Spectrum has always been an important resource for wireless carriers, but with the dawn of true 4G LTE mobile broadband, carriers' need for large spectrum portfolios has grown even larger.
The top U.S. carriers over the past year have stepped up their efforts to grab more spectrum for 4G wireless data services needed to accommodate a seemingly insatiable and exploding population of iPhone, iPad and other mobile device users.
To get a sense of just how much additional bandwidth carriers will need, consider that Ericsson's most recent Traffic and Market Data report predicted that global mobile data traffic will grow by 10 times between now and 2016. What's more, the FCC has projected the nation's wireless carriers will face a 275MHz "spectrum deficit" by 2014 if no new spectrum is opened up for use. Carriers are going to need that spectrum not only to build out nationwide LTE mobile data networks but also to support critical applications such as Voice over LTE (VoLTE) and eventually move to LTE-Advanced, the next generation of LTE that's projected to deliver average download speeds in the 100Mbps range.
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AT&T's failed $39 billion acquisition of T-Mobile was all about gaining more spectrum for its 4G LTE network, as were Verizon's nearly $4 billion in recent deals to purchase spectrum licenses from big cable companies including Cox, Time Warner and Comcast.
Mark Lowenstein, the managing director for consulting and advisory firm Mobile Ecosystem, says that getting significantly more spectrum would allow carriers to promote LTE not just as wireless technology for smartphones and tablets but for high-definition video services as well. Or put another way, while it would be impractical to stream Netflix movies on your Xbox using LTE right now, it might not be that impractical in the future when carriers have significantly more spectrum to play with and can thus charge less money for high data consumption.“As a result of trying to manage the spectrum they have, wireless carriers have kept their 4G pricing relatively conservative,” he says. “Significantly more spectrum will allow them to be more aggressive with regards to video.”
But while the carriers are scrambling trying to get more spectrum for their LTE networks, it's useful to step back and examine just what spectrum they already have and what they'll need in the future to deliver ubiquitous 4G service across the United States as mobile users seek to view and exchange more video and other bandwidth-hogging content.
700MHz band: The Park Place and Boardwalk of mobile data spectrum
In general, LTE networks run on frequencies in the 700MHz to 2.5GHz range, though spectrum on lower frequencies is preferable for carriers since it can maintain signal strength over longer distances, meaning carriers can cover more people while building less infrastructure. With this in mind, you can see why Verizon and AT&T were so aggressive in bidding for spectrum on the 700MHz band that had previously been used for broadcasting UHF stations before the FCC opened it up for auction in 2008. In total, Verizon bid $4.7 billion for the rights to operate on the so-called "C Block" of the 700MHz band while AT&T spent $6.64 billion to operating on the so-called "B Block" of the same band.
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According to Baird Equity Research analysis, Verizon is the winner when it comes to spectrum depth on the 700MHz band. Baird calculates spectrum depth by taking the total amount of MHz a carrier has on a particular spectrum band and multiplying it by the fraction of the total U.S. population that the band covers. In other words, if a carrier has 20MHz of spectrum that covers two-thirds of the U.S. population, Baird will report it as having a spectrum depth of 13.3 MHz.
Verizon currently has a spectrum depth of 29MHz on the 700MHz band, significantly more than the 16MHz of spectrum depth that Baird reported was held by Verizon's closest competitor, AT&T. Baird's analysis was conducted before the FCC officially signed off on AT&T's agreement to purchase an additional 6MHz of nationwide spectrum on the 700MHz band from Qualcomm, so the carrier's spectrum depth right now is around 22MHz nationwide. No other service provider has anything close, as only Dish Network (5MHz of spectrum depth and a possible AT&T buyout target) and U.S. Cellular (3MHz of spectrum depth) have any amount of spectrum depth exceeding 1MHz.
AWS spectrum also a hot commodity
Even though Verizon and AT&T have gobbled up most of the 700MHz spectrum, that hasn't stopped them from trying to expand their potential LTE spectrum portfolios through acquisitions of spectrum on the Advanced Wireless Services (AWS) band that spans from 1710MHz to 1755MHz for uplink and 2110 to 2155MHz for downlink. This was particularly true with AT&T's attempt to acquire T-Mobile, which boasts the most AWS spectrum depth in the entire country with 24MHz. Now that the merger has failed, AT&T has agreed to compensate T-Mobile by transferring it around 7MHz of its own AWS spectrum.
Meanwhile, Verizon has slipped into the AWS spectrum driver's seat by relatively quietly signing a $3.6 billion deal with SpectrumCo, a joint venture of cable companies Comcast, Time Warner Cable and Brighthouse Networks, to purchase 20MHz of its AWS spectrum licenses. Verizon further shored up its AWS spectrum position when it paid Cox Communications $315 million for licenses of 20MHz of AWS spectrum.
Sprint plans to use PCS, iDEN spectrum
As usual, Sprint is the oddball among the major U.S. carriers. Although it has no holdings on the 700MHz band, Sprint does have 15MHz of spectrum depth on the 800MHz band and 34MHz on the PCS band (1850-1915MHz, 1930-1990MHz) that it plans to use to support its own LTE network.
The spectrum on the 800MHz band has up until recently been an albatross around Sprint's neck since it had to use the band to support the iDEN network it inherited from its acquisition of Nextel in 2005. But with Sprint due to completely phase out the iDEN network by next year, the spectrum has suddenly become free for use. Sprint has more depth on the PCS band than on the 800MHz band, although this spectrum is at a much higher frequency and thus won't propagate as well as the former iDEN band.
Sprint is also relying on partnerships with other carriers more than its rivals at Verizon and AT&T. This past summer Sprint struck a deal with wireless broadband and satellite network provider LightSquared to deploy and operate a nationwide LTE network that will use a 40MHz chunk of spectrum on the 1.6GHz band, also known as the Mobile Satellite Service (MSS) L-Band. (Although LightSquared has been embroiled in life-or-death struggle with federal regulators over whether its technology will pass muster.) Sprint has also long partnered with Clearwire in deploying and operating a mobile WiMAX network on the 2.5GHz (BRS/EBS) band, so Sprint could get access to even more spectrum for LTE services if Clearwire is actually successful in building out its own LTE network on the band.
So what's the bottom line?
OK, so we know that Verizon and AT&T are the big players in terms of prime LTE spectrum. But leaving aside 700MHz, AWS, PCS and all the other spectrum bands that the carriers could use in the future, let's talk about which carrier has the most overall spectrum ready for LTE use right now.
Analysis released by UBS earlier this month found that while Verizon and AT&T have comparable total spectrum holdings, Verizon simply blows away AT&T when it comes to spectrum already available for LTE use. According to UBS, Verizon has an average of 62MHz of spectrum available for LTE use today in the top 100 U.S. markets while AT&T has an average of 37MHz of spectrum available for LTE use in the top 100 U.S. markets. AT&T's trouble is that, despite having roughly the same overall spectrum holdings as Verizon, the company is still using a lot of its spectrum for its legacy 2G services. This in part helps to explain why AT&T has been behind Verizon in terms of overall LTE deployments. As of this month, Verizon has rolled out LTE in 195 markets covering 200 million points of presence while AT&T has set up LTE in 26 markets covering 74 million PoPs.
UBS analyst John Hodulik says it will take AT&T some time to migrate its 2G users away from its spectrum on the PCS and cellular bands, but he also says AT&T will be in a comparable LTE spectrum situation to Verizon once it frees up those frequencies.
"The cell and PCS spectrum they've got is being used for 3G and 2G services," he says. "Over time there's no reason they can't re-farm some of that 2G and 3G spectrum and use it for 4G."
Joan Marsh, a vice president of federal regulatory affairs at AT&T, says while AT&T has enough spectrum to run a strong nationwide LTE network in the long run, the company wanted to merge with T-Mobile to acquire "spectrum that will support depth while our customers migrate to 4G." Marsh adds that "There's a sunset plan for our 2G network but it's a multiyear process."
So now that the T-Mobile merger has died, AT&T will be at a disadvantage when it comes to LTE spectrum depth until it can migrate its users away from its 2G services. Help may be on the way, however, as the FCC has set a goal to make 300MHz of spectrum available for wireless broadband use over the next five years with the eventual goal of freeing up 500MHz of spectrum by the end of 2020. The FCC has said that it could reach 300MHz by reallocating 120MHz of spectrum currently used by television broadcasters, with 90MHz coming from mobile satellite providers, 10MHz coming from the 700MHz "D" block, 60MHz coming from the AWS band and 20MHz coming from the Wireless Communications Service band.
But with no progress made in Congress yet on setting up spectrum auctions for wireless broadband, it seems the carriers will have to make do with what they've got for the foreseeable future.