I’m sure you’ve heard about the $39 billion proposed AT&T – T-mobile merger (it officially was withdrawn on Dec 19). What about Sprint shelling out nearly $2 billion to Clear last month? How about the nearly $4 billion Verizon just put down for some Comcast resources? Why is all this money changing hands between carriers? As a product manager with an electrical engineering degree and an MBA at CradlePoint, it’s my job to understand the macro level forces at play in the wireless industry and the technical details behind them. The world of wireless Internet has been taking off and one of the most important limited resources – spectrum – has led to a rash of mergers and acquisitions in recent months to increase wireless spectrum holdings.
So, what is spectrum and why should you care about it?
Spectrum is a range of frequencies of radio waves that travel through air. Those waves travel at different frequencies. Blocks of those frequencies are defined and sold by the FCC in the US and like organizations around the world. The blocks are split up both by frequency and geography so a carrier can buy blocks in different geographic regions as well as urban or rural areas. Blocks of spectrum are assigned for all sorts of applications such as AM and FM radio, TV signals, cell phones and military communications. If multiple devices are operating on the same spectrum they can interfere with one another, which is why it’s important to regulate and define who owns what spectrum. This makes spectrum very valuable.
As wireless carriers see increasing demand from customers for more and more wireless data, they need more spectrum to provide more data throughput. Much of the spectrum owned by wireless carriers is already saturated by what they call 3G technologies. There are more efficient ways to transmit more data faster and that’s what this whole wave of 4G technology is all about. Generally speaking 4G is 3 to 10 times faster than 3G, ie. 1-3 Mbps (millions of bits per second) vs 5-30 Mbps. To run 4G networks, wireless carriers need more spectrum. The problem is that there is only so much of it and some of it is better suited for some purposes than others. Generally speaking, the lower the frequency, the less energy it takes to broadcast and the better it is at penetrating buildings and bending around corners.
One particularly favorable frequency for transmitting data over large areas that penetrates buildings well is 700MHz (millions of cycles per second). This spectrum was used for analog television until it got turned off back in 2009. Verizon and AT&T as well as other carriers were planning ahead for 4G and snatched up blocks of spectrum. Verizon and AT&T alone spent $16 billion in the auction for the old TV waves back in early 2008 while TV didn’t stop transmitting until June 2009.
Verizon launched its 4G LTE network in December 2010 on what’s known as “Band 13” which is a block of spectrum they picked up in the auction. AT&T lit up its 4G LTE in September and both are pursuing aggressive rollout plans. AT&T is up to 15 markets while Verizon is almost at 200. Not wanting to get left behind, AT&T put down a $39 billion bid for T-Mobile to gain its subscribers, but also to snatch up that valuable spectrum. The bid was officially withdrawn as of December 19, 2011, but the story is not over. AT&T will now have to look at other ways to increase its spectrum holdings. Verizon in the meantime offered Comcast and partners $3.6 billion to pick up more spectrum and then another $315 million to take some off the hands of Cox Communications. All of it helps Verizon stay in the lead in the 4G game.
Don’t forget about Sprint though. They may be the small player among the big three but they’re not going to go without a fight. Last month they bailed Clearwire out with a $1.6 billion offer that ensures Sprint has access to their 4G WiMAX (competing 4G technology to LTE) network until 2015. WiMAX got the 4G ball rolling, but while it had its 2 years in the spotlight, it was never able to really take off due to technology and funding limitations. Sprint saving Clearwire also ensures Sprint has access to that spectrum when they transition to LTE. Sprint has signed agreements with LightSquared for about $14 billion to have the LTE network run on Sprint’s spectrum. LightSquared is a company building out an open 4G LTE network.
And then there’s T-Mobile. They are the 4th nationwide carrier. They are relatively small and they almost became part of AT&T, but that deal just fell through making their future uncertain. In the meantime, they have been pursuing a fairly aggressive rollout of their own “4G” network. It’s really just a major upgrade to their 3G network to make it run faster, but they have fewer customers and their spectrum isn’t overloaded so they have room to upgrade their current network on the same spectrum. They don’t have a clear path toward 4G LTE which is the future of mobile data, but somehow it’s expected they will get there. They may be on track for a merger with Sprint, but that’s pure speculation.
So what does all this mean? It means that that there will be more mobile data available in the future. Speeds and availability are going to increase. It’s not a particularly stunning conclusion, but it does have a far reaching effect. It means that individuals and companies will be tied less to the wired Internet world. It will open up the possibility of high bandwidth applications running in remote areas. It will also mean that wireless failover will be able to keep entire companies and all their bandwidth hogging applications online when the wired line goes out. CradlePoint is a technology company that is well positioned to provide businesses access to those fast 4G networks through business-class routers with failover and load balancing capabilities as well as advanced features such as Dual-SSIDs and WiFi-as-WAN for network offloading. Wireless spectrum may be limited, but the ability to stay connected wirelessly continues to rapidly expand.