FCC to Solve Spectrum Crunch: Will it Succeed?
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The growing popularity of smartphones and tablets has been making things difficult for the carriers in this tight spectrum environment. Even since Apple (NASDAQ: AAPL) released its bandwidth-hogging devices, particularly the iPhone, and Google came out with its Android; consumer data consumption levels have increased substantially. And now that iPhone 5 has released, the problem is going to get worse. With the top three national carriers preparing to offer the latest iPhone, the data consumption level is about to rise at an unbelievable rate. The available spectrum is insufficient to manage the nation’s growing addiction of mobile devices and data usage. As a solution, the Federal Communications Commission proposed an incentive auction a couple of years back and now plans to finally take action on it. The FCC Chairman, Julius Genachowski, submitted a proposal to his fellow commissioners regarding the incentive auction so that they decide on it at the September 28 meeting.
The Process
The telecom regulator wants to conduct the incentive auction wherein airwaves from the broadcasters would be transferred to spectrum-starving carriers that will use it to build a faster and more reliable network. Through the auction, TV broadcasters would be encouraged to sell and transfer their idle airwaves to wireless carriers which would help them offer greater speed and enhanced capacity with widespread internet coverage. The auction proceeds are expected to raise billions of dollars to fatten the US Treasury, while a portion of it would be passed on to the TV broadcasters to compensate them for their voluntary sacrifice. However, until the final rules are set by the agency, it is uncertain how many TV stations would voluntarily give away their spectrum.
Telecom operators have long been warning that they aren’t sufficiently equipped tackle the internet traffic explosion. However, the incentive auction is not an immediate solution to the problem. It’s a long process. If the proposal is approved in the meeting, a final order would be taken sometime mid next year and then the auction would be conducted in 2014. Under these circumstances, carriers won’t be able to get access to the auctioned spectrum before two years.
The main concern is if the big four telecom carriers will have sufficient spectrum to deal with the consumers’ demand who are aggressively switching to smartphones and other bandwidth consuming gadgets before the auction takes place. This is precisely why the FCC approved Verizon’s (NYSE: VZ) $3.9 billion spectrum deal with the cable companies. Other than this, the regulator also gave the green light to the spectrum swap agreement between Verizon and T-Mobile, along with allowing the airwaves deal between Big Red and regional carrier Leap Wireless (NASDAQ: LEAP) . Both the deals entered in by Verizon were contingent upon the happening of the SpectrumCo deal. As per Verizon's deal with Leap, the latter will divest its excess AWS and PCS spectrum in exchange of Verizon’s 12MHz of A Block 700MHz spectrum and a cash amount totaling $120 million.
In all this, there is a major concern that the FCC has.
The cause of worry
Big players will have an undue advantage in the auction due to their deep pockets, but concentration of spectrum holding is undesirable. While working on the auction, the FCC will also have to take into consideration the caps it needs to keep for the wireless biggies including Verizon and AT&T (NYSE: T), to avoid concentration of spectrum into their hands. Ensuring that these giants don’t gobble up prime spectrum is essential to keep competition intact. The caps would help the FCC to restrict the amount of spectrum that the telecom majors can bid for. Verizon and AT&T aren’t happy about this. Verizon says that the incentive auction should be conducted considering the capacity of efficiently utilizing it to avoid stockpiling the airwaves. FCC should put forward the condition of putting the bandwidth into use faster.
To conclude
The auction will benefit the wireless market in a huge way, but still it will take years to actually feel and enjoy the difference. The regulatory process is long drawn, but it would give a different experience to the smartphone users who would enjoy higher quality on their cellular network once the process is through. Until the auction, FCC will have to review several other proposed deals put forward by the carriers to satisfy their current airwaves need.
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