In March of last year, the FCC, as requested, sent its National Broadband Plan to Congress. In the plan, the FCC said we are facing a nationwide spectrum shortage for commercial broadband services and vowed to "find" 500 MHz of additional broadband spectrum over the next ten years. Of that, 300 MHz was to be identified within the first five years of the plan and an additional 200 MHz during the second five years.
The FCC's Office of Broadband Information (OBI) followed up the report with a study showing that demand for wireless broadband services is doubling and doubling again and that by 2012 we would be short about 95 MHz of spectrum and by 2014 we would be more than 200 MHz short. This bolsters the FCC report to Congress but the network operators are also reporting unheard-of growth in the demand for data. AT&T, for example, reported an 8,000 percent increase in broadband data in only three years and with tablets entering the market in large numbers, the increase in broadband data will continue to soar.
So the FCC report should be good news, but it is important to put this into perspective and to understand the real timeline for when this spectrum will become available. As you know, we cannot make more spectrum and all of the spectrum available today is already licensed to some group or set of users. This includes the government spectrum, which is controlled by the NTIA and not the FCC, so the NTIA and FCC will have to work together to find spectrum that can be converted to broadband usage. One other point to understand is that not all of the spectrum in use today is suitable for mobile broadband service. In reality, the lower limit for broadband spectrum is about 500 MHz. Below that, antennas and other components are simply too big to fit into a handheld device. At the upper reaches of available spectrum, the cut-off, today, would be around 3000 or 3500 MHz (3 to 3.5 GHz) and in this portion of the spectrum, cell site coverage would be very limited and in-building penetration almost nonexistent. So effectively, spectrum must be found in the 500 to 3000 MHz range.
Now let's look at the timing for putting this new spectrum into the hands of existing or new commercial operators:
- 1) Identify the spectrum for reallocation Year 1
- 2) Identify the existing license holders on the spectrum Year 1
- 3) Decide where these users can be relocated and who will pay Year 1
- 4) Set up an auction of the spectrum Year 2
- 5) Auction the spectrum Year 3
- 6) Award the spectrum to the winners and design relocation plan Year 3
- 7) Begin relocating existing users Year 4
- 8) Finish band clearing and begin broadband build-outs Year 5
- 9) Build out to cover 40-50% of U.S. population Year 6
In other words, from the day this spectrum is identified until the first customer can use it will take six years, and the FCC's OBI organization says that by 2014 we will already be 200+ MHz of spectrum behind the demand curve. This is why, today, the currency of the wireless industry is spectrum and not money.
This is why Cingular and AT&T merged. Cingular did not have enough spectrum and AT&T had more. This is also why AT&T bought the Qualcomm Media-FLO spectrum in the 700 MHz band, and this is one of the reasons AT&T is attempting to buy T-Mobile. T-Mobile does not have enough spectrum to roll out LTE, but added to what it has, it puts AT&T in a great spectrum position. The other reason AT&T is buying T-Mobile is that it will gain more cells sites than it could get permitted and built over the next five years, and the true wealth of a network operator is a combination of spectrum holdings and the number of cell sites in service.
This being the case, what is next for the industry assuming the AT&T/T-Mobile deal happens? To answer that, you only need to look as far as which networks have spectrum that would be of value to Verizon and others. The answer is two networks, one of which is already 54 percent owned by the first one, Sprint. Sprint has a large amount of 1900 MHz spectrum and once Nextel is shut down (2013?) it will also have some broadband-capable spectrum in the 850 MHz band. All of this spectrum would be of considerable use to Verizon, and while Sprint appears to be on the mend, I am not sure the AT&T and T-Mobile announcement did its stock any favors.
Next is Clearwire, struggling to make a go of it with WiMAX, struggling to add customers, and struggling to have its wholesale customers add customers in significant numbers. It is running out of cash but is very strong in spectrum currency. In fact, one of the ways it has been trying to fund the company is to sell part of its 2500 MHz (2.5 GHz) spectrum holdings. Unfortunately, the prime candidate for this spectrum was T-Mobile and the possibility of that happening went away with the AT&T announcement.
The FCC and others in the federal government want more competitors, not fewer. However, in the United States we pay some of the lowest voice and data rates in the world and they have continued to decline every year. (With all-you-can-eat data plans going away that decline in pricing will slow but the pricing changes are needed to help network operators manage their networks more efficiently.) I don't believe mega mergers will increase our voice and data costs. I do believe the feds need to look at the competition on a market-by-market basis rather than nationwide.
In the top 100 markets, AT&T and Verizon are competing with three or four other network operators. As an aside, while the FCC wants more nationwide competitors, it should also understand that of today's four nationwide systems, ONLY ONE started out being nationwide. The others became nationwide through mergers and acquisitions.
The bottom line: The FCC is trying to help with more spectrum but it is at least six years away and the demand for broadband services is increasing at a fast pace and will continue to do so. Therefore, the network operators are trying to bolster their own spectrum holdings the only way they can and that is to acquire the spectrum from others that have it. There is one way the FCC could quickly and easily add 180 MHz of spectrum for broadband; it could mandate that within two years all TV stations on channels 31-53 would have to relocate below channel 30. That would open up spectrum that could be put into service within three to four years instead of six. But the National Association of Broadcasters (NAB) would most likely keep that action tied up in Congress and the courts for two to three years so even that opportunity is not viable.
Demand for broadband services will not slow down anytime soon. The feds are doing their best but won't have more spectrum available in time, so operators will have to fend for themselves. The AT&T/T-Mobile announcement should be the start of a very interesting next year or two.
Andrew M. Seybold is an authority on technology and trends shaping the world of wireless mobility. A respected analyst, consultant, commentator, author and active participant in industry trade organizations, his views have influenced strategies and shaped initiatives for telecom, mobile computing and wireless industry leaders worldwide. www.andrewseybold.com.