I am having a hard time figuring out why wireless communications carriers are raising a red flag on the availability of spectrum in the US. Warnings that the market will run out of bandwidth will only serve to increase the price of spectrum when it comes up for bid.
A similar situation happened the first time spectrum went on the market in the mid-1990s and again in 2000. In the US, the Federal Communications Commission controls the frequencies on which TV, radio, and cellular communications are carried. Much of this spectrum has been set aside for military and aircraft communications use. But when there is a change in the air -- such as cutbacks in military spending or when the US government needs money -- spectrum sales come up again. Spectrum is usually bid on among carriers, with a lot of deal-making going on behind the scenes.
There's already some haggling underway within the carrier community. T-Mobile USA is trying to block Verizon Communications Inc. (NYSE: VZ)'s acquisition of spectrum from other carriers, arguing Verizon would have an unfair competitive advantage. In the meantime, all carriers are warning that the proliferation of cellphones, smart phones, tablets, and other devices will overload existing spectrum, causing voice and data communication to slow down.
A New York Times article suggests there is no crisis and it's unlikely one will ever occur:
Not even the inventor of the cellphone, Martin Cooper, is convinced that the wireless industry faces a serious challenge that cannot be overcome with technology. Mr. Cooper, a former vice president of Motorola and chairman of Dyna L.L.C., an incubator for new companies, says that claims of a so-called spectrum crisis are largely exaggerated.
“Somehow in the last 100 years, every time there is a problem of getting more spectrum, there is a technology that comes along that solves that problem,” he said in an interview. Mr. Cooper also sits on the technical advisory committee of the Federal Communications Commission, and he previously founded ArrayComm, a company that develops software for mobile antenna technologies, which with he said he is no longer associated.
He explained that for carriers, buying spectrum is the easiest way for them to expand their network, but newer technologies, like improved antennas and techniques for offloading mobile traffic to Wi-Fi networks, could multiply the number of mobile devices that carriers can serve by at least tenfold.
The NYT report suggests that carriers' motivation for buying spectrum has more to do with blocking competitors from ever having it. When the FCC releases spectrum, the license for a particular bandwidth -- such as 101.5 FM -- is given to a carrier, and no other carrier can use it. Rather than adopt new technologies to better use bandwidth, experts quoted in the NYT suggest it's just easier for carriers to buy more spectrum.
I tend to agree with this argument for the simple reason that carriers can keep service prices high as long as they can demonstrate they are spending money to improve service. Many of the services carriers provide do not cost a lot of money to implement. Some services require a flick of a switch and a lot of billing and contract work. If carriers used spectrum more efficiently, prices would come down. I suspect that is the last thing that carriers want. So maybe carriers are more willing to increase spending on the front end by buying spectrum than they are interested in using spectrum more efficiently.
As for the electronics supply chain, vendors will continue to turn out smartphones and other mobile devices regardless of the service costs. The opportunity to improve efficiency may pave the way for telecommunications infrastructure companies to sell more equipment to carriers. The hardware supply chain doesn't stand to lose much regardless of which way the spectrum sale goes. But I suspect users will continue to see service prices increase as carriers expand.
What do you think?