What is Mobile Spectrum? It is a bundle of radio frequencies which companies like AT&T and Verizon use to connect wireless connections to the Internet. The cry for more spectrum frequency is based on a perceived market shortage leading to an unknown demand for spectrum frequencies needed to adequately handle mobile demand in the future. Speaking pragmatically, we should identify mobile spectrum alternatives and how to meet growing mobile demand immediately, and into the future.
Throw more Spectrum at the Problem
Both Verizon (NASDAQ: VZ) and AT&T (NYSE:T) have proposed everything, short of kidnaping coveted spectrum illegally, to creating horizontal mergers, (AT&T | T-Mobile) to inherit it, or partnering with bitter industry rivals, (Verizon | Cable Industry) to obtain it. These are private deals which ultimately must be blessed by the FCC, especially since the Verizon and the cable Industry deal includes a controversial marketing agreement; cross-selling and promoting each other’s products, therefore creating a lopsided competitive issue. AT&T ultimately lost its bid to merge with T-Mobile by a discerning FCC. See (AT&T in $6.7 Billion Loss on Failure of T-Mobile Deal)
These agreements tend to consolidate market positions which, from a pragmatist point of view, stifle smaller competitors and lead to valuable spectrum being locked up in market leader silos. The result can lead to higher consumer prices and throttling of mobile plans ultimately slowing Internet access for users. Another problem with constraining spectrum to a few providers is to create artificial demand where smaller competitors must purchase access to dominate provider networks at exorbitant prices. See (Verizon, Comcast Clash With Opponents Over Cable Spectrum Deal)
Since smaller competitors have less spectrum, cell-tower coverage, and limited access to backhaul networks as a Verizon or AT&T; these smaller operators can be charged an all-or-nothing price for access creating a significant disadvantage for true competition. Clearly, this is a market problem invented with a merger mania mentality allowed to proliferate during the last decade. Now it somehow needs to be corrected with increased governance from the FCC rather than allowing true market competition.
NTIA Finds Additional Spectrum for Commercial Use
The NTIA announced recently it found an additional 95 MHz of spectrum currently being used by the federal government. The additional frequency is in the 1755 – 1850 MHz band and could be used for commercial purposes. The FCC has applauded the find and supports the NTIA recommendations on the issue. Most of this spectrum is not readily available as some existing users will have to be relocated while others may be able to share existing frequencies. At least a small portion of spectrum could reach a competitive auction block sooner rather than later. See (NTIA finds 95 MHz of spectrum for wireless, proposes sharing parts)
What is Backhaul? It is the access line from Cell Towers to the Internet. Wireless companies must contend with using their existing backhaul lines, build more to accommodate demand, or acquire more through partnerships. Verizon and AT&T have the most robust backhaul capabilities due to the size of their networks. Not only will Verizon benefit from it’s propose partnership with the Cable Industry by acquiring more spectrum, but also gain access to their backhaul networks, which are extensive. Pragmatically speaking, this infuses an already dominate carrier with a huge advantage over competitors. Existing operators can build more cell towers to be used with existing spectrum therefore freeing up more users for their networks, This does imply additional capital expenditures, but is probably better for the consumer. See (The Solution To The Wireless Spectrum Shortage: More Wires)
Speaking Pragmatically: Add Spectrum | Increase Backhaul Spending | Open Networks
Speaking pragmatically, the largest mobile market leaders should open their networks to price competition. That is, since they are considered overly dominant within the market, competitors should be allowed to purchase access to their networks at reasonable prices. This is the pragmatic way to rectify a wrong to induce a right within a growing wireless market. Economically, this is not the ideal way our competitive system was envisioned to work, but when markets are artificially allowed to become unbalanced, there are not many alternatives. This was accomplished in the early nineties to break the stronghold of the baby bells in wire-line telephone markets, when regulators mandated access for competitors at reasonable prices. Now it needs to happen again in wireless markets.
Network operators should increase their backhaul upgrades adding new cell tower sites to increase existing spectrum efficiency. Market dominate operators should be compelled to open their networks to competitors at reasonable prices allowing for increased competitive forces within the marketplace.