What’s next for Sprint and T-Mo? It’s all about the spectrum auction, baby

Now that Sprint(s s) has given up on buying T-Mobile(s tmus), it looks like we’re going to have four nationwide carriers in the U.S. (check out our visual history here), at least until a more pliable administration is office. Sprint and T-Mobile will plan for their futures as independent carriers, and that means they’re almost certainly looking ahead to next year’s broadcast spectrum incentive auction.
The incentive auction will mark the FCC’s first major release of new mobile airwaves since the 700 MHz auction in 2008 and the Advanced Wireless Services auction in 2006. Those bands became the foundation for the vast majority of the country’s LTE networks, and likewise the auction results will shape carriers’ mobile broadband plans for years to come.
The auction isn’t without controversy since it will effectively transfer airwaves once reserved for broadcast TV to the commercial mobile industry. It’s also not without complexity since the format involves a reverse auction in which broadcasters agree to sell off their spectrum, a repacking process in which the frequencies are grouped into licenses usable for mobile, and a forward auction in which the carriers actually bid. But if everything goes the FCC’s way, a substantial amount of capacity will become available in major cities across the country.

regional mobile carrier

Source: Shutterstock / Nneirda

T-Mobile and Sprint are particularly interested in this band because of where it’s located on the electromagnetic spectrum: 600 MHz. In the mobile world, those are low-band frequencies capable of spanning long distances and punching through walls. They’re ideal for building a network with greater coverage.
Coverage has always been a knock against T-Mobile and Sprint since their 4G networks don’t venture far beyond metro areas. And given they both own primarily mid-band and high-band spectrum, they’re at a distinct disadvantage if they actually tried to build such far-reaching coverage footprints. T-Mobile has partially addressed the issue by buying some of Verizon’s unwanted 700 MHz licenses, but those licenses only cover about half the country. Meanwhile, Sprint’s LTE networks are way up in the 1900 MHz and 2.5 GHz bands, though it is starting to repurpose its old Nextel spectrum at 800 MHz for 4G.
AT&T and Verizon have already started building two-tier LTE systems, initially using their 700 MHz spectrum as a kind of coverage blanket and then surgically implanting capacity in the cities with their higher-frequency bands.
Sprint and T-Mobile want to do the same, just in reverse. T-Mobile has already built a dense layer of capacity in big cities, and Sprint is starting to with its new Spark network. If they want to compete head-to-head with Verizon and AT&T outside of the cities though, they need to fill the gaps in between.
Sprint and T-Mobile would have adopted a similar auction strategy if they merged — in fact they were looking into ways to coordinate their bidding — but they’ll be forced to do so individually now. Both, however, will have a sizable advantage when bidding in the auction. The FCC recently proposed rules that will set aside blocks of 600 MHz airwaves for any carrier that isn’t AT&T and Verizon.
Marcelo Claure

Marcelo Claure

The auction is still a year away, and Sprint in particular has a lot of soul-searching to do in the interim. Now that a big merger is no longer a possibility, Sprint’s newly appointed CEO Marcelo Claure needs to focus on the customers, spectrum and networks Sprint already owns rather than the ones it could potentially buy. As I wrote in my analysis of outgoing CEO Dan Hesse’s tenure, Sprint is often more inclined to hold out for future events than it is in coping with the present.
Hopefully, Claure will take a page from T-Mobile’s book. After its failed merger with AT&T, a reinvigorated T-Mobile began aggressively attacking the competition and rapidly building out its 4G network. Sprint could stand do the same, revamping its service plans and accelerating its snail-slow 4G network rollout.
Meanwhile T-Mobile still has suitors. French ISP Iliad has put in a bid to buy a controlling stake in T-Mobile, but if its succeeds ownership of T-Mobile would effectively transfer from a German carrier to a French one. The deal would have no impact on T-Mobile’s ability to compete in the U.S.
This post was updated on Thursday to add more details about Sprint’s LTE rollout.