Wireless Industry Cheers as Spectrum Auctions Seem Likely

The asphyxiation may finally be over. The wireless industry will breathe freely once again as Congress appears all set to approve a payroll tax bill that also includes a plan to raise billions of dollars by auctioning off television airwaves. ^[1] The proceeds from the auction will then be used to fund an extension of jobless benefits as well as the creation of a nationwide public safety wireless network. If the bill is passed, it will be a significant victory for wireless carriers such as Verizon (NYSE:VZ), Sprint (NYSE:S) and especially AT&T (NYSE:T), who is facing a severe spectrum crunch and has been pushing the Congress to free up more airwaves.

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Smartphones and LTE increasing spectrum crunch

Wireless spectrum is the lifeblood of an intensely competitive U.S. wireless market, where the number of wireless subscriber connections (327.6 million) has now exceeded the total population (315.5 million) in the United States (as of mid-2011). ((CTIA Semi-Annual Survey Reveals Historical Wireless trend, October 11th, 2011)) As an ever increasing number of smartphone users demand higher speeds and congestion-free networks, wireless carriers are hard-pressed for additional spectrum in order to meet these demands. FCC Chairman, Julius Genachowski, has also spoken out about the impending spectrum crisis for two years now.

With the industry now moving towards a new high-speed 4G technology, LTE, we expect spectrum needs to further escalate. Verizon, the first to start deploying LTE, covers 200 million Americans in 195 U.S. markets with its LTE network. In comparison, AT&T has launched LTE in 28 markets, and covers only 74 million U.S. citizens. Smaller carriers such as Sprint are yet to launch their LTE network.

Auction addresses AT&T’s needs

Mounting spectrum needs make it imperative for the FCC to find ways of freeing up airwaves for the wireless industry. However, it was reluctant to allow any large-scale consolidation of the kind that AT&T ventured into, as it would have created anti-competitive concerns. Government auction of airwaves, overseen by the FCC, will help the industry as a whole as well as avoid concentration of spectrum resources with a few.

Of all the wireless carriers, we feel AT&T will benefit most from this development after its proposed merger with T-Mobile was rejected towards the end of last year. AT&T made the acquisition bid in order to satiate its spectrum needs, however it will now have to give up some spectrum licenses in a few key markets to T-Mobile as a part of the breakup fee they had agreed upon.

Without a government auction of airwaves, AT&T would have been short on spectrum that it needs to compete with its bigger rival, Verizon, that looks ready to gain control of $3.6 billion worth of AWS spectrum licenses from the cable companies. (see Verizon Scores Huge Win in $3.6 Billion Spectrum Deal)

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1. Verizon, AT&T cheer spectrum auctions, FierceWireless, February 17th, 2012 [↩]