Does AT&T have Enough Spectrum?
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The telecommunications industry is witnessing quite a lot of actions these days, starting from the active M&A scenario, new wireless pricing, introduction of tier-based data usage, to the opportunities lying in connected cars and the FCC’s management of the spectrum crunch. But the top issue that the industry faces is the spectrum tight situation which needs to be fixed at the earliest.
The Need
Verizon Wireless (NYSE: VZ) needs more spectrum while AT&T’s (NYSE: T) also hungry for the airwaves. In fact, Sprint (NYSE: S), T-Mobile and the other carriers such as U.S. Cellular (NYSE: USM) and C Spire Wireless also need spectrum. However, the big two have been criticized for having sufficient spectrum, and that their demand for the airwaves isn’t justified.
Both Verizon and AT&T have been accused of hoarding spectrum in the past. In fact, AT&T admits that it has enough stock of airwaves for the next five years. The question that arises is: If the carrier can manage its subscribers for a decent period of five years, then what’s the cry all about?
The Justification
It seems strange that despite having enough spectrum, the biggies claim to be running out of the airwaves. The reason is that, bringing spectrum into the market, and then building a network takes time. It is essential to plan the spectrum for the long term, as a long lead time is required to observe all the steps before the spectrum could be put to use for building the network. This is exactly what the larger carriers are doing: planning for the contingency. They foresee an acute shortage in the near future given the mounting mobile data usage.
AT&T believes that if more spectrum isn’t acquired in sometime, the growth rate of the bandwidth hogging wireless data services will fast exhaust all the airwaves that it has. The FCC has proposed an incentive auction and a spectrum sharing program, both of which do not provide an immediate solution. Chances are high that by the time spectrum is freed in the market, AT&T would already reach the end of five-year period. The company has plans to acquire and enhance its spectrum portfolio in the next few years to avoid such a situation.
The Target
The wireless provider is keen on acquiring larger rival Verizon’s B Block spectrum lying in the 700 MHz range, which the latter will sell only if the FCC approves its deal with the cable companies’ joint venture SpectrumCo.
Other than the acquisition plans for enhancing spectrum, what else are the big two doing? They're finding out ways to increase revenues.
Boosting Revenue
Verizon recently acquired Hughes Telematics for $612 million as the company desires to enter into the wireless telematics arena. Even AT&T sees huge growth potential in connected cars.
Other than this, both AT&T and Verizon have given signals that they wish to reduce the subsidy that they give on the iPhones and Android phones, primarily to broaden their margins. However, they should not reduce the subsidy so much that their subscribers shift to Leap Wireless (NASDAQ: LEAP) and Sprint. Both Leap and Sprint are soon going to offer unsubsidized iPhone with prepaid plans. In this regards, AT&T feels secured and believes that neither Sprint nor Leap can compete with it. Several researches conducted by the company show that none of its customers welcome the idea of paying $500-$600 for a phone.
Another effective way that AT&T is working to boost revenue is, eliminating unlimited usage plans and replacing it with shared data plans. Verizon has already announced it Share Everything plan which will be available on June 28. These plans are going to get costlier for subscribers who won’t share devices to the plan.
My Takeaway
The spectrum tight environment clubbed with smartphone market saturation is compelling carriers to adopt other methods of pouring money into their pockets. For now, both Verizon and AT&T are working out different ways of increasing their earnings. For the future, they are rigorously making arrangements to enhance their spectrum portfolio. The lesson learned is that the Biggies are in no way going to compromise their source of revenue at any point in time even if this comes at the cost of discomforting their customers.
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