March 28, 2011 – With calls for more wireless spectrum echoing from the White House to K Street, the prospects for action in Washington seem certain. But, in truth, the issues to be resolved to get anywhere near the 500 MHz targeted by President Barak Obama and the FCC portend a long, hard slog for regulators trying to forge a plan that will fairly satisfy the needs of competing interests.
Incumbent participants in cellular say the principle that should drive all decisions is a no-brainer: Spectrum is “the lifeblood” of the wireless industry. That’s the term the presidents of the Consumer Electronics Association (CEA), the Telecommunications Industry Association (TIA) and CTIA-The Wireless Association have been using over the past several months as they lobby the federal government for more spectrum.
But, for the FCC, adjudicating what’s fair will require sorting through a mind-boggling matrix of uncertainties attending the relative commercial values to be accorded various spectrum segments, the degree to which technological advances can mitigate widely anticipated demands for ever more spectrum from the cellular providers and the merits of demands for spectrum emanating from a growing queue of non-cellular players.
To cite just one example of the complexities involved, if TV stations are forced to relinquish some of their spectrum so it can be refarmed for broadband services, that change will affect their ability to offer mobile video services. And, assuming that’s done, how much weight should be accorded claims for spectrum from new entrants like EchoStar, whose spectrum stockpiling – both at auction and through company acquisitions – could enable a broadband service that competes for both fixed and mobile customers?
“At some point, the DBS guys are going to have to figure out strategically how they’re going to deal with a cable and telco bundled package that, over time, is going to present them with a huge problem when all they have is video,” says one analyst, speaking privately.
In his February 2011 State of the Union Address, President Obama outlined plans – dubbed the “National Wireless Initiative” – to free up 500 MHz of spectrum for broadband services that eventually would serve at least 98 percent of Americans. One year ago, the FCC’s National Broadband Plan recommended the same amount: 500 MHz of new spectrum within 10 years, including 300 MHz within five years.
The goal is extremely ambitious, because to pull it off, the government would have to nearly double the 593 MHz it has licensed so far over the decades. “This is a very aggressive timeline because this type of reallocation typically takes a much longer time,” says Greg Whiteaker, principal at Bennet & Bennet, a law firm specializing in telecom.
In an effort to get things moving, the National Telecommunications Information Administration (NTIA) has identified 115 MHz for what it calls “fast-track evaluation.” This would include bands adjacent to or near the current Advanced Wireless Services (AWS) bands, which is primarily used by T-Mobile for its broadband wireless service.
But even that proposal is burdened by the disconnect that often occurs between what regulators can free up and what the industry prefers to use.
“Most of the wireless industry would prefer spectrum in between the AWS and PCS (Personal Communications Services) bands because of its harmonization internationally,” Whiteaker says.
Bands in Play
Several big blocks of spectrum could become available over the next five years. They could include Clearwire’s enormous holdings at 2.5 GHz if the company’s financial situation prompts a fire sale or acquisition. (For an analysis of that possibility, see “Is There a Cable Upside in a Clearwire Collapse?” in the November 2010 ScreenPlays.)
Besides Clearwire’s holdings, arguably the next most coveted chunk is the Upper 700 MHz D block. But that’s one of the biggest cans of worms to be opened in the spectrum debate.
“The FCC National Broadband Plan recommended conducting the auction and allowing commercial licensees to partner with public safety entities to deploy a nationwide dual use commercial/public safety broadband network using the D block and the adjacent Public Safety 700 MHz allocation,” Whiteaker says. “The public safety community, however, wants Congress to change the law and award the D block to public safety for use in a nationwide public safety network. The White House recently endorsed this, and several bills have been introduced to give the D block to public safety.”
The timing could give public safety an edge.
“You’re coming up on the tenth anniversary of 9/11, and lawmakers would love to get a bill through to use the D block somehow,” says David Kaut, associate analyst at Stifel Nicolaus. “One of the things about the D block is that if you give it to public safety, that creates a $3-billion [auction revenue] hole.”
Obama and other backers of the National Wireless Initiative are selling their proposal partly on the assumption that its “voluntary incentive auctions” will raise $27.8 billion over the next decade. Roughly $10 billion of those proceeds would go toward paying down the deficit.
Some telecom executives say privately that when they meet with members of Congress and other federal officials, they make their case for additional spectrum partly on the grounds that operators are ready, willing and able to spend tens of billions in the short term on new infrastructure and jobs. In other words, they’re selling spectrum refarming as a shovel-ready stimulus project, an economic boost that would be in addition to whatever auctions rake in.
Interestingly, even if public safety got the D Block spectrum, commercial
operators might not necessarily be locked out of that band. “There is concern that public safety entities might just turn around and lease their spectrum to AT&T or Verizon Wireless anyway, furthering the looming mobile duopoly,” Whiteaker says.
The AWS bands represent another 60 MHz of spectrum. And, as Whiteaker notes, “the FCC also is working on ways to make Mobile Satellite Services (MSS) spectrum more used and useful, specifically, to potentially make it more available for terrestrial use.”
Projecting Spectrum Deficits
All of the plans and lobbying assume that there’s currently not enough spectrum to keep up with trends in data usage. For example, the GSM Association cites a 2009 Arthur D. Little Survey that says high-usage countries such as the United States could need up to 1,161 MHz of new spectrum.
Many such predictions are based on Cisco System’s tracking of the market. Over the past year, global wireless traffic increased 160 percent to 90 petabytes per month, Cisco says.Bell Labs, citing its own research, says that by 2015 there will be 30 times more smartphones per square kilometer in urban areas than there were in 2010.
Of course, with the coming of 4G, surging video consumption on such devices will add another multiplier to the calculations on bandwidth use. And innovators keep coming up with new compelling applications that will add even more pressure on available capacity.
For example, Panasonic in January announced a portable High Definition Visual Communications System (Mobile HDVC) for use in medical diagnostics that will be offered over the Verizon Wireless 4G LTE Mobile Broadband network. The mobile HDVC system delivers high-definition visuals with MPEG4-AVC technology and features 360-degree full duplex stereo sound quality, stable connectivity with QoS, and rate control forward error correction.
But for all the concerns about future bandwidth needs for cellular, some industry veterans say it’s important to factor in technology advances when considering the projected spectrum needs.
Indeed, the increasing bandwidth consumption as measured by Cisco and others has not depended on increases in spectrum allocations, notes Michael Marcus, director of Marcus Spectrum Solutions, a consultancy. “Most of it has come from technical improvements and more intensive infrastructure.”
Marcus cites a chapter from telecom history that’s playing out again today. In the 1980s, the private land mobile radio industry lobbied to start using TV spectrum to accommodate growing usage.
“You notice some analogs between how the sky was falling in the early 1980s and how the sky is falling today,” Marcus says. “The land mobile people never got any more spectrum, but they found ways to use their spectrum more efficiently.”
A new development at Alcatel-Lucent coming on line over the next three years represents one possibility along these lines. As reported in the February issue (p. 8), the firm says its new modular lightRadio architecture, representing a radical departure from the long-standing Radio Access Network architecture, will allow operators to double access network capacity within existing spectrum allocations while reducing the cost per bit by 50 percent.
“All Spectrum is not Created Equal”
A big part of what makes spectrum allocation so difficult is that not all bands are equally viable from a business or technological perspective. For example, the 700 MHz band is attractive partly because of physics: the lower the frequency, the farther a signal travels. Those propagation characteristics mean that fewer base stations are required to blanket a market, thus reducing the operator’s CapEx and OpEx.
But a relatively low frequency position by itself doesn’t make a band ideal for broadband or video. If that were the case, service providers would be clamoring to use 420-440 MHz and 450-470 MHz. Under HR 607, the Broadband for First Responders Act of 2011, those two chunks – currently used for amateur radio – would be auctioned off.
Instead, a band’s attractiveness also depends on how many other countries in a region or worldwide also have allocated that spectrum for telecom use. The more operators use a particular band, the bigger its volumes of infrastructure and other equipment. That translates into greater vendor competition, driving down the prices that operators pay for equipment.
“One of the biggest challenges is that we need internationally harmonized spectrum,” says Chris Pearson, president of 4G Americas, a trade association representing the region’s operators that use the GSM-LTE family of technologies. “All spectrum is not created equal. It doesn’t need to be globally harmonized, but it has to be at least regionally harmonized.”
That’s because owners of oddball spectrum historically have paid a price premium for their gear, a cost that hurts their ability to price their devices and services competitively yet profitably.
“For example, in the 700 MHz band, there is a band class of equipment that will
work on the Upper 700 MHz C Block spectrum licensed to Verizon Wireless, and a band class of equipment that will work on the Lower 700 MHz B and C blocks, which is primarily, but not exclusively held by AT&T,” says Bennet & Bennet’s Whiteaker. “There will be equipment that operates in each of these bands, but not across both bands. Small providers that hold the lower 700 MHz A block spectrum may find it difficult to get equipment that is interoperable with the other bands.”
But some industry veterans say that oddball spectrum isn’t the millstone that it once was.
“The equipment business isn’t what it used to be,” says consultant Michael Marcus. “Now you have a bunch of hungry people in Asia with lots of capabilities. Who knows if some of them might be willing to do something that Motorola or Nokia wasn’t willing to do? The cost of making odd equipment in modest quantities may not be as extreme as it was five years ago.”
Marcus bases that analysis partly on his experience with a company that wanted to use a technology in the AWS band that wouldn’t work anywhere else in the world. Although that plan failed, the custom-technology requirement wasn’t the reason.
“That tells you something: that there are people out there who are willing to make somewhat offbeat electronics at plausible prices,” Marcus says.
Yet another factor is how the newfound spectrum is spread around the band – or bands.
“All of this refarming presents an interesting technological challenge,” says Charles Riggle, vice president of marketing and business development at SkyCross, which makes antenna systems for smartphones and other mobile devices. “In the case of a lot of the former TV spectrum, it may be disparate chunks spread around the UHF bands.”
That kind of allocation can increase a device’s cost, such as by requiring sophisticated antenna systems and transceivers to hop from chunk to chunk. If so, that premium could make it difficult for a new service to do its part for bringing broadband to 98 percent of the population, particularly to price-sensitive demographics.
Use It or Lose It — Maybe
Because there’s a finite supply of spectrum, the FCC often attaches buildout requirements to licenses: make service available to a certain number of people or places by a certain time, or the spectrum is forfeited. In theory, that stipulation should discourage companies from buying spectrum and then letting it lie fallow, such as to keep it out of a competitor’s hands or as a bet that it can be resold later for a hefty profit.
But that’s not always how it works in practice.
“The FCC sometimes gives licensees additional time to meet obligations,” Whiteaker says. “For example, the FCC extended the original construction deadlines for 700 MHz licensees, [such as the] Verizon 4G system, because that spectrum was reclaimed from the broadcasters and the transition to DTV was delayed.”
It’s also possible to meet the requirements by launching service only in a handful of densely populated areas, a strategy that helps fuel the debate over rural-urban digital divide. That’s what some Personal Communications Services (PCS) licensees did years ago.
“A licensee could meet the requirement by providing signal coverage to 33 percent of the population of its licensed area within five years and to 66 percent of the population of its licensed area within 10 years,” Whiteaker says. “That means that a licensee could build out in the more densely populated areas and leave a lot of area unserved.
“The FCC recently has imposed some buildout obligations on a geographic basis with a ‘keep what you serve’ type licensing system. In theory, this will afford some additional spectrum opportunities down the road.”
Others argue that spectrum forfeiture is a mostly hollow threat.
“My experience is that the FCC has never held anyone’s toes to the fire on buildout,” Marcus says. “There’s so many loopholes, and there are so many ways to pull scams.”
In some cases, the FCC doesn’t even set stringent requirements.
“For AWS, there wasn’t much at all,” one telecom executive says privately. “Why? The FCC at the time decided not to do them.”
That executive argues that charges of spectrum hoarding are misplaced: “AT&T and Verizon have plans to use AWS. It just happened that there was a 700 MHz auction closely after the AWS [auction], so they got that and prioritized that. They’re definitely going to be using AWS.”
Buildout requirements or not, other forces often dissuade companies from letting spectrum lie fallow.
“When MBAs look at corporate books and assets that aren’t producing income, they get upset,” Marcus says. “As my economist friends say, the cost of the money is a more effective pressure to build than the government making vague threats. Money is tight these days. I think it’s going to be hard for anyone to raise significant amounts of money to buy spectrum and let it lie fallow. Who wants to give you money that doesn’t produce any income? The capital markets might be the determining issue.”