T-Mo CTO Neville Ray talks about challenges with dynamic spectrum sharing

T-Mobile US reported a fourth quarter that was full of superlatives: record service revenues, record total revenues, and continued strength in customer gains and profits.

T-Mo had fourth quarter service revenues of $8.7 billion, up 6% year-over-year, and total revenues of $11.9 billion, up 4% compared to the fourth quarter of 2018. Net income was up 17% for the quarter, to $751 million.

T-Mobile US had previously released preliminary customer numbers for the quarter, in which it added 1.9 million total net additions and 1.3 million branded postpaid net additions. Of that number, 1.0 million net additions were branded postpaid phone net additions, an industry best. The carrier’s branded postpaid churn was up slightly year-over-year to 1.01%.

“As you can see from our results today, we continue to fire on all cylinders and will absolutely remain a disruptive force, solving pain points and delivering value to customers,” said CEO John Legere on the quarterly call with investors.

Meanwhile, the carrier is still waiting on a ruling in the court case that will determine whether its proposed merger with Sprint moves forward.

“We’re waiting the judge verdict and we remain confident in a positive outcome. We firmly believe that the facts are on our side,” said Legere on the company’s quarterly call with investors. He added later in the call that “we know we are going to win, we just don’t know when. … We are hoping it’s imminent.”

T-Mobile US recorded merger-related costs in the fourth quarter of $126 million before taxes, and expects first-quarter 2020 costs to be between $200 million-$300 million — which includes about $150 million in fees payable to Sprint if the merger does not close.

Legere is preparing to leave his CEO role at T-Mobile US. Mike Sievert, current COO, will take over as CEO.

In early December, T-Mobile US launched its 5G network, with coverage for more than 200 million potential customers across more than 1 million square miles using its low-band 600 MHz spectrum, which Sievert called “a stark contrast to Verizon’s fragmented 5G strategy to sprinkle 5G connectivity across 20 some square miles in select American cities.”

Ray said that the company expects in terms of its 5G coverage, it could increase its current footprint by 30% or 40% in 2020.

“That footprint is going to expand materially. A lot of that reach will expand into a broader swath of the U.S. including rural,” he said.

The carrier has already launched three 5G smartphones and said that it expects more to come, with those phones “expected to operate across multiple spectrum bands,” according to Sievert—and the carrier is expecting a major increase in device upgrades. “We’re looking forward to a potential 5G device super cycle, given our lead in nationwide 5G coverage,” he added.

Meanwhile, T-Mo is “at parity with AT&T and Verizon” on LTE, Sievert said, with 327 million Americans covered. T-Mobile US has more than 33 million devices on its network that are 600 MHz-compatible, and its 600 MHz spectrum reaches 1.5 million square miles and about 248 million POPs, Sievert said.

T-Mobile US said it expects to make capital expenditures in 2020 of between $5.5-5.8 billion. That reflects a “slight dip,” Sievert noted, as the low-band roll-out shifts somewhat toward 5G as well as the continuation of the 600 MHz build-out.

“We are continuing a very aggressive rollout,” Sievert said. “It’s amazing what happened during 2019, what [CTO] Neville [Ray] and the team accomplished on the 600 MHz rollout in 5G. We have very large aspirations for this during the year, which does drive more [operating expenditures]  into the question.”

Ray said that in some markets, T-Mo has 30-40 megahertz of spectrum deployed with the addition of 600 MHz. Asked about customer experience on LTE versus 5G, Ray said: “The incremental experience is good. But we’re just getting started and we have a long, long way to go. Obviously, with the closing of the transaction, the hopeful closing with Sprint, you’re going to see an incredible layer of depth of spectrum, especially in metro and urban areas to start going in on top of what we’ve done with 600 MHz 5G. … It’s way too early to talk about how much utilization there is. We’re seeing good pickup on the two devices we launched in December, but it’s very early days still … for the industry.”

Asked about various network technologies, Ray said that T-Mo sees the Citizens Broadband Radio Service “primarily a small cell spectrum layer. It has some material limitations. Not so much from the sharing, but from power limitations, but there’s something there. And so, it joins the toolbox, so to speak, and we have unlicensed, other opportunities we continue to explore and expand upon. … I don’t think it’s going to be transformative. … But it can be helpful.”

He was less positive about Dynamic Spectrum Sharing, in which both LTE and 5G operate in the same swath of spectrum.

“We’ve been a key proponent and driver of that technology, but it’s late,” Ray said, adding, “What we’re seeing, unfortunately, as you know, we are seeing some vendor delays there. There’s a lot of information coming through as we start to fully test software and capability in the future. … We’re seeing as we learn more that, as you deploy DSS, it kind of eats away on the net capacity of the shared radio. And if you rush into that now, some of the early roll-outs and workarounds and pieces that we’ve seen are pretty corrosive and they would suck up capacity just by rolling out the feature.”

“It’s to be a tough year on DSS,” Ray said, adding that “I’m not being super negative about it. I’m just saying it’s got challenges.” But, he said, “We’ll keep pushing. The industry will. The good news for us is that we clearly, as we’ve demonstrated, don’t have to wait for DSS for our low-band deployment.”

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