Ahead of a major new spectrum auction scheduled for next year, America's four major wireless carriers are jockeying for position in the frequencies available to them, buying, selling and trading licenses to important parts of the nation's airwaves.
Surging demand for mobile bandwidth, fueled by an increasingly saturated smartphone market and data-hungry apps, has showed no signs of slowing down – Cisco’s latest VNI Global Mobile Traffic Forecast shows that bandwidth demand will grow by a factor of 11 over the next four years alone.
This, understandably, has the wireless industry scrambling to improve its infrastructure in a number of areas, including the amounts of raw spectrum available to the carriers. Analysts told the Wall Street Journal last month that they expect nearly $50 billion to be spent by Verizon, AT&T, Sprint and T-Mobile (as well as by relative newcomer Dish Network) over the next 24 months on licenses.
Moreover, the past few months have seen several high-profile license transfers, as the carriers fine-tune their strategies. T-Mobile announced in January that it would buy the A Block of the 700MHz spectrum from Verizon in a number of major markets for a total of $3.3 billion. The addition was seen as an effort to build out T-Mobile’s 4G coverage in a hurry, since signals in the relatively low frequency 700MHz band propagate well and allow large areas to be covered by a single transmitter.
Almost a third of that sum, however, was paid to Verizon in the form of higher-frequency licenses in the Advanced Wireless Services (AWS) and Personal Communications Service (PCS) bands, which Big Red is using to add capacity to its existing LTE network.
"Since Verizon Wireless is using its 700MHz upper C Block spectrum for our 4G LTE network build-out and adding capacity with AWS spectrum, we wanted to rationalize our spectrum holdings by selling the lower 700MHz A and B Block licenses," said Verizon spokesperson Robin Nicol.
AT&T, as well, announced the addition of AWS licenses this month, presumably with a similar aim.
George Schmitt, a wireless industry veteran and current chairman of xG Technology, says that T-Mobile was wise to snap up available licenses in the band, noting that AT&T and Verizon are in a commanding spectral position in large part because of their 700MHz licenses.
“Any time T-Mobile can buy frequencies, they’re going to do it, and they know, just like everybody else, that the frequency at 700MHz is a hell of a lot better to have for your network outside the city of New York than any other number you can get your hands on today,” he says, adding that New York presents some unique challenges to wireless network designers.
Only lateral moves
These shifts, however, are essentially just lateral moves – nothing to directly solve the problems posed by a crowded spectrum. What’s really going to save the wireless world, some experts think, is a more comprehensive re-imagining of the way spectrum is used.
Simply put, says Farpoint Group principal Craig Mathias, a truly national network is impossible under the current system.
“We just don’t have the spectrum available in the cellular world to do real wide-area communication,” he says.
Individual licensing is a rigid and inflexible method of allocation, according to Mathias, who advocates demand allocation for all wireless spectrum, with exceptions for things like terrestrial radio broadcasts and satellite services, including GPS.
“But we don’t really need to reserve an awful lot of spectrum for that,” he says. “All the remaining spectrum – especially all the remaining good spectrum, between 600-700MHz up to 2-3GHz – could be demand allocated.”
In practice, demand allocation would be enabled in part by a rethinking of the architecture used for wide-area network communications of the type used by the big four.
A shift toward smaller and more localized cells, for instance, would allow for much more fine-grained distribution of frequency in a given area, making future networks look more like a widely distributed array of Wi-Fi access points, instead of a single tower dominating a large area.
In combination with advances that make more efficient use of available spectrum, Mathias says, small cell networks could be used successfully with current-day technology.
“There’s absolutely no reason in the world why we couldn’t build a reliable, robust architecture around these,” he says.
Spectrum auctions create a 'valley of death' that favors large incumbents and stifles opportunities for new entrants or nontraditional players.
— Wharton School's Kevin Werbach
Mathias is far from alone in advocating a re-think on spectrum allocation. While the emphasis of the FCC’s recent efforts to enable the development of wireless infrastructure has been on freeing up disused broadcast TV frequencies and federal spectrum for lucrative auctions, others like Wharton School associate professor Kevin Werbach have argued against this policy.
Simply auctioning off new licenses doesn’t solve the central issue of spectrum being a fundamentally limited resource, according to Werbach – and it introduces other problems, as well.
“Auctions favor large, established companies, with prices for new spectrum licenses of decent size running into the multiple billions of dollars,” he wrote in an article published in the International Journal of Communication in January. “This creates a “valley of death” that favors large incumbents and stifles opportunities for new entrants or nontraditional players.”
What’s more, Werbach wrote, those outsized fees – Verizon paid $9.4 billion in 2008 during the last major auction held by the FCC, for the C block of 700MHz frequencies – mean that companies tend to be in a hurry to recoup their investments.
“This typically involves maximizing airtime charges, tethering devices to service contracts, and potentially implementing restrictions on certain applications or services,” he said.
A 2012 proposal from the President’s Council on Science and Technology, said Werbach, called for the creation of a large-scale shared spectrum “highway,” to be made up of 1,000MHz of federal spectrum. This shared spectrum would be opened to all commercial use, and governed by a tiered priority system, to minimize interference. Unsurprisingly, the proposal was not greeted warmly by the major wireless carriers.
Schmitt also takes issue with the sale of spectrum as a policy, though not for the same reasons as Werbach and Mathias. Rather than selling off perpetual licenses to the major carriers, Schmitt says that the government should charge carriers an annual usage fee – rent, in other words.
“I have long felt that, because wireless spectrum is a public good, that the public ought to have benefits from that forever, not just one time,” he says.
For the moment, however, we’re headed for further auctions of the kind we’ve been seeing in years past. As this is being written, Auction 96 is being held, with bidders targeting licenses for a pair of 5MHz bands in the PCS range known as the H Block. As it stands, a little less than $1.5 billion has been bid. The Wall Street Journal reported last month that Dish Network is expected to win the majority of the licenses in the auction, as the major carriers are not participating.
The big prize, however, could be the broadcast TV spectrum auction that was recently pushed back to 2015 by FCC chair Tom Wheeler. That auction will see 600MHz spectrum, traditionally used for TV broadcasts, sold off to the wireless carriers, providing a powerful new band with similar effective properties to the much-sought-after 700MHz frequencies.
Email Jon Gold at email@example.com and follow him on Twitter at @NWWJonGold.