Spectrum is the currency of true value for commercial network operators. The demand for broadband services continues to surge ahead month after month and all of the network operators are saying they need more spectrum. The failed AT&T/T-Mobile merger was about spectrum and cell sites, the failed LightSquared bid to build a nationwide broadband network on spectrum too close to the GPS band was about demand for broadband services, and certainly the contested Verizon/cable company deal is about spectrum.
In its broadband report to Congress in 2010, the FCC promised to "find" 500 MHz of additional spectrum, 300 MHz of it within five years. Congress has authorized more spectrum to be auctioned, including the AWS-2 and AWS-3 bands followed by incentive TV auctions. But turning even this spectrum into productive, available broadband spectrum will take years to accomplish. It first must be auctioned, then cleared, and then new systems and devices must be built to include this spectrum as well as the existing spectrum. AT&T is eyeing the 2.3-GHz band for additional LTE spectrum but has admitted that this is a four to six year process. Meanwhile, Verizon and AT&T are considering doing away with their 2G systems in order to upgrade that spectrum to LTE. However, that too will take years to complete.
The federal government, including the FCC, seems to be of two minds when it comes to spectrum issues. On one hand it recognizes the need for networks to increase their spectrum holdings, but on the other hand it is concerned that permitting mergers and acquisitions will decrease the number of competitors and, therefore, cost consumers more money. The rationale for why customers would have to pay more is that with fewer networks there would be less competition, and the theory is that the remaining networks would not have an incentive to continue to lower prices. The reality of the situation is that wireless pricing has fallen in the United States and the rest of the world every year. Yes, unlimited broadband plans are a thing of the past at most networks, but that is because there is such high demand for broadband services that network operators have to find ways to manage the spectrum they do have. Even so, broadband pricing is declining year over year.
I find it interesting that in China five or six years ago, the government looked at the fact that there were six operators, network expansion was slow, and prices remained high. It combined these six network operators into three and now network expansion has increased, prices have dropped, and each of the three remaining companies is making money. So I don't buy the "we have to have more networks in order to drive prices down" mentality that some within the beltway have today. Competition needs to be viewed first on a local level. Eighty-five percent of all wireless customers don't travel out of their prime areas, so measuring the number of network operators by how many are nationwide is faulty logic. The measurement should be how many choices people have on a local basis, and that answer is more than four and up to six per region.
Spectrum is a finite resource. There is no more. Some talk about spectrum sharing, some talk about smart and cognitive radios, and better ways to manage spectrum. These are all good ideas and some of them will probably help us in the future, but in the future we will also have more spectrum, better spectral efficiency, and other ways of managing broadband usage. The issue is not the future, it is the near future. What do we do now?
There are only a few ways to increase capacity on a wireless network. First, we can make use of more spectrum or replace 2G and 3G networks with the more efficient 4G networks. Both of these solutions will take years to implement.
Second, we can build more cell sites closer together and off-load networks using femtocells and Wi-Fi access points. But building more cell sites closer together is expensive and time consuming. Perhaps in Dayton, Ohio, a new site can be located and built within six or nine months, but in California and on the East Coast it takes closer to one to three years.
Every time I go to a planning commission hearing for a new cell site I hear the same thing. Neighbors don't want the site built, BUT they do complain about poor coverage or data congestion. Off-loading systems using femtocells and Wi-Fi access points is occurring more and more. T-Mobile is the leader in off-loading its traffic onto Wi-Fi access points and it has been doing this for years. Now the other network operators are also moving quickly in that direction.
It will take all of these methods over time to help manage the capacity issues. It will also take the federal government changing its attitude about competition and how many networks are needed to ensure that consumers get the best prices.
If I could make it happen, I would allow AT&T and T-Mobile to merge, then I would expect Verizon and Sprint to merge. That would give us two super-carriers, and we would still have four or more network operators per region. I believe the competition would be even more intense, not less so. One thing the government seem to have overlooked is that AT&T and Verizon built their nationwide networks by merging or buying other network operators. AT&T merged with Cingular (which was a combination of BellSouth and Southern Bell); and Verizon was a combination of Bell Atlantic, GTE, and others. What is to prevent Leap, MetroPCS, or others to combine resources and create a nationwide network operator?
We should let the free market determine how many networks of what size we can support. Forcing more competition into the market does not make sense, but allowing companies to grow and acquire others that have spectrum and cell sites that will help them better serve customers does. We won't solve our spectrum shortage by regulating the number of operators and restricting the spectrum deals that are needed in the short term to meet demand. If we continue along this path, consumers will suffer, finding their networks more and more congested. Isn't it the consumer that the federal government is trying to protect?
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