Property, diamonds, gold or spectrum?

A recent Computerworld article opened up with the provocative statement that wireless bandwidth is like land in Manhattan — it’s extremely valuable because they’re not making more of it. No kidding. That probably explains why it has become such a premium commodity. Until new spectrum can be created (who knows what the future holds there) or existing spectrum can be better utilized, its value, like scarce metals, will continue to rise – some even say, skyrocket.

Maybe that’s why AT&T spent US$1.9 billion in December 2011 to acquire spectrum from Qualcomm, and why it is rumored to be buying Dish Network, after its attempt to acquire T-Mobile (primarily for its spectrum) failed to get past regulators. Could that be why Verizon forked over US$3.6 billion for mobile spectrum licenses from SpectrumCo, a joint venture of three cable providers, and paid Cox $315 million for spectrum in another deal. Spectrum will not only be critical for operations growth, it could be an operator’s greatest asset.

This week, India’s finance ministry, recognizing just how valuable and tradable spectrum is, proposed allowing operators' spectrum holdings to be used as lending collateral. Being able to offer spectrum as security could open some much-needed credit for the nation's telecom sector. The ministry has asked the Department of Telecom to make policy changes that would allow banks to seize airwave licenses in the event of a default on loans or the revocation of mobile licenses, India’s Economic Times said. 

For whatever reason, the Telecom Regulatory Authority of India (TRAI) recently adopted a rather controversial pricing methodology for spectrum. It valued 2G spectrum (whether at 900 or 1800MHz) 35 percent higher than the per MHz price for 3G spectrum. At the time, 3G spectrum auctions netted the government US$25 billion, so that would value 2G spectrum at US$33.3 billion with the combination of both showing a value of around US$58 billion.

When you consider that the total debt of the telecom industry in India is estimated to be around US$56 billion, you can see just how tangible an asset spectrum has become. Indian mobile operators are sitting on a gold mine, and if the theory is extended worldwide, so is every other mobile operator that holds spectrum licenses. Of course, that is also presuming that spectrum purchases have been treated as capital expenditure in the accounts and show on the balance sheet as assets. Would the usual depreciation allowances apply? And what if some applied ‘creative’ accounting to the purchases and treated them as expenses in the profit and loss? Surely not?

That’s all well and good, but it doesn’t help when the ever-increasing demands of data keep chewing up more and more of that rare commodity. The situation is getting quite serious with wireless networks edging near capacity all over the world according to a Credit Suisse survey conducted last year. It revealed mobile networks in North America were running at 80 percent of capacity, with 36 percent of base stations facing capacity constraints. The average globally for base station capacity utilization, the report said, was 65 percent.

Even LTE technology can only offer a four times improvement in bandwidth utilization over 3G. In September 2011, Rice University engineers announced technology that would allow mobile network operators "to double the throughput in their networks without adding any cellular towers." Their plan: Add full-duplex capabilities so that wireless devices can send and receive data at the same time. In February 2011, researchers at Stanford University said they accomplished a similar full-duplex capability via a noise cancellation technique.

Ericsson’s acquisition of BelAir Networks, adding high-performance outdoor hotspot technology to its portfolio, could signal a big shift in the mindset of the big wireless vendors and their target market – wireless operators. Ever mindful of the looming bandwidth issues on 3G and 4G networks, Ericsson may be looking at extending the coverage and capacity of the mobile operators’ primary voice and mobile broadband network while also offering a cheap means of offloading Internet-bound traffic.

Experts vacillate between calling the wireless spectrum situation a crisis or a crunch and the challenge is being taken on in a variety of means, but not always consistently from country to country. While re-farming and re-allocation of existing spectrum is favored, this takes time and shifting existing users of spectrum is no easy or fast feat. Praying for dramatic improvements in technology or, better still, investing in it also takes time to see results. Whatever happens, one suspects things will get worse before they get better.

As a postscript to this blog, some pundits are advising mobile/wireless subscribers to find the best data plans they can now and commit to to them, quickly. Just like any other product with high demand and short supply, prices are likely to rise.