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Divvying Up the US' Crucial Wireless Spectrum

By Jeff Kagan
Oct 23, 2014 6:17 AM PT

The U.S. government is about to hold another wireless spectrum auction. Why is spectrum so important? If you owned a brand new car with brand new tires, you would still need air in those tires in order to drive, right? That's wireless spectrum. It's the air inside the tires that lets you drive. Without spectrum, you can't use smartphone features like apps.

Divvying Up the US' Crucial Wireless Spectrum

The problem is, wireless spectrum is not unlimited. There is a definite limit to the amount of spectrum we have available to use for a variety of industries. Wireless is just one of them.

There was such a shortage several years ago that the FCC directed some cable television spectrum to the wireless industry. That helped, but it did not solve the problem. It only bought some time. You can be sure the cable television industry wants its spectrum back.

Over the last few years, the amount of spectrum used has increased. The smartphone you carry uses wireless spectrum to connect to the Internet so your apps work. Without wireless spectrum, it would be like having a very high-speed superhighway right next to you, but no on or off ramp. That's wireless spectrum.

Since spectrum is so limited, and the need is so great, how do we split it up? What's fair? That's the question faced by many companies. How do we split up and auction off the available spectrum?

Sprint's in the Pink

I expect both AT&T and Verizon to acquire the majority of available spectrum for their growing needs. That would be only fair. They are the two largest wireless carriers, splitting up roughly 70 percent of the marketplace. So of course they need more, because they have more customers.

Sprint, interestingly, is not bidding on this spectrum because it already has plenty. The path Sprint took in the last several years now seems brilliant in hindsight.

Like AT&T and Verizon, Sprint had its own spectrum. However, its slow growth during the last decade meant it didn't use all its available capacity. Add to that the spectrum it got through recent acquisitions, like Clearwire, and you can see Sprint now has plenty as its growth picks up.

T-Mobile needs spectrum -- suddenly, it is growing once again. That's the good news. The bad news is it needs spectrum to keep its customers happy, and it has little to spare.

Then there are all the smaller, regional Tier II wireless carriers like U.S. Cellular, C Spire Wireless, and Tracfone.

If carriers don't have access to all the spectrum they need for growth, they will stop growing. If they stop growing, that means some will not grow and might even fail.

If that happens, the competition would love it, but that would hurt the industry. We need to keep, not lose competitors. But they have to be successful and that means they need access to spectrum.

So, in order to keep the marketplace healthy, we have to make sure the smaller Tier II players have access to wireless spectrum.

The Value of Sharing

Note that I didn't say "ownership" -- just access. Smaller players may not be able to afford all the spectrum they need, anyway. However, they can arrange access to it from the larger players.

AT&T Mobility recently gave some smaller competitors access to wireless spectrum so they could continue to grow and compete.

You may think it makes no sense for a competitor to rescue another competitor, but it makes enormous sense.

I remember when Microsoft gave Apple funds through an investment in the 1990s when Apple was failing. Now we see that was what Apple needed, because today it is one of the largest and most important U.S. companies.

That is not only a good way to keep competition alive, but also to keep regulators off your back. That has lots of value in itself.

Verizon Wireless and others should do the same thing as AT&T Mobility. Will they?

The U.S. has a very serious problem. This spectrum problem is caused by success and growth, but the shortage is a problem. The shortage of on and off ramps is occurring at a time when the need for spectrum is zooming off the charts.

The upcoming spectrum auction will be very helpful to AT&T, Verizon and T-Mobile. Sprint is in good shape already. However, we have to keep the smaller carriers in mind as well, so they can continue to compete.

As long as all the players are fair and not abusive, I see the wireless industry continuing it's rapid growth for many years to come. Let's hope everyone does the right thing going forward -- one step at a time.


E-Commerce Times columnist Jeff Kagan is a technology industry analyst and consultant who enjoys sharing his colorful perspectives on the changing industry he's been watching for 25 years. Email him at jeff@jeffKAGAN.com.


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