The heat over Verizon's spectrum deal
There has been a lot of talk over the past year about spectrum shortages, spectrum interference, companies proposing mergers just to get their hands on spectrum and even spectrum auctions that will help bail the nation out of debt.
But what exactly is wireless spectrum? And why are people in the wireless industry talking about it in apocalyptic terms?
These are good questions, so let's step back and explain what wireless spectrum is, why it's become increasingly scarce, and what regulators are supposed to (or not) do about it.
All wireless communications signals travel over the air via radio frequency, aka spectrum. The TV broadcast you watch, the radio program you listen to, the GPS device that helps get you where you're going, and the wireless phone service you use to make phone calls and check Facebook from your smartphone -- all use invisible airwaves to transmit bits of data through the air.
The easiest way to understand what spectrum really is and how it provides services is to look at your radio. When you tune your radio to 93.9 FM, you are tuning into a station that is broadcasting at 93.9 megahertz. If you want to a listen to a different station, like one that only plays country music or jazz, you turn the dial to another frequency like 104.7 FM. And a different radio station will be transmitting over that particular frequency on a different setting on your radio dial. No two stations transmit over the same spectrum at the same time in the same area, because if they did, they'd cause interference with one another.
And because wireless signals only transmit over a certain distance, you won't be able to tune in a radio station you like that broadcasts out of New York City when you are in Philadelphia or Chicago or anywhere beyond the distance that those broadcast signals can travel via spectrum over the air to your radio.
Mobile phones work much the same way. Wireless operators, such as AT&T and Verizon, cannot transmit wireless signals over the same frequencies in the same markets at the same time.
The Federal Communications Commission is the government agency that keeps track of who's using which slivers of spectrum. The agency grants companies licenses to use the spectrum. In the mobile phone market, the FCC has auctioned off spectrum, generating billions of dollars in revenue for the government.
The FCC also decides which frequencies of spectrum can be used for which purposes. For mobile phones, it has allocated spectrum generally between 700 MHz and 2.6 GHz. Most of the spectrum in this range has already been allocated for use. This means that when a wireless company wants to add more spectrum to its service to boost its capacity, it may well be disappointed: there isn't much more available spectrum that can be used.
Spectrum is the lifeblood of the industry. And as more consumers buy smartphones, which according to the FCC, use 24 times more data than a traditional cell phone, and tablets, which can consume 122 times more data than old traditional phones, there is a greater need for spectrum. The question is, where's it going to come from? Much of the best spectrum for transmitting mobile signals has already been licensed to wireless carriers, or it's being used by TV broadcasters or government agencies, which hold the rights to these licenses. As a result, the industry and the FCC have declared a spectrum shortage.
The FCC is working on ways to free up additional spectrum:
- with other government agencies to hand over spectrum for commercial use.
- with TV broadcasters to develop incentive auctions that will allow TV stations to put their unused or underused spectrum up for sale and get a cut of the proceeds.
- and in various ways to change the rules for certain blocks of spectrum used for things like satellite communications so that they can be used for mobile broadband services.
In the National Broadband Plan presented to Congress in 2010, the agency set a goal of freeing up an additional 500 MHz of spectrum for wireless broadband use by 2020.
But the process to free up additional spectrum has been slow, and it's unclear whether the agency will meet this goal. What's more, many industry insiders believe 500 MHz by 2020 is still not enough spectrum to fuel such a fast-growing industry.
With an essential resource in high demand and low supply, FCC commissioners are also staring at a classic regulators' quandary: When they do auction off this additional spectrum, should they allow the market to sort itself out in the Darwinian sense and allow the spoils to go to the highest bidder? Or do they intercede, in the process protecting small carriers and protecting, in theory, consumer choice? And would it even matter if they did?
These are the questions with which the FCC is currently wrestling. There are no easy answers, but the policies that the agency sets today will have a lasting effect well into the future, whether those policies result in fewer competitors or they help preserve the many wireless competitors that exist today.