Spectrum Crisis: What’s there for Carriers and Customers?
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The telecom industry is facing acute spectrum crunch. As a consequence, the FCC has proposed an incentive auction with Chairman Julius Genachowski requesting an extension of the 2013 budget for more than $346 million, primarily for the preparation of the spectrum incentive auction. As a measure to facilitate spectrum to carriers, the FCC is also partnering with the National Telecommunications & Information Administration (NTIA) to test for spectrum sharing in the 1755-1780 MHz band. This band is of high interest to commercial carriers. Before digging deeper, let’s see how the carriers are coping with spectrum shortage and how soon they will benefit from the FCC measures.
Efforts to fix the problem
AT&T (NYSE: T), Verizon (NYSE: VZ), Sprint (NYSE: S), T-Mobile, MetroPCS (NYSE: TMUS), and Leap Wireless (NASDAQ: LEAP) are all spending massively on making more efficient use of their spectrum holding and adding new spectrum to their existing bandwidth. Carriers such as Verizon and T-Mobile are trying to control customer data usage by throttling speed and charging higher rates for better speed. A few are getting into merger agreements to use unused spectrum holdings of other carrier and meet their own spectrum shortage. Quite a number of efforts have been witnessed.
For example, AT&T entered into an acquisition deal with T-Mobile, however called it off in December last year in the face of antitrust concerns raised by the US Department of Justice and the FCC. The merger of the largest carrier with the fourth largest carrier would mean killing competition. Verizon, the second largest carrier in the US, also drew severe criticism from fellow carriers for the same reason. Verizon partnering with SpectrumCo means putting a third of the nation’s spectrum, in terms of value, in its grip, giving it a huge competitive advantage over its peers.
The biggies are also eyeing the regional players who in this spectrum-tight environment hold huge unused airwaves. Sprint’s agreement with Clearwire (NASDAQ: CLWR) is one such example. It was a strategic move by Sprint to catch the fish before anybody else could. Sprint needs its LTE network and only Clearwire is in a position to build it, given the latter’s abundant spectrum position. Other promising targets with some free spectrum are Leap Wireless and MetroPCS. In fact, MetroPCS is already rumored to be in merger talks with T-Mobile.
FCC’s Measures: in redressing the carriers
Amidst the spectrum crunch since 2010, FCC has planned for a voluntary incentive auction to free up the underutilized spectrum and meet the bandwidth hogging demand. Now this is big news for the carriers and the government. While carriers will be able to meet their spectrum shortage, a hefty amount of at least $15 billion is expected to be raised through the auction, which will bring down the government’s deficit. However, the process is complex and time consuming. A two-way auction is to take place simultaneously. Supply is to be created through a reverse auction by taking spectrum from the TV broadcasters. Then, these airwaves will be forwarded to the wireless companies in the forward auction. This process is estimated to take five to eight years.
However, as the process is time consuming, Genachowski offered another bit of good news to the wireless carriers. As a quick measure, FCC is partnering with NTIA to test the feasibility of 1755-1780 MHz band for spectrum sharing between commercial and government uses. This could result in the auction of paired spectrum in the next three years.
My takeaway
None of the fixes are quick. The current airwaves capacity is packed. The network traffic is ever increasing and the available airwaves are falling short to provide voice, text and internet services to the customers. Things are going to get pricier for both the carriers and the customers. With the earliest remedy offered by the FCC still three years away, I believe the industry will continue to witness consolidation in the near future.
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