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| Fig. 1: US Spectrum Allocation in 2011, According to the FCC. Source: Wikimedia Commons. |
In the past few years, US telecommunications companies have been in a constant arms race over a simple public good that is often overlooked. This good is bandwidth allocation, meaning the ability to send signals in a particular frequency across the airwaves. So why is this a public good, and how can companies acquire it?
Bandwidth is a public good because receivers that are tuned into a particular frequency are supposed to only pick up one signal. Similar to the idea that companies that make keys have to make sure that their keys do not open other companies' locks, telecoms that operate at a particular frequency must be certain that this frequency is "free" of interference from other operators. Without this check, it would be impossible to filter out particular frequencies, and thus cell phone signals would be jammed at all times (a concept that was used very effectively in Egypt during the revolution in early 2011).
The US government realized early on that this interference is problematic, and thus the Federal Radio Commission was created in 1926 to regulate radio frequency allocation. In 1934, this office was converted to the Federal Communication Commission, or the present-day FCC. [1] The FCC conducts spectrum auctions, and manages the allocation of US bandwidth. Why was this introduction important? Well, we are currently in an arms race of sorts with respect to spectrum allocation in the US, especially when it comes to the 4 major cell phone operators, AT&T, Verizon, T-Mobile, and Sprint.
Our story begins in 2008, when the FCC held a "gargantuan" auction for the prized 700Mhz spectrum band that was freed up by forcing television broadcast operators to move to a digital-only signal. [2] In that auction, Verizon won large blocks of prized spectrum that they can use to implement LTE cell phone service, while AT&T won small blocks of spectrum that would allow it to cover more rural areas of the country. [3] These auction results set the stage for the current fight over wireless spectrum, including AT&T's bid to purchase T-Mobile in 2011.
With Verizon holding large blocks of spectrum from the 2008 auction, they were able to launch an advanced LTE network in December 5th, 2010, giving Verizon a significant advantage over AT&T. [4] AT&T on the other hand required significantly more time to roll out LTE coverage, due to the difficulty of operating LTE on smaller blocks of spectrum. By December 14th, 2011, Verizon LTE covered over 200 Million US residents in 190 markets, a significant advantage over AT&T's offering, which started in September of 2011 in just 5 markets. [5,6]
AT&T seems to have predicted this situation, and thus tried to improve its long-term competitiveness by attempting to purchase T-Mobile, the smallest of the 4 major US operators, for $39 Billion in March of 2011. [7] However, the FCC and US Justice Department promised to block the merger, which resulted in AT&T withdrawing from the attempt in December 19th, 2011. [8] AT&T is still in desperate need for spectrum to expand its LTE network, and will continue to require additional spectrum for the foreseeable future.
The fact that AT&T pursued a risky, $39 Billion acquisition attempt and lost more than $4 Billion in separation fees in the process highlights a new age in the spectrum arms race. [8] The spectrum allocation war is just heating up, and the cost of this resource could spiral out of control without government intervention.
© Salahodeen Abdul-Kafi. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] W. Hurst and D. Heirman, "Changes to FCC Requirements For Unlicensed Radio Frequency Devices", IEEE Intl. Symp. on Electromagnetic Compatibility EMC '03, 2, 684 (2003).
[2] S. Labaton, "Auction of Wireless Spectrum Brings U.S. $19 Billion," New York Times, 19 Mar 08.
[3] K. J. Martin, ""Oral Statement of The Honorable Kevin J. Martin, Chairman Federal Communications Commission, Before the Committee on Energy and Commerce U.S. House of Representatives," 15 Apr 08.
[4] S. Segan, "Verizon to Launch LTE on Dec. 5: Unboxing the Modem," PC Magazine, 1 Dec 10.
[5] A. Moscarlito, "Verizon Expands 4G LTE, Plans to Double Footprint by Year's End," PC Magazine, 14 Mar 12.
[6] S. Yin, "Does AT&T's LTE Suggest iPad 3 Launch in October?" PC Magazine, 18 Sep 11.
[7] J. R. Raj, "Update 1 - Telecoms Tower Companies Fall on AT&T-T-Mobile Deal," Reuters, 21 Mar 11.
[8] N. Leske, "AT&T Drops $39 Billion Bid to Buy T-Mobile USA," Reuters, 19 Dec 11.