Alltel looks to LTE, but over which spectrum?

Though 4G plans are still three to five years off, regional operator says it can launch over current spectrum, but is on the look out for new licenses

Long Term Evolution is in Alltel’s future, though that future is still a long way off. Alltel said today that it has chosen LTE over rival WiMAX, but it hasn’t formulated any specific deployment plans or looked at funding options. With at three- to five-year time table, though, Alltel still has plenty of time to make those decisions as well as find spectrum to the hang the new network on.

“We are working on the planning phase,” said Alltel chief operating officer Jeff Fox in today’s Q1 earnings call. “We’ll be talking to our board about that for the next two quarters. Certainly there is no money for 4G evolution anytime in our near-term plans. I think from a cash-flow perspective you shouldn’t expect us to talk about 4G anytime at least in 08.”

The big question mark hanging over a future LTE deployment, though, is what spectrum Alltel would use. Fox said that Alltel has plenty of spectrum in its portfolio to support a new network build, but that spectrum all lies in its core cellular and PCS bands. Alltel didn’t win anything in the recent 700 MHz auctions and sat out Advanced Wireless Service auction in 2006. While Alltel could deploy LTE using its current licenses, it might encounter some complications and may be forced to make trade offs.

First, all of other U.S. LTE operators launching on 700 MHz it would have to make an economic case to vendors to supply equipment and devices tuned to either 800 MHz or 1900 MHz. That may not be too difficult considering Alltel’s size—it has 13 million subscribers including the 383,000 it added last quarter. Leap Wireless and MetroPCS, carriers a lot smaller than Alltel, have gotten major vendors to build them CDMA equipment at AWS. Alltel’s 800 MHz spectrum might be ideal for such a deployment. Its high propagation would extend LTE’s reach far into its far flung rural markets. And if other operators with PCS or cellular spectrum commit to LTE, the ecosystem becomes much stronger.

Second, in order to take advantage of LTE’s cost-per-bit capacity advantages Alltel would have to patch together 10 MHz of contiguous PCS or cellular spectrum, which would require taking multiple 1.25 MHz CDMA 1X and EV-DO channels offline. Alltel may have a lot of spectrum, but few carriers can afford to take that much voice capacity offline, especially in larger markets where 4G data demand would be highest. Qualcomm, however, has been evolving the CDMA radio access network to cram far more voice capacity into single 1X channels, which may free up spectrum in the future.

Third, if Alltel manages to build the network on the PCS or cellular bands, it could potential sacrifice a substantial portion of its business. Alltel has roaming agreements with the CDMA operators, which brought in $217.8 million in Q1, more than 10% of its overall revenue. Deploying LTE could potentially open up roaming opportunities with one the country’s largest operator AT&T, but AT&T is building its LTE network at 700 MHz as is Verizon Wireless, and it’s unlikely it would require dual-band devices in order to roam on Alltel’s network.

Alltel, however, said it isn’t committed to building on its current spectrum necessarily. “As everybody in this industry will continue to, we will continue to look for strategically to see if good spectrum to compliment our current position is available,” Fox said. He didn’t identify any of those strategic possibilities, but there are a few options out there that pop out.

“Somebody has to buy NextWave’s AWS,” said Peter Jarich, wireless infrastructure analyst for Current Analysis. NextWave is selling off its extensive spectral holdings in an effort to focus entirely on its infrastructure and technology businesses. Among its portfolio are AWS licenses covering 62 million people, though not necessarily the same 62 million people Alltel wants to cover in its footprint. Other operators have toyed with the idea of deploying LTE at AWS, including Verizon Wireless, but with 700 MHz licenses nationwide, VZW building LTE over its AWS is highly unlikely. NextWave also hold Wireless Communications Services spectrum covering most of the country, but the 2.3 GHz WCS licenses come with their own satellite interference problems.

Another possibility could be a partnership. Ironically, the 700 MHz license-holder covering much of Alltel’s territory is CenturyTel, the ILEC that sold Alltel its wireless operations in 2002. In the 700 MHz auction, CenturyTel paid $149 million for A-block and B-block metro and economic area licenses covering roughly 53% of the operator’s local exchange territories in the west, Midwest and South. Though Alltel has a far bigger footprint and offers service in many mid-sized and large markets CenturyTel doesn’t, CenturyTel’s wireline and fiber services map overlaps Alltel’s in about states. Last month CenturyTel announced it would launch a broadband wireless overlay using its new licenses though it did not name a specific technology or timeline.

Alltel originally registered for the 700 MHz auction, but it emerged with nothing. “We went to the 700 MHz auctions originally to loiter about, to see if it was going to go cheap because then that would have been a great place to pick up some spectrum that fit at a reasonable price,” CEO Scott Ford said. “What was clear within the first week was that wasn’t going to be the case.”

Alltel is now the second CDMA operator to commit to an LTE rollout. Verizon announced its LTE intentions last fall, and in March it purchased the spectrum at the 700 MHz auction to make those intentions reality. The CDMA’s standard’s body the 3GPP has developed its own flavor of 4G, called Ultra Mobile Broadband, but UMB has not garnered any carrier commitments. With both nationwide U.S. CDMA operators, and now Alltel, fleeing to either the WiMAX or LTE camps, the future of UMB looks far gloomier if not entirely non-existent.