The wireless industry has seen incredible growth in recent years. However, limited wireless spectrum may start to slow that growth if we don’t come up with a real, fair and long-term solution for large and small competitors. We keep dodging the bullet, but sooner or later it could hit us right between the eyes. Now is the time to come up with a real solution.
First off: what is wireless spectrum? Think of it like the roads that the data networks use to deliver services and apps. Wireless spectrum is the equivalent to all that fiber that carry data on the wire line network.
There is no limit to the amount of capacity on the wire line side. If we need more, we simply lay more wire. However on the wireless side we have restrictions and limitations.
Spectrum is wireless and is divided into many separate bands. These bands are used in a variety of industries. Some bands are used for airlines, police, emergency workers or taxi drivers to communicate. These spectrum bands are the data highways that wireless customers use. They are what carriers depend upon for their customers to use wireless data.
If we don’t do anything, carriers and their customers will start to feel the pinch of limited spectrum. AT&T (T) Mobility and Verizon Wireless (VZ) have seen great growth in recent years. You would think they had plenty of spectrum. Really?
Spectrum is why AT&T Mobility tried to acquire T-Mobile several years ago. It’s why they are trying to acquire Leap (LEAP) now. It’s why Verizon Wireless acquired the cable television spectrum when they acquired SpectrumCo.
So who has the most spectrum today? Sprint (S) , believe it or not. Sprint is swimming in spectrum after the merger with Clearwire and Softbank several months ago.
What will Sprint do with all that spectrum? How will AT&T and Verizon get more? And what about all the smaller wireless providers who also need access to spectrum in order to remain competitive? There are plenty like T-Mobile, US Cellular, C Spire Wireless and many more.
This is a real and growing problem. It’s not at the crisis stage yet, but why do we have to wait till we reach that point before we act anyway?
Bottom line: if you don’t own or have access to spectrum, you can’t deliver the services customers want, and you might just as well close up shop.
If we don’t solve this spectrum shortage problem, the wireless industry will look very different going forward. There are many different providers today, but tomorrow many smaller competitors may close the doors. That’s not good.
Competition is what we need as an industry moving forward. And that is what we could lose if we don’t fix this.
So if limited spectrum is the problem, what is the solution?
There are several.
One new idea that I like is carriers sharing their spectrum with other carriers. Example: a reporter asked me about AT&T Mobility sharing spectrum with C Spire Wireless. He asked, can expect the same from Verizon Wireless and Sprint?
I told him I hope so. This is a good solution to a growing problem. True, carriers don’t want to share spectrum. However, it’s better than being forced to do things they really don’t want to do. So yes I hope every carrier shares. That would go a long way to solving the problem.
I have discussed another solution which carriers would obviously rather avoid. Change the way we treat spectrum. To date we let carriers bid on and acquire the use of spectrum bands. If we reach a real problem without solution like sharing, the government can step in force carriers to share.
Getting the government involved is always much worse than doing it yourself. So the solution would be much better for competitors if they handle this themselves. If they share spectrum with others even though the really would rather not.
If the government gets involved, they could demand that all spectrum be pooled together and managed by a new government authority. Every company could have access to all of the spectrum, but must pay to use it. This solution would also cost money to operate. And the carriers would lose control of their spectrum.
That way networks would still be compensated, but the control would be out of their hands. Instead it would be in the government hands.
Going forward, innovation will also play a role. We will be able to do much more with what we already have. Example: we’ll be able to split each band into sub-bands. That would let us have many more bands than we use today. That could increase capacity on an ongoing basis.
So you see there are solutions to this growing problem. One thing we can count on, this is not a problem that will go away or solve itself if we don’t pay attention. Rather it will jump up and bite us all in the rear end, customers and carriers, and that won’t be pretty.
Remember the capacity problem’s we all had with America Online or AOL (AOL) back in the early days of the Internet during the 1990’s? Slow speeds and problems connecting. We could start to experience that same pain on the wireless network with all the data we use.
Wireless data and apps are exploding and that is not slowing down. That’s the good part of this opportunity. However every opportunity has two sides. The other side is this capacity problem is getting bigger. It is something we need to solve, sooner rather than later. Will we? Let’s hope so.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer