FCC Steps Up To Solve the So Called "Spectrum Crunch"

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The US Federal Communications Commission has taken a step forward in solving the spectrum crunch. The FCC moved on to the next stage in planning the incentive auction and considering how the unused television airwaves would be transferred to the wireless operators who are starving for it. On receiving the approval of the Congress in February, the regulator conducted a vote on Friday to set standards for the auction process after which it plans to seek public comments. The two broad areas that they discussed on: designing the flow of the incentive auction and discussing on the spectrum cap for giant carriers to preserve competition in the wireless space.

The telecom industry is an essential contributor towards the GDP of the economy. According to an estimate made by Deloitte, the investments in mobile broadband network could increase the US GDP in the range of $73 billion to $151 billion between 2012 and 2016. FCC has started the process of reclaiming the spectrum held by the television broadcasters to divert it to the wireless broadband providers. So the relevant question is: Is there at all a crunch? Why are the mergers and acquisitions taking place in the telecom space? Let’s try to dig a little deeper and get answers to such thoughts.

A necessity or hype
Is the spectrum crunch real or have the wireless providers hyping the situation to pump up a spectrum crisis situation. The national carriers appear to be pretty happy with their spectrum holdings and have big plans on the way. The nation’s top telecom operator, Verizon Wireless (NYSE: VZ), recently amassed chunks of AWS spectrum from the group of cable operators in the $3.9 billion SpectrumCo deal after winning the FCC’s approval. It now has about 18 percent of the available spectrum on a population weighted basis. AT&T’s (NYSE: T) Chief Executive, Randall Stephenson said that the second largest carrier’s spectrum position would strengthen for the next three to five years if its pending spectrum deal receives a go-ahead from the regulators. Sprint (NYSE: S) also looks to have a strong spectrum position. Chief Executive Dan Hesse is focused in achieving its Network Vision plan and expects to have a strong spectrum position through 2016, after adding Clearwire’s airwaves. On the other hand, T-Mobile is occupied in reframing its 1900 MHz PCS spectrum.

So why do they keep complaining about the airwave scarcity. The argument is the bigger the carrier, the more spectrum it needs to serve its larger subscriber base who are using bandwidth hogging applications on their smartphones, tablets, and other gadgets. Wireless analysts feel the demand for mobile broadband will exceed the spectrum allocated to meet the need in 2013. Even the FCC Chairman Julius Genachowski fears a spectrum crisis is awaiting the industry given the speed at which mobile data usage is mounting.

The objective of imposing a spectrum cap is to prevent a wireless provider from becoming too influential in the wireless market. The cap would limit the amount of airwaves that a carrier can hold in a geographic area. However by doing so the top carriers Verizon and AT&T would virtually get no access to add spectrum from the auction. If the cap is set at one-fifth of the total available spectrum, Verizon will practically not be able to participate in the auction and its subscribers would have to experience a serious degradation in their network. Other smaller carriers including Sprint, T-Mobile, and other regional operators are keen on the caps to prevent the “duopoly” from gobbling up further prime airwaves in the TV airwave auction.

So how is FCC planning to go about it?
The FCC already has a cap to restrict enormous transfer of spectrum license to keep the quantity of airwaves held by a carrier in check. However, the agency is also considering the quality of the airwaves. This is so as there are a number of operators who own volumes of spectrum that aren’t well suited for broadband use.

The TV airwave auction is proposed to be held in 2014 wherein two auctions will take place. The first one would be a reverse auction where the broadcasters would be invited to voluntarily offer their unused spectrum. These broadcasters would have to bid their airwaves for sale and the FCC would prepare these airwaves for the forward auction to the wireless companies. The auction is expected to fetch “substantial revenue” of $15.2 billion and fatten the US treasury’s pockets. The amount is proposed to be used to build a new nationwide radio network for emergency response.

Final thoughts – an ambitious plan in the making
The auction is scheduled for 2014, but it’s pretty complicated. The FCC is still to estimate the number of broadcasters who would be willing to participate in the auction. Also, the broadcasters want to be sure that they aren’t penalized for non-participation. Apart from this, the agency is still in the process to set rules regarding how to consider airwave transactions that raise anti-competition concerns. Changes would affect both the carriers and customer who would witness a change in their quality of network connection, better or worse. The commission’s plan to wrap the ambitious process by 2014 isn’t an easy job. Some analysts believe that it would at least take three years for the customers to feel the difference in their connection quality.

One should consider the impact of the caps and the incentive auction on the customers. Putting a cap could prove fatal for the biggies by ruining their network quality. A duopoly is totally undesirable while imposing a cap is dangerous too. So should the market decide the optimal number of wireless players?

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