Michael Harper for RedOrbit.com
Americans are hungry. We´ve been given a taste of the good life, the sweeter things, and we must have more. With cellular carriers as our Moses, we´ve been led out of the captivity of primitive and faulty cellular technology and have entered the promise land, a land where music streaming and video chats flow like milk and honey.
For years we survived and made due with landline telephones and actual conversations instead of frequent Facebook updates as our Manna, but now that we´ve tasted meat – now that we know what the promised land looks like and have a constant 5 bars of service – we can never go back.
We pray to the gods, asking them to continue to feed and guide us as we assiduously progress in our data consumption. The more data we take in, the more we need, but these carriers only have so much to give.
The truth is, Americans are using more data now than we ever have, thanks to the rising popularity of smartphones. And until these carriers can roll out proper 4G and LTE networks, they will continue to feel the spectrum pinch.
Every carrier uses different bands and frequencies of this spectrum in different markets, and every carrier wants more in order to provide their customers with more of the data coverage for which they so desperately yearn. The FCC manages this spectrum and could end up taking control of the situation, auctioning off unused or unwanted spectrum. Until this happens, carriers will continue to scrape and fight for every bit of spectrum they can lay their hands on, having run-ins with one another over how they handle their own piece of the spectrum pie.
More, we need more!
How much data are we consuming? Last week, the CTIA (the trade group for the American Wireless telecommunications industry) published a report on American´s data usage. According to their study, Americans alone used a whopping 866.7 Billion megabytes of mobile data in 2011, a growth of 123% over the previous year.
According to the CTIA, you could walk around the world 6,962,132 times for 6,596,806 years and listen to 216.7 billion 4-minute songs with that kind of data. Understandably, this dramatic increase comes from an overwhelming adoption of smartphones, which are constantly pulling data from the carriers as they update their location, look for new mail, and update your weather and Twitter feeds. According to the CTIA´s study, the American love for the smartphone isn´t cooling, as 43% more Americans owned the phones in 2011 than in 2010.
Much like Atlas, our carriers have so far been able to shoulder the weight of our world of data, though there have been a few signs of slipping. Cell towers can only handle a certain number of connections and data streams before they reach their limit. For example, the new generation of wireless networking, LTE, can handle 200 connections per 5MHz of bandwidth per cell. Therefore, as more phones are connecting to these networks, a greater strain is placed on the towers, causing degradation and outages, much like the ones we saw this past October as an influx of new iPhone 4S users jumped on Sprint´s CDMA2000 network.
Army Surplus Spectrum
Even the federal government has stepped in to help. In March, the Commerce Department said they would share a block of their sanctioned spectrum once used by NASA and the Department of Defense with cellular carriers. The National Telecommunications and Information Administration (NTIA) announced their willingness to help this way: “In today´s wireless world, the demand for spectrum from consumers, businesses, and federal users continues to grow at a rapid rate.”
Not only is this spectrum within existing frequencies, making it desirable to carriers, but there is also plenty of it. The NTIA says they are sharing enough spectrum to support at least 2 new national carriers.
The government won´t be without their own spectrum, of course. Currently, there are an estimated 2 dozen federal agencies using about 3,100 individual frequencies in the 1755-1850 MHz range. Military and law enforcement agencies, for example, operate their missile guidance systems and video surveillance equipment on these frequencies. With their spectrum now sent off to the carriers, they´ll have to move further up the frequency ladder and developing new technologies to work within their new territory.
Bands and Blocks
On a grid with lower frequencies (3 kHz) at the bottom and higher frequencies (30 GHz) at the top, the larger and more numerous chunks of mobile spectrum fall between 30 MHz and 3 GHz. Our cellular networks and smartphones run within these frequency bands, and each of these bands are split into chunks or blocks to be used throughout different markets and areas in the country. The lowest of these bands are mainly used by small carriers, either in rural areas or large metropolitan areas.
Further along in the spectrum are the AWS bands, which were auctioned off mostly to T-Mobile back in 2006. These bands operate at a higher frequency–between 1710-1755 MHz and 2110-2155 MHz–covering a larger swath of land and handling larger amounts of traffic. As it stands, all carriers operate within these frequencies, dolling out their coverage within specific blocks. Things tend to get crowded, though, as these carriers are trying to buy off pieces of these blocks in order to roll out new technologies and improve their coverage.
Auctioneering
The FCC may have a solution to the current spectrum pinch: Incentive Auctions. In these auctions, current spectrum holders would be able to trade in their licenses to be auctioned off in return for a part of the proceeds.
The FCC has been using similar auctions to slice off chunks of our Nation´s spectrum, and carriers are willing to pay big money. In 2008, the FCC auctioned off close to 54 MHz of spectrum blocks to AT&T, Verizon Wireless and others for $19.6 billion.
These Incentive Auctions sound like a great idea, but it has yet to be decided what kind of role the FCC will play in these auctions. To begin, the FCC needs to decide how these auctions will play out. FCC commissioner Robert McDowell sounded tentative at best as he told Forbes he was bracing for “the most complex auctions in the history of the world.”
FCC Chairman Julius Genachowski has put together a task-force in order to come up with the best way to carry out these auctions.
So far, the FCC says those spectrum licensees who aren´t using their take of the spectrum as efficiently as possible will be invited to put up their take for bids. These licensees will then be able to set a minimum bid they are willing to take in order to sell their license.
If the FCC can take this spectrum and organize it into larger chunks, everyone wins. Carriers stand to benefit as these larger blocks will become more appealing to those who wish to purchase their own chunk of spectrum and customers will see the benefit as interference will be dramatically reduced as the spectrum isn´t spread out among each of the carriers.
The big question yet to be answered is whether the FCC should take a Republican or Democratic approach to these auctions? Which is to say, should any qualifying company be able to attend these auctions and bid on spectrum without any restrictions, or should the FCC step in to make sure the little guys get their fair share of spectrum? Leaving this fight to the carriers has proven to be just as bloody as it is confusing and tedious.
Carriers duke it out
One of the big headlines a little more than a year ago was the proposed acquisition of Deutsche Telekom´s American carrier, T-Mobile by AT&T. Ma Bell tried to paint their purchase in a rosy glow, saying the acquisition would mean “straightforward synergies” for their customers in addition to a “significantly increased LTE footprint.”
Upon hearing this news, carriers, customers, and even some politicians began to voice their disdain for the idea, urging the FCC to put an end to the acquisition.
In December, the FCC did just that, squelching the hopes and dreams of AT&T. As a part of the agreement set out in the beginning stages of the acquisition, T-Mobile now stood to receive quite the parting gift from AT&T, including but not limited to $3 billion, a 7-year UMTS roaming deal, and last but not least, 128 market areas of precious AWS spectrum. Of these markets were a coveted 12 top markets out of 20. Such a payoff could send AT&T looking elsewhere for spectrum as they look to roll out their LTE coverage. As it stands, they have some 700MHz frequency band spectrum at their disposal, and they may now have to rely more heavily upon it.
Though the request for the transfer was placed in January 2012, it wasn´t approved until April 25. Now, it is expected that T-Mobile will take their newly acquired spectrum and begin to use it in their proposed LTE rollout.
Now content with the spectrum blocks in the 128 Cellular Market Areas they´ve just been given, T-Mo has asked the FCC to reject Verizon Wireless´ purchase of unused, AWS spectrum from cable companies such as Comcast and Cox Communications. According to a letter in the FCC´s files, T-Mo thinks Verizon Wireless shouldn´t be allowed to purchase this AWS spectrum because they aren´t using the spectrum they already own.
As reported by eweek.com T-Mobile counsel Jean Kiddoo told the FCC, “In particular, the T-Mobile Representatives discussed the fact that, unlike T-Mobile and other wireless carriers, Verizon Wireless has not used its existing AWS spectrum in any way in the six years it has held the licenses, and that the instant transactions would add even more AWS spectrum to Verizon Wireless´ unused spectrum inventory.”
Not wanting to look like the spectrum hog, Verizon Wireless has offered up their unused A and B bands of 700 MHz spectrum that they won in a 2008 auction. Previously, these bands were used for broadcast television.
Verizon´s offering of their A and B band spectrum may not be as attractive as the company thinks. This lower frequency and lower quality spectrum can travel long distances, but as it was created to be used for broadcast TV, any device operating on these bands could potentially interfere with television programs, specifically those airing on channel 51. Furthermore, these bands only cover small metro regions and are much less useful than higher frequency AWS bands in the same area.
In addition to potential television interference, Kevin Smithen, analyst at Macquarie Capital, said in a research note these bands will only receive “minimal interest from bidders with immediate LTE spectrum needs.”
So who would buy these frequencies? Look no farther than AT&T, who has decided that playing a short game will prove more profitable for them in the long run and may be looking to beef up their current 700 MHz offerings.
During this year´s Mobile World Conference in Spain, AT&T president and CEO Ralph de la Vega announced the company will continue to shore up their spectrum offerings by thinking small.
“We´re looking for small acquisitions and will continue to look for more, since we don´t see data growth slowing,” de la Vega said during a recent conference call with investors.
In the same call, CEO Randall Stephenson noted 10 smaller deals had closed in the first quarter, saying they are still waiting on 4 more to clear with the FCC.
Neither Stephenson nor de la Vega had any comment about the purchase of Verizon´s cheap bands.
Spectrum does not a great carrier make
In the end, it is the customers who stand to benefit once the spectrum pinch is resolved and carriers are serving up all the bandwidth they desire. An incentive auctioning process could be a welcome relief to a world where carriers are picking and fighting to get their hands on whatever amount of spectrum they can.
It should also be noted that sheer concentration of one carrier´s brand of spectrum does not ensure dominance or higher profits. Though having ample amounts of spectrum does increase a carrier´s ability to compete against their rivals, there are other factors at play in this game, and simply carrying a larger stick doesn´t entitle one team to a victory. Carriers must be able to deliver this spectrum, must be able to roll it out to their customers, and must give their customers a reason stay as well as provide potential customers with a reason to switch.
In the end, every carrier is feeling the pinch of the spectrum shortage, and until high frequency 4G networks are rolled out or the FCC takes control of the situation, carriers will continue to fight for whatever they can get.ht
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