A voracious mobile world needs 'spectrum, spectrum, spectrum'

<b>commentary</b> CES panels stress the urgent need to free up more radio frequencies to address the insatiable demand from mobile users and high-bandwidth apps.

Larry Downes
Larry Downes is an author and project director at the Georgetown Center for Business and Public Policy. His new book, with Paul Nunes, is “Big Bang Disruption: Strategy in the Age of Devastating Innovation.” Previous books include the best-selling “Unleashing the Killer App: Digital Strategies for Market Dominance.”
Larry Downes
6 min read
Nokia Lumia 900
The more you use that smartphone, the more you put a strain on the wireless spectrum. Josh Miller/ CNET

LAS VEGAS -- The message came across loud and clear: our wireless way of life could hit a wall, and hit it hard, if it doesn't get more spectrum very soon.

Federal communications policy took center stage Wednesday at CES 2014 here, including the CEA Innovation Policy Summit, where attendees heard from a wide range of US government and industry experts.

Most of that conversation focused on the need to increase available communications spectrum for mobile consumers. The daylong discussion was best summed up by FCC commissioner Jessica Rosenworcel.

"All I see on the show floor is mobile, mobile, mobile," Rosenworcel said at a session on the FCC's 2014 agenda. "And to me that means spectrum, spectrum, spectrum."

Rosenworcel was joined by her three fellow commissioners. Earlier, CEA President Gary Shapiro sat down for a one-on-one conversation with recently confirmed FCC Chairman Tom Wheeler.

A separate session on Wednesday focused on spectrum policy, featuring senior staffers from Congressional committees, the FCC, the Department of Commerce, industry representatives from AT&T and Google, and a representative of the broadcast industry -- the latter a key player in upcoming spectrum auctions.

The takeaway from nearly a full day of discussion was broad consensus on the urgent need to free up additional radio frequencies to address the insatiable demand from mobile users and high-bandwidth applications, including streaming video. As Samsung VP John Godfrey pointed out, new smartphones and tablets already include screens capable of displaying UltraHD video -- whenever content providers begin making it available.

Consumer enthusiasm for that and other new applications suggests that mobile users are racing ever faster toward what Wheeler, echoing his predecessor, Julius Genachowski, referred to as the "spectrum crunch." First identified by the agency in its 2010 National Broadband Plan, the spectrum crunch is the potentially devastating effect that mobile networks, undergoing exponential growth, will experience unless additional frequencies can be made available for their expansion.

The problem is only likely to grow more acute. Earlier on Wednesday, I moderated a panel on policy considerations for the Internet of Things, the connection of in-home and wearable devices that is poised to reach mainstream success in the United States over the next few years.

Spectrum is also a key constraint in the deployment of the Internet of Things. Robert Pepper, vice president for public policy at networking giant Cisco Systems, noted that the Internet of Things would place significant demands on both short-distance communications in the home as well as longer-distance interactions with cloud-based servers.

Former FCC commissioner Robert McDowell underscored that concern, noting that 80 percent of the most useful spectrum is currently in the hands of the federal government users, including the Department of Defense. Their reluctance to part with it, he said, would continue to push product and network designers to achieve better spectral efficiency to preserve network performance.

According to the 2010 NBP, mobile users will require an additional 300MHz of spectrum by 2015, and 500MHz by 2020. Additional data traffic of the Internet of Things, which could someday dwarf current applications, was mentioned only in passing.

But even as current uses have skyrocketed since the publication of the plan, almost no new spectrum has been made available for mobile networks.

That's largely because nearly all usable frequencies have already been assigned, following nearly a century of application-specific allocations to public and private network operators. Wheeler characterized today's crazy quilt spectrum map (PDF) as a prime example of the kind of "analog" thinking by governments that no longer works in the digital age.

Since 1994, the FCC has moved to auctions for granting new licenses, which Wheeler praised as a way to "Let the marketplace decide the highest and best use of spectrum." But without available inventory, the agency has not conducted an auction since 2008's market for spectrum recovered as part of the transition to digital television.

Betting long on broadcasters, stacking the deck
Hope for avoiding the disastrous consequences of the "spectrum crunch" rests largely on an innovative plan passed by Congress in early 2012 known as the "Voluntary Incentive Auctions."

The FCC has been hard at work designing a two-stage auction that would encourage over-the-air television broadcasters to offer some or all of their currently licensed spectrum in exchange for a share of the proceeds of subsequent auctions to mobile network operators. The remaining proceeds are to be used to fund the development of a long-awaited nationwide interoperable public safety network known as FirstNet, and to pay down the national debt.

Though former FCC chief Genachowski confidently predicted that the Voluntary Incentive Auctions would take place in 2014, progress on the auction design and especially in encouraging broadcaster participation has been slow. In his first months as FCC chairman, Wheeler acknowledged the delays, and postponed the auctions until sometime in 2015 -- the year the National Broadband Plan predicted serious network performance degradation is likely to begin.

Netflix on Android smartphone
You love your Netflix. You love your smartphone. And therein lies the spectrum problem. Netflix

Yet even as the prospects for a quick infusion of spectrum grow dimmer, some mobile network operators have been maneuvering to limit participation in the auctions by their competitors. Last year, for example, both Sprint and T-Mobile USA urged the FCC to either exclude or limit bidding by Verizon and AT&T.

Sprint and T-Mobile argued that their earlier abstention from key auctions left them operating at a significant spectrum disadvantage to the two larger competitors. They asked the FCC for a variety of favorable terms and auction limits to ensure they won at least some of the reclaimed broadcast frequencies -- even if that meant lower auction proceeds for FirstNet and reduced incentive for the increasingly phlegmatic broadcasters to participate in the first place.

But the competitive dynamics of the mobile market have continued to change rapidly, undermining the arguments for anything but fully open auctions. In July, for example, Sprint acquired outright its subsidiary Clearwire and then not much later was itself acquired by SoftBank, which has injected considerable new spectrum and capital into the struggling carrier.

So much data, so little spectrum.

Indeed, Sprint surprised and disappointed the FCC by pulling out of promise to participate in a spectrum auction later this month for a small but valuable band of frequencies known as the H Block, leaving Dish Network as the sole nationwide bidder. After encouraging the FCC to carve out the H Block and offer it on terms favorable to Sprint, CEO Dan Hesse told investors that the company did not need the spectrum after all.

T-Mobile, at the same time, has been moving aggressively to build out its own 4G LTE network. Earlier this week, T-Mobile and Verizon agreed to a $3 billion deal that will give T-Mobile some of Verizon's 700MHz spectrum from the 2008 auction.

In an interview with CNET at CES on Wednesday, T-Mobile executives described the accounting behind a newly announced plan to buy out mobile service contracts held by its competitors, allowing users to switch to T-Mobile without having to pay termination fees.

The company also reported that it had added nearly 4.5 million new customers in 2013, and now claims its LTE network is the fastest in the nation.

Rumors, likewise, have circulated since December that Sprint is contemplating a deal to merge with T-Mobile. If such a merger were to go through, it would give the combined entity 52 million post-paid customers, compared to 72 million for AT&T and 95 million for Verizon.

Taken together, these changes cast considerable doubt on the need to offer special terms or other subsidies to smaller carriers in upcoming spectrum auctions, especially when broadcasters argue that doing so could wind up scaring them away altogether.

When asked if the dynamic changes in the mobile market would impact auction design, FCC commissioners declined to comment on specific rumors and announcements. Commissioner Michael O'Rielly, however, said that market changes already completed definitely figured into the calculus.

Added commissioner Mignon Clyburn, "Nothing happens in isolation."