Regulators have been auctioning only a small number of the available radio frequencies needed for the high-speed, mobile Internet-access services that network operators want to offer and on which companies such as Nokia, Ericsson and Motorola are predicating new handset technology.
Motorola's chief executive, Chris Galvin, told an audience Wednesday at the Cellular Telecommunications and Internet Association (CTIA) annual wireless convention that telecommunications companies have already spent what they thought it would take to launch a third-generation phone system on the spectrum rights alone.
"We have to find a new set of rules," Galvin said. "Often in history, regulation has helped determine the success of industry."
Nokia CEO Jorma Olilla was more blunt. "There has to be a rethinking," he said.
For example, in Europe, telecommunications companies have spent an estimated $100 billion to buy the spectrum. In the United States, an untapped market being coveted by most of the world's carriers, government regulators have continued to delay the auctions, hoping to drive up prices. One recent auction garnered $18 billion in fees from carriers such as Verizon Wireless.
The result has been a chaotic financial situation for the carriers hoping to offer third-generation, or 3G, phone services. The more money spent on auctions by telecommunications companies means the less they will have to launch a 3G network, a predicament that often requires them to solicit loans. At the same time, banks are more reluctant to issue those types of loans in the current economic climate.
Further complicating the issue is that the U.S. military also uses some of the same spectrum for its operations. Even U.S. President George W. Bush has weighed in on the issue. In his recent budget sent to the U.S. Congress, he opened a window for the Federal Communications Commission to delay the U.S. spectrum auction again and garner more funds.
A plea to share the risks
Ericsson's president, Kurt Hellstrom, was also to have spoken on the issue at the CTIA show; instead he appeared via a tape replay of comments. Nokia's Olilla appeared live via satellite.
Hellstrom said that as a result of the changing telecommunications climate, equipment providers and the network operators they serve have to adjust the manner in which they do business. "We have to share the risks and benefits together," he said.
While long on complaints, the wireless executives offered just a few alternatives for the predicament facing their industry. Galvin said companies buying the spectrum should be allowed to enter into a payment plan. Perhaps regulators should make the spectrums available for free, he said. He drew an analogy to the railroad build outs of the mid-1800s, during which land was given to the railway companies for free.
"Imagine what would have happened to the building of the United States if railways would have had to pay for the land," he said. "The United States would have stopped at Chicago."
Olilla and Galvin are not alone in their views. A day earlier, Michael Powell, the head of the FCC, called for a national policy for managing airwaves used by government agencies.
The problem will only get worse, if the predictions Olilla and Galvin made Wednesday about the growth of the wireless Web come true.
Galvin said he expects that half of all voice mails will be accessed using a wireless device, a huge jump from present levels of 10 to 12 percent. Nearly 70 percent of all cars will be wired as well, he said. "We need huge amounts of new spectrum."
Spectrum woes make up just some of the latest bad news for handset makers, who started the year with predictions of glory only to experience dropping sales, missed financial projections and layoffs.