September 01, 2011

Short Selling - the Great Spectrum Debate

This article originally appeared in the Sept. 2011 issue of Next Gen Mobility

The demand placed on wireless spectrum by one smartphone is equivalent to 24 cell phones; a device running an Apple (News - Alert) or Android operating systems equals 96 non-smartphones; and one tablet is equal to 122 cell phones. That’s in part why we have been hearing a lot lately about how we, as a nation, are short on spectrum relative to our wireless communications needs.

Our collective thirst for mobile connectivity, cellular network operators warn us, is quickly outstripping their ability to quench it. Sure, many carriers are building new and more capacious networks to feed the need, but many cellular carriers argue that is just part of the fix.

AT&T is among the companies most ardently pushing this message. At this spring’s CTIA event,

AT&T Mobility’s Ralph de la Vega, commented: “It’s in the public interest that we solve that pending spectrum exhaust issue.”

The quest for additional capacity and spectrum are two of the key justifications for AT&T’s move to purchase T-Mobile (News - Alert). In a public statement filed with the FCC in June supporting the proposed acquisition, Wayne Watts, AT&T senior executive vice president and general counsel, said: “This merger is about adding capacity and improving existing voice and data services while simultaneously enhancing the capabilities of the combined companies to roll out next generation wireless broadband services to 97 percent of Americans. Ultimately, the capacity and efficiency gains this merger will create are a public interest benefit, and will create the ability to provide enhanced services at lower cost. These benefits underscore why this transaction should be promptly approved. Our opponents aren't really concerned about competition or prices. The posturing of rivals such as Sprint is about one thing: their desire to compete against a capacity-constrained AT&T and a T-Mobile USA that has no clear path to LTE.”

As the above quote indicates, not everybody is on board with the argument that there’s a spectrum shortage, especially when that conversation relates to the proposed AT&T-T-Mobile. Indeed, Sprint recently presented a technical analysis to the FCC (News - Alert) arguing AT&T doesn't need to acquire T-Mobile to solve its spectrum shortage. Instead, Sprint said in a statement, “AT&T could increase its capacity by developing its warehoused spectrum, accelerating its 4G network build out, and implementing a more efficient network architecture, just as other wireless carriers around the world are doing today.”

Verizon Wireless (News - Alert) hasn’t come out against the AT&T-T-Mobile deal, but at CTIA in March Verizon Wireless President and CEO Dan Mead commented that his company feels very good about its spectrum position.

Meanwhile, some pundits have argued that if the powers-that-be in Washington approve the AT&T-T-Mobile deal, part of the terms of the agreement might require the company to hand off some of its spectrum to others in need of such assets. But Chris Guttman-McCabe, vice president of regulatory affairs at the CTIA, says that would do nothing to alleviate the spectrum shortage. There is currently 409mHz of spectrum available in the market now, and there will be the same amount available after the deal, he says, so there is going to be a need for more spectrum either way, a point on which Guttman-McCabe says all of CTIA’s members agree.

The U.S. is in a unique position right now given it is leading the world of wireless. More than 90 percent of the world’s LTE subscribers are in the U.S., as are more than 70 percent of worldwide WiMAX subscribers. Additionally, he notes, the U.S. is the home base of wireless handset innovation.

“We want to make sure the government helps us maintain that leadership,” he continues, noting that the wireless industry is not looking for financial aid, but rather for the ability to pay handsomely for reallocated spectrum. He also points to the fact that governments elsewhere in the world already have considerable spectrum in the pipeline for the mobile industry.

The CTIA has been lobbying the government to reallocate spectrum and make it available at auction to its members. Many in the U.S. government seem to be onboard. FCC Chairman Julius Genachowski has repeatedly referred to the need for more spectrum to help respond to, and further fuel, the wireless data boom. And various members of Congress have made similar calls.

But just how much new spectrum would do the trick? Where will that spectrum come from? And what’s happening, if anything, to get the ball rolling?

Guttman-McCabe of the CTIA tells NGM that his group endorses the call by President Obama, Chairman Genachowski and Congress to bring 500mHz to market in the next 10 years. Under this outline, he says, 300mHz of spectrum would come available to U.S. wireless carriers within the next five years. That spectrum would have to be below 3gHz, which he describes as the “sweet spot” for mobile usage.

The FCC and the NTIA have identified a number of bands from which this spectrum could be captured. That includes spectrum at 2gHz, which is currently known as the mobile satellite spectrum; reallocating and repackaging this broadcast spectrum, Guttman-McCabe says, could create 120mHz of open spectrum. The NTIA, meanwhile, is talking about repurposing spectrum in the 755-815mHz frequency that is currently used by the Department of Defense and other government agencies; Guttman-McCabe notes that  95mHz of spectrum in that band. He adds these choices make sense because such spectrum can easily be paired with existing Advanced Wireless Services, or AWS, spectrum used by the wireless service providers.

Not only do wireless network operators and mobile equipment companies stand to benefit from such spectrum allocation, so does the U.S. government and the country at large, says Guttman-McCabe. For every dollar spent on network infrastructure, he says, between $7 and $10 of wealth is created. And a white paper that the CTIA and the Consumer Electronics Association (News - Alert) jointly presented to the FCC in February says reallocating and auctioning off 120mHz of what they call “underutilized broadband television spectrum” would produce more than $33 billion in net proceeds for the U.S. Treasury. This money, which the associations say represents a conservative estimate, could be used in part by the government to offset the deficit and fulfill the vision outlined in The National Broadband Plan. A share of the funds, he adds, also could go to the organizations that currently have rights to the spectrum.

Guttman-McCabe refers here to the fact that the CTIA and certain folks in government have been discussing the idea of holding what are known as incentive auctions. Such auctions would give current spectrum users a financial bump from ceding their spectrum, and perhaps convince them to loosen their grip on these assets in the interim.

“This is a process,” says Guttman-McCabe. “We do have bipartisan and bicameral report for this in Congress. Part of the way to repurpose the broadcast and satellite spectrum is for some of the proceeds for the auction to go the companies that give up their spectrum rights.”

But legislation will be required before such incentive auctions can take place, he says, so CTIA is hoping that when Congress goes back in session this month it will consider that.

Edited by Jennifer Russell

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