Analysis: Government Slows the Wireless Juggernaut

Analysis: Government Slows the Wireless Juggernaut

Bret Swanson

Bret Swanson is president of the technology and innovation research firm Entropy Economics LLC. (read full bio)

Is the federal government threatening to undermine one of the nation’s most successful industries? If the government blocks Verizon’s acquisition of wireless spectrum from a consortium of cable TV companies, you’d have to conclude yes.

It wouldn’t be the only recent federal policy fumble in the mobile arena. Last winter Washington vetoed AT&T’s attempt to augment its spectrum and cell tower capacity through a merger with T-Mobile. In that case the abstract bureaucratic notion of “competition” trumped the here-and-now need to deliver more capacity to bandwidth-hungry iPhone customers. Now the Federal Communications Commission is slow-walking Verizon’s request to purchase cable’s SpectrumCo. Verizon even offered to divest a chunk of spectrum to acquire what it sees as a more valuable yet. Yet Washington hesitates.

Blocking that move would effectively shut down the secondary spectrum market and slow an American economic juggernaut.

Increased Burden on Networks
Mobile data traffic is more than doubling every year, driven by large investments in faster networks and by a fermenting burble of apps, phones, tablets, and Web services. More investment, more capacity, and more compelling devices drive yet more consumer demand and create new bottlenecks.

Consumers, for example, were thrilled the new iPad’s screen resolution is twice as dense as the previous model. But app developers found their existing code insufficient to populate all the newly available pixels. They had to upgrade their apps quickly to fill the brilliant new display. Likewise, content from YouTube and every other outlet will increasingly need to be HD (or better) or risk irrelevance.

Then there is HTML5, a major upgrade of the basic software code for the World Wide Web. Whereas HTML4, introduced in the mid-1990s, produced static Web pages, HTML5 will create dynamic Web environments. HTML5 promises interactive video and audio and many app-like features, and it delivers them from the Web. This means more rich multimedia content and functionality will be available more of the time, on any device, from a simple browser. This may reduce the need to download some apps, but it also increases the burden on networks to deliver always-on, high-capacity, low-latency service.

Spectrum Transaction Paralysis
The United States, unfortunately, seems sluggish (at best) in encouraging the next wave of growth. The government still owns around 60 percent of the best spectrum, leaving just about 10 percent for mobile operators. The United States lags many nations in current spectrum availability and trails almost every advanced economy in its “pipeline” of spectrum expected to become available in the near future.

Last winter Congress approved auctions to encourage over-the-air TV broadcasters to transfer underused spectrum to more valuable modern services such as mobile data networks. But in the best of circumstances, these auctions will take years. And even assuming the auctions are successful, the U.S. pipeline will still lag.

If, on top of these shortcomings, you add an effective government halt to any secondary market spectrum transactions, you have real paralysis. These secondary market transactions could quickly inject real capacity into the market and thus smooth the transition to a future where auctioned spectrum, technology, and small cells yield more bandwidth.

Relying on Tech Improvements
There are three ways to increase wireless capacity: more spectrum, more cells, and better technology (faster chips, better algorithms, and smarter antennas that increase spectral efficiency). The industry mixes and matches these resources, based on cost and network architecture, to produce the most capacity at the lowest cost.

But an odd new argument has arisen: we can largely ignore the spectrum question because new technologies will make more efficient use of the spectrum we’ve got. Well, yes. Of course technology will increase efficiency and continue to propel the mobile Internet.

Today’s mobile ecosystem is one of history’s great technological accomplishments. We moved from analog wireless in the 1980s to digital in the 1990s—first TDMA, then CDMA, and now OFDMA (don’t ask), all powered by Moore’s law and ingenious coding techniques. We moved from circuit-switched phone-based networks to packet networks and, in the United States, from a few thousand cell towers to nearly 300,000 today. We’ve expanded wi-fi and use lots of sophisticated antenna technologies like MIMO, with more to come.

Need for More Spectrum
Yet all these new technologies increase consumer demand and possibilities for new forms of rich content. Saying we need technology but not spectrum is a bit like saying we want cars that can drive 250 miles per hour but insisting they drive on one-lane dirt roads. Or encouraging horizontal drilling for natural gas but banning access to the underground shale. We need both—more technology and more available spectrum.

A few simple questions may help clear the fog:

If more spectrum isn’t needed, then why are competitors urging the government to block the transaction, instead of laughing at Verizon’s spendthrift blunder?

And this: The cable companies have said they do not plan to build networks using their SpectrumCo. spectrum. They aren’t required by law to “build out” the spectrum until 2021. They want to sell it. (T-Mobile, likewise, had said it didn’t have the financial wherewithal to build a 4G network with its spectrum.) Why on earth would the government prefer this spectrum to remain dormant instead of being put to good use?

Bret Swanson (bret.swanson@gmail.com) is president of the technology and innovation research firm Entropy Economics LLC. This article is edited and reprinted with permission from http://blogs.forbes.com/bretswanson/.

Bret Swanson

Bret Swanson is president of the technology and innovation research firm Entropy Economics LLC. (read full bio)