Marek’s Take: Will small operators survive in a 5G world?

Marek's take

Verizon’s October 19 announcement that it was buying Kentucky rural wireless operator Bluegrass Cellular for an undisclosed amount was touted as a move by Verizon to strengthen its rural coverage. The deal, which is subject to FCC approval, is expected to close in early 2021 and Bluegrass Cellular customers will likely seamlessly transition to Verizon’s network thanks to Bluegrass Cellular’s long-standing relationship with Verizon. 

The move didn’t come as a surprise to many. For the past decade Bluegrass has been part of Verizon’s LTE Rural America program. That program was innovative because Verizon let those members of the LTE America program lease some of its 700 MHz spectrum and also its AWS-1 spectrum to build out their LTE networks. Verizon also provided these members with access to the company’s network vendors and its LTE device portfolio. In return, the LTE Rural America members like Bluegrass became reciprocal roaming partners to Verizon, which allowed the operator to give its customers access to rural LTE coverage quickly and cheaply.

“A lot of these small wireless operators are family businesses,” said Roger Entner, founder of Recon Analytics. When asked whether we should expect more acquisitions like this, Entner said yes. “It’s a retirement wave,” he added, noting that many of the CEOs of these smaller operators are nearing retirement age. 

In addition, Entner said that this is a good time for smaller carriers to sell to the larger players like Verizon because that way they don’t have to worry about making the transition to 5G and they can be acquired while their companies still have strong valuations.

Timing is right

From Verizon’s perspective, the acquisition of Bluegrass allows the company to add to its rural footprint at a very strategic time. Both T-Mobile and Verizon have recently started offering LTE fixed wireless services in many markets (including rural areas) after seeing an uptick in demand as more people work and study from home due to the COVID-19 pandemic. In addition, both operators are also hoping to capture some of the broadband customers in AT&T’s DSL footprint now that the company has said it will no longer accept new DSL orders.

And competitor T-Mobile has made it clear that it will aggressively go after the rural U.S. with its 5G coverage. Neville Ray, T-Mobile’s president of networks, told attendees at the Competitive Carriers Association (CCA) virtual conference last week, that the company was rolling out its 5G service on its 2.5 GHz mid-band spectrum at a “furious pace” and adding 1,000 mid-band 5G cell sites every month. Ray specifically said that the company was adding service to smaller cities and rural areas as well are urban areas. In addition, he also said that T-Mobile would offer 5G fixed wireless service to 50% of U.S. households in the next six years.

Fast followers or no followers?

Smaller operators may prefer being acquired instead of having to put a lot of money toward deploying 5G in their markets. Although the FCC is trying to help offset the costs of 5G by proposing a $9 billion fund to support rural 5G deployments, it will likely take some time before that funding is available as it is supposed to subsidize deployments over a 10-year term. The commission is currently slated to vote on a framework for the fund this week.   

And while it’s not unusual for smaller operators to let the bigger Tier 1 carriers deploy new technologies first and then follow with their deployments later (we saw this with 3G and 4G), there is growing pressure to get 5G rolling, particularly as the three Tier 1 operators have all announced that they have nationwide 5G footprints.

And apparently smaller operators are starting to feel some pressure. During last week’s CCA conference, I sat in on a panel called “Selling 4G in a 5G World.” While the topic seemed on target for CCA members, many of which are rural operators, I was surprised to hear panelists at a wireless industry show suggest that there is no real value in 5G. As Al Dummer, director of marketing at Cellcom, noted: “Most consumers that are looking for the cutting edge aren’t hanging with us anyway.” 

Perhaps not. But as the bigger operators like T-Mobile start to make inroads in rural markets with 5G, these smaller operators are going to need to be ready to compete.