The U.S. wireless industry is about to take an interesting turns with the incentive auction slated for the next year. Will matters change for the better? Carriers have for long complained of possessing insufficient spectrum to satisfy the burgeoning data demand. The spectrum auction aims to meet the insatiable demand for airwaves not only to serve customers better, but increase competition in the market as well.
Verizon (VZ, Financial) and AT&T (T, Financial) have been criticized for possessing low frequency spectrums that empowers them with the supremacy to dictate the market. The other two national players Sprint (S, Financial) and T-Mobile (TMUS, Financial) have been working hard to revive and emerge stronger to contend with the bigger players. Why is spectrum so important? Will the upcoming government auction give them a fair chance to get a vital share of the airwaves?
Why Is Low Frequency Important?
Spectrum is considered as the life blood of a wireless provider. The Federal Communications Commission (FCC) is scheduled to auction the 600 MHz spectrum that is coveted by telecom providers. Such lower frequencies are of great use to the wireless providers. Why? Low frequency spectrum can carry signals for longer distances and can penetrate objects such as buildings, trees and other structures better than higher frequencies. While lower frequencies perform better in suburban and rural areas, higher frequencies are better in urban regions.
However, lower frequency is not evenly distributed among carriers. Verizon and AT&T are the only wireless carriers that have spectrum holding in the lower frequency of 700 MHz. Other than the two, T-Mobile recently got its hand on lower frequency spectrum that it acquired from the Big Red. Sprint doesn’t have frequency in that level; its lowest frequency is in the 800 MHz range.
Since both Sprint and T-Mobile lack frequency in the lower range, they are unable to compete with Verizon and AT&T. Sprint and T-Mobile have a good coverage in urban areas but don’t possess a strong coverage in suburban and rural areas. However, Verizon and AT&T have solid coverage all over the nation including areas outside the cities.
Who Would Get a Bigger Pie?
Now the question that arises is would Sprint and T-Mobile get preference in the auction for lower frequency? Would FCC make some arrangements by limiting participation from the bigger players so that smaller players get some fair share of the spectrum? Or would the deep-pocketed Verizon and AT&T again be more influential and gobble up the spectrum chunk leaving the rest of the players helpless?
Chances are obviously high that Verizon and AT&T would have an advantage at the incentive auction considering their financial strength. And this would further concentrate power in the hands of the two. The FCC would have to find a solution to prevent that from happening. T-Mobile CEO John Legere says, “if the government wants us to have a competitive environment, you are going to make sure that the duopoly doesn't use their prowess to crush the little guys and have this sub-1 GHz spectrum be moved all to them”.
Sprint has given a solution to all this. The company aims to break the duopoly, but it’s practically impossible to do so single-handedly. It’s therefore proposed for a combination with T-Mobile which would help the combined entity increase their scale by joining resources. The combined entity would be better positioned financially to give a tough run to the larger players at the auction. However, the U.S. officials are wary about the deal as it would reduce the number of national players from four to three.
Last Word
It’s still time to see what effect the auction would have on the players. Would each of them get a justifiable share? Or would the bigger fishes eat all leaving the smaller fries hungry? The wireless industry is at an important juncture that could decide a lot of things for both carriers and customers. It would be interesting to see how things take shape in the future and decide each player’s destiny.
