoption.
SoftCard enabled users to shop and pay for goods and services using mobile
devices, as well as store virtual versions of credit and prepaid cards, coupons and
loyalty cards. Customers could select a payment card then tap their smartphone
on the point of sale terminal. The device required a special SIM card and app, both

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freely available for Android. A third party solution was available for iPhones via an
NFC link. However, in February 2015 SoftCard was sold to Google, which then
integrated it into its competing Google Wallet service. SoftCard’s original backers
have since promoted the Android Pay platform instead.

Sprint has focussed on being the connectivity provider and partner with Google
for its Sprint Wallet tap-and-pay system. Sprint also offers Pinsight Touch to
embed Near Field Communications (NFC) contactless payments in other apps.

Apple operates its Apple Pay platform, based on NFC technology. To make a
payment, customers hold their phones near a contactless reader with their finger
on the Touch ID. One of Apple’s backers, JPMorgan Chase & Co, soon afterwards
developed a competing proprietary wallet and payments system

Google launched its Android Pay platform in September 2015, and since then an
average of 1.5 million accounts have been registered monthly in the US. The
number of locations accepting the system reached two million by March 2016,
when Google began trialling an innovative m-payment system based on
verification by facial recognition. The Hands Free app uses Bluetooth and Wi-Fi
connections with location sensing in smartphones to detect when someone is
near a store enabled with the payment technology. Payment is made by the
cashier confirming customers’ identities by checking the picture customers have
added to their Hands Free profiles.

A number of merchants have also entered the fray, determined not to allow Apple
or Google to dominate the market while capitalising on customer dislike of
charges made by credit cards issuers including Visa and MasterCard. A number
of retailers including WalMart Target and BestBuy set up the Merchant Customer
Exchange (MCX) in late 2014 and launched the CurrentC m-payments service.

Please note: All $ are US$ unless stated otherwise

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M-commerce

Since 2008 a number of established brands have launched mobile commerce (m-
commerce) programs. M-commerce typically includes products and services
ordered on mobile devices. Consumer confidence in m-commerce has grown
markedly in recent years, particularly with mobile banking and similar services.

Recognising that mobile banking is a necessary step to a thriving m-commerce

sector and encouraged by the increasing adoption by customers of smartphones
and data plans, US banks are increasingly allowing their customers to engage in
mobile banking.

A 2014 report from SNL Kagan estimated that mobile entertainment generated
$9.14 billion in revenue in the US, compared to $2.71 billion in 2011. Combined
revenue from mobile games, video, music and location-based services (LBS) has
grown 50% (CAGR) since 2011. Part of this growth has been attributed to the
suitability of touch-screen smartphones for mobile games. Revenue from mobile
games, the leading revenue generator which accounted for 57% of all mobile
entertainment revenue in 2014, grew from $1.47 billion in 2011 to over $5 billion
in 2014. Mobile video generated an estimated $1.8 billion in revenue in 2014,
mainly from advertising. Mobile music is the third-largest mobile entertainment
sector. However, the US ringtone/ring-back business which generated nearly $1
billion in 2008 is now estimated to generate less than $50 million annually.

Retail m-commerce is steadily gaining share of overall e-commerce as a greater

proportion of consumers make use of the capabilities of smartphones. The use
of smartphones for commerce has been facilitated by their larger screens, and by
more robust payment security measures. Growth is expected to be steady (and
higher than equivalent e-commerce sales), accounting for about 21% of combined
m-commerce and e-commerce sales in 2016.

Table 64 – Online retail sales – 2012 – 2018

Year M-commerce sales $ (billion)

Please note: All $ are US$ unless stated otherwise

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2012 24.8

2013 42.5

2014 59.0

2015 (e) 81.0

2016 (e) 105.0

2017 (e) 121.0

2018 (e) 139.0

Source: BuddeComm based on US Dept of Commerce and Industry data

Note: all dollar amounts are US$ unless otherwise stated

Please note: All $ are US$ unless stated otherwise

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