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The Spectrum Cap Fight: A Left, a Right and a Smoke Screen

The Spectrum Cap Fight: A Left, a Right and a Smoke Screen

Is the cap lift equally capable of improving QoS and making carriers more profitable? Or only the latter? Unfortunately, we may not know until the smoke clears whether the consumers, the carriers, or both are the winners.

On November 8, 2001, the FCC began a gradual lift of the spectrum cap for mobile radio frequency (inclusive of cellular PCS). The cap lift elevates the amount of spectrum any single carrier can own in any one market from 45 to 55MHz. The lift will be completed in 2003. Cellular service is becoming essential technology in terms of national security (wireless communications were both vital and strained during the terrorist attacks of September 11), business communications (BlackBerry e-mail devices, cell phones, and pagers to name a few), and private-sector consumers (varied devices accommodate a culture that is constantly on the go, with multiple-job families, multiple responsibilities and stressors requiring convenient, immediate, mobile communication, not to mention emergency use).

Because this essential technology depends on a scarce commodity called spectrum, we have a struggle for power. The power is capacity and the titans are assembled in camps for or against the cap lift. Most of the liberal left, along with small carriers trying to avoid being gobbled up in mergers the lift will produce, are against peeling away the cap. Much of the conservative right, who want to spur the economy and foster a free and open market, along with the big carriers that expect to swallow up smaller competitors or rob them of the ability to compete, are for the cap's demise.

While the fur and dust are flying, is our attention being drawn away from the fact that a few major carriers will remain...stronger, richer, and more powerful? That they'll have more spectrum to work with and more room to breathe? And that they'll still have no accountability to the government or anyone else for making good on promises of more capacity and better quality of service (QoS) for all? Will carriers improve, optimize, and innovate as a result of the cap lift? Or, will they simply rest on their laurels and enjoy their spoils, selling only the same poor quality of service and limited capacity to a larger market, thereby profiting from what the market will (continue to) bear?

The Challenger
The camp on the left, which wishes the cap had been left in place, points to the following cons. Along with a few big guys who have enough spectrum (like Sprint), the naysayers argue that there is still enough spectrum left to justify maintaining the cap. But it seems unreasonable to wait until absolutely no spectrum is left before freeing up more. The real motivations for making claims of no shortage are obvious. The smaller carriers won't be able to compete with the three or four remaining giants the mergers will create. They will shortly be assimilated or wiped out.

The consumer's union sits in the no-lift faction, fearing prices will skyrocket and quality of service will plummet when there is a handful of providers remaining. But according to Charles Shalvoy, president and CEO of Conductus, manufacturers of wireless superconducting systems, larger companies, such as Sprint, that are sitting on a spectrum stockpile find it easier to lead the market in geographical areas where competitors such as Cingular and Verizon are spectrum-strapped. Again, some on the left also point to the political angle, suspecting right-wing shenanigans, and citing a money trail from large-carrier lobbyists to Republican campaigns. They claim these contributions swayed the Bush administration to push for a speedy removal of spectrum limitations.

Mike Rosenthal, director of regulatory affairs at Southern LINC (a regional wireless carrier in the Southeast), says they wish the FCC would make the cap lift more gradual. They see some negative results to its removal. "Larger national carriers are suggesting that the FCC lift the cap entirely so that free competition and market forces can operate unhindered. But this new system rewards carriers with lousy business plans who have pursued growth at all costs and now must consolidate in order to stay afloat," says Rosenthal. He adds that innovation falls when market consolidation increases, another not-so-nice side effect of quickly raising the spectrum ceiling.

The Champ
Those on the right argue that a free market is great for spectrum and for the economy. Shalvoy says, "Basic economic theory would say that...if the free market is allowed to work its magic, then the scarce good [spectrum] will be put to the highest economic benefit and people will bid and buy and sell that scarce good until it finds its highest economic return. And I think that's the basic philosophy behind the Bush administration; let's free this spectrum up so that it will go to the highest possible economic use."

According to Shalvoy there is a shortage and the cap wasn't helping any. "The number of subscribers grew by about 25% last year. Minutes of use per subscriber grew by about 30%, [and] overall capacity needs of wireless networks in this country grew by over 70%. Spectrum is a key part of adding more and more capacity. The initial reason to put spectrum caps on the providers was to foster competition in the wireless industry. That was successful in [that] there are at least 10 different wireless operators in the U.S. providing different services. In any metropolitan market you might have six or more providers, but the problem is that none of them are providing really good service. Or the service is often spotty and varies from city to city and many of them are running into spectrum shortages that prohibit their ability to make the service better," says Shalvoy.

Another suggested benefit of the cap lift is that we may see some leeway at the 2.5G level, permitting some new applications to enter the market. Applications developers dependent only on 2.5G bandwidth will benefit. According to Dr. Scott Snyder, president and CTO of OmniChoice (provider of technical solutions to optimize telecom sales and marketing), "Software.com and Phone.com should benefit from the cap lift as well as office-related applications [providers]. InfoSpace.com and similar content providers may be able to add content as bandwidth frees up."

From a broader economic perspective, some predict a domino effect. The cap lift, like the bright light at the end of the tunnel, forecasts eventual success for 3G, which can only come from a position of financial success in the current market. This should spur investment and, in turn, raise hopes of developers and press them toward new products. The buildout of networks also continues. If the carriers optimize networks as they should to capitalize on the opportunity the cap lift provides, consumers will enjoy the service more and should use it more. This drives revenues and motivates providers to release more services to the market.

History argues in favor of the conservative camp. In each major new industry (the auto industry being one example) a field of a number of small players eventually developed into a clearer field of a few large companies. To resist the cap lift in order to avoid this prospect arguably would be trying to avoid the inevitable.

As Shalvoy puts it, "Three or four suppliers could be a good number. That would be an amount that would encourage the suppliers to provide a quality product at a competitive price, which is good for consumers. ...It also allows those three or four suppliers to have enough business that they can afford to continue to invest in making new products and services available and expand their networks." This view tends to consider the economic impact on everyone, and not just the benefits to smaller competitors who would like to stay in business.

The Big Smoke Screen
A few carriers will be left standing with a lot more breathing room after the smoke screen clears. But then it will be payback time - time for those carriers to produce and give us the quality of service we desire and deserve by optimizing their networks. Will they come through or will they give in to the temptation to sell their capacity thin so that they have more and more customers while we all get the same poor service? The government holds landline carriers to account, but not the wireless carriers. Without such lawful accountability, how can we be sure we'll get the payoff we hoped lifting the cap would bring?

According to Annabel Dodd, author of The Essential Guide to Telecommunications, Third Edition, and adjunct professor at Northeastern University, the government should hold wireless carriers accountable just as they hold landline carriers accountable: "The landline carriers are held responsible for the quality of their networks. They have to make reports to the FCC when they have outages that either affect public service carriers or more than a certain number of callers; they have to report all those outages and the FCC analyzes them. There is no such thing that happens on the cellular side. I think just lifting caps, letting people do whatever they want, is very wrong. …There should have been something done to say you've got some responsibility to the government.

"You're using a national resource, you've got responsibility for not overselling, for keeping a certain amount of spare capacity, for making sure calls go through. And reliability and redundancy, you know, [it's like the carriers say] 'oh here, just take whatever you want.' I think a lot of people have talked about the fact that prices will go up and innovation could be hurt and I think that's true and I agree with that. But then there's also the issue of capacity and reliability. You know, reliability, redundancy, sustainability… all those things should be looked at by the FCC; there should be some accountability."

Yuval Davidor, founder of Schema Inc., optimizer of wireless networks for recovery of spectrum, says it's time for carriers to pay up: the market forces and definitely the media are already focused on carriers paying the bill. Davidor says, "I mean prove that whatever we gave you - whether it was the trust in buying your shares or the revenues [generated] by sticking to you and getting the service from you, the fact that the federal government gave you additional spectrum and so on - that you took it seriously and you have improved the service to meet QoS. …It [QoS] is extremely quantifiable."

For example, when Schema does a retune - a retune is when an operator implements a change to the network RF setup; namely, a change in the frequencies assigned to the cells to use when a demand to initiate a call is made, or when the equipment parameters are changed, such as the power of transmission, antenna type, or antenna direction - two to three weeks later the operator collects statistics from the switches and knows exactly what percent the retune has improved on dropped calls, the bit error rate, attempt failures, additional capacity, and so on. "It's so quantifiable." Davidor says. "You just need to ask the question.

"Maybe after a year or so the market will become so intelligent that they [will] say you have to give me the bottom line of the switch statistics," he says. "That will tell me how good your service is. We don't need ifs and buts and guesswork and to talk to my neighbor or my friend at work. I'll just know the statistics that result from a million users.

Shop-and-compare benefits from quality-of-service estimates are coming, according to Shalvoy: "There are two impediments that I think make people nervous about the industry consolidating down to three or four and still being competitive. The QoS data on who is the best provider in a geographic area is not real well known right now. It's not the same as if I wanted to buy a new station wagon for my wife and could pick up Consumer Reports or JD Power and see a ranking of all the station wagons, find the top two or three that I was interested in, and go out to those dealers and buy one.

"In wireless the quality of service can vary dramatically from one region of the country to another. Cingular might be best in one region, Verizon in another, and Dobson in another; so those could vary all over the map. One thing that could be very helpful [is] if there was a good service that would rank all of these different providers in each geographical area. So if you use a certain provider in your area and you're dissatisfied with them…you could say, well, okay, let's see who's better. ...You could pick up a survey and if all their prices are pretty much the same, you're really looking for quality of service.

"This issue is amplified by the fact that Congressman Anthony Weiner, a Democrat out of New York, submitted legislation in Congress that required the FCC to collect and disseminate this quality of service information on a regional basis. He was responding to a number of surveys that showed that quality of service was a major dissatisfier for a large percentage of wireless users in this country. So that could be one thing that could help consumers."

The cap lift may buy carriers more time to prove themselves but may not really make a difference in quality of service. According to Dodd, "The caps are lifted but they don't really have any more spectrum unless they buy somebody else who may also be at capacity. ...I think there's a lot of synergy if you put two networks together, and you use the same kind of access technology, a little bit more capacity with one big network than two smaller ones. ...It really depends if these carriers are going to buy somebody that also has the spare capacity where they need it...."

What will it take for us to get the quality of service we should be able to have now? Will we have it when carriers run out of excuses like caps needing to be repealed? Will we get it when consumers have the ability to compare quality of service and to switch based on what they find? Will we get clear, stable calls when the FCC regulates wireless providers the way they do landlines? These questions remain to be answered.

SIDEBAR
wireless spectrum
Broadcast TV

54 - 72MHz
76 - 88MHz
174 - 216MHz
470 - 512MHz
512 - 608MHz
614 - 806MHz

AM/FM Radio
535 - 1,605KHz
88 - 108MHz

3G Broadband Wireless
746 - 764MHz;
776 - 794MHz

Personal Communications Service (PCS)
1,850 - 1,990MHz

Wireless Communications Service (WCS)
2,305 - 2,320MHz 2,345 - 2,360MHz

Digital TV
54 - 88MHz
174 - 216MHz
470 - 806MHz

Teledesic
18.8 - 19.3GHz
28.6 - 29.1GHz

Satellite-Delivered Digital Radio
2,320 - 2,325MHz

Cellular Phone Service
806 - 902MHz

3G Broadband Wireless (proposed)
1,710 - 1,855MHz
2,500 - 2,69MHz

Local Multipoint Distribution Service (LMD )
7.5 - 29.5GHz
31.0 - 31.3GHz

Multichannel Multipoint Distribution Service (MMD )
2,150 - 2,680MHz

More Stories By David Geer

David Geer is a contributing writer to WBT, a journalist, and a computer technician. He graduated from Lake Erie College in 1993 with a BA in psychology and has worked in the computer industry and in the media since 1998.

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