Spectrum, how ‘scarce’ is it?

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With the ongoing AT&T-T-Mobile proposed merger continuing to attract a lot of attention, I’m using it as a good comparative analysis case study for spectrum politics in Canada. Especially when seen as a proxy for the assumed spectrum crunch coming due to an explosion in the usage of wireless broadband for smartphones and other devices.

The problem is, of course, while there’s definitely evidence of increased data consumption, the spectrum crunch is less clear and straightforward.

AT&T is clearly advocating it needs the increased spectrum to provide expanded US coverage through the proposed T-Mobile acquisition, along with another stalled bid for the 700MHz licenses owned by Qualcomm. (Some critics of the T-Mobile merger have noted an AT&T document briefly posted on the FCC website suggests that the merger may be primarily pursued only for anti-competitive reasons.) Industry advocacy groups are also pushing the idea that the challenge with wide-scale mobile broadband adoption will be the lack of spectrum available to providers.

This claim is disputed by groups that suggest spectrum hoarding or warehousing by major providers or squatters demonstrates there is no true crunch. It is a contested view, with critics correct that current telecom providers currently hold licenses that they are not utilizing and some ‘new’ entrants are unsure that they can economically launch new networks. While only somewhat driven by spectrum politics, Shaw’s recent decision to forego launching a cellular network in favour of a WiFi-focused wireless network was in part due to lack of available spectrum to create what they saw as a viable network. Although it remains unclear what will happen to the licenses they purchased in the last spectrum auction — and analysts hold differing views on what the lack of a cellular play means for the future of Shaw, more generally.

The spectrum contestation comes from the unknown factor of whether this underutilization is strictly business decisions where companies decide that launching new networks are uneconomical (such as with Shaw), that critics are too early to cry foul (DSL Reports noted in February 2011 that DISH Network bought spectrum it didn’t have plans for but that may have changed, though maybe not) or that they are purchasing the spectrum to keep out of hands of competitors.

Problems with spectrum warehousing would seem most likely to occur in markets where auctions occur without network buildout conditions. Analysts have pointed to the difference in infrastructure deployments where you have differing auction rules. One interesting example of regulation to hasten deployment of advanced networks is Germany. Requiring rural LTE to be completed before urban rollouts has helped blanket the country in advanced coverage, as providers move quickly to offer more profitable services in cities.

Due to the potential complexity of planning advanced networks, gaining any additional leases required and the high capital costs associated with next generation networks, 5 years to have begun significant construction of the new network seems like an appropriate timeline. Using the AWS spectrum auction in 2008 as the baseline, Shaw has decided not to move forward with their licenses and Rogers has already lit their first LTE network, with Bell stating theirs will be lit be the end of 2011 and TELUS expecting to offer service in early 2012. Further, most infrastructure vendors are indicating current base stations for LTE-Lite will be able to provide LTE-Advanced with a software upgrade — meaning there should be less time needed between companies purchasing future licenses and responding to or creating market demand.

One such regulatory regime could see providers that have not completed networks face increasing fines to speed efforts to market, while those that have not started actual buildout could have licenses stripped. This would allow for licenses to be re-auctioned and ensures the spectrum goes to the most efficient providers committed to rollout of advanced networks. This also falls within the 2006 Governor in Council’s directive that Canadian telecommunications policy objectives be achieved by reliance upon market forces wherever possible. A Use-It-or-Lose-It rule could actually be preferable to the national carriers, as Bell’s CEO argues set asides for newer carriers could harm competition the big 3. (Perhaps Germany’s use of rural before urban regime would better ensure 700Mhz rollout to people on the other side of the digital divide?)