[Esteemed colleague and soon-to-be new blogger here at Devices, Media, And The Future Of Everything, has brought us this post on the impact of the recent wireless spectrum auction on the wireless market.]
Earlier this week the FCC brought down the gavel on Auction 66, which allocated 90 MHz of airwaves for wireless broadband services, ringing up nearly $13.9 billion in bids. While the auction brought a few players other than current mobile operators to the table – such as cable and satellite providers – the results emphasize the maturity of the mobile industry and the difficulty faced by new entrants. Incumbent major providers Cingular, Verizon Wireless, and T-Mobile accounted for 60% of the spending; smaller providers Leap Wireless and Metro PCS contributed 18%; and a consortium of cable operators in partnership with Sprint another 17%. What do these results mean for the future?
- T-Mobile will finally expand to third generation services. T-Mobile, the smallest of the four national providers, is currently the most spectrum-constrained with an average of 25 MHz in most markets versus an average of 40 to 60 MHz held by Cingular, Verizon, and Sprint. As a result, T-Mobile has been unable to expand its network to include third-generation technology that enables services like mobile broadband. This gave T-Mobile the greatest urgency to win licenses – which it did to the tune of $4.2 billion. Because of the two years it will take to relocate the services currently using the auctioned spectrum followed by the buildout process, T-Mobile will continue to play catch-up even as it deploys its new network. Current T-Mobile customers holding out hope for improved service quality will be disappointed for the next several years.
Cable operators will bank their licenses as a hedge. The consortium of Comcast, TimeWarner Cable, Cox, and Sprint Nextel committed nearly $2.4 billion for airwaves that reach 262 million potential subscribers. Yet these same parties have a joint venture to cross sell each others services and create new applications that tie their networks together -- such as programming a home DVR using a mobile phone. But this latest spend is just a hedge. As the first fruits of this JV are still preparing to hit the market, Forrester believes that the cable operators have no plans to deploy services in these new licenses. Instead, these MSOs will only build out a new network should their JV with Sprint demonstrate a clear need for them to control the network directly.
Leap Wireless and Metro PCS will bring flat rate calling to the masses. Both of these carriers promote cellular service as a fixed line replacement, offering unlimited calling within a fixed area at a monthly flat rate ranging from $30 to $45. To date they have collectively less than four million subscribers in limited geographical coverage, but these auctions expand Leap’s potential footprint to another 131 millions subscribers and Metro PCS’s by 124 million. Considering that the average US household that subscribes to both fixed and mobile voice service reports spending more than $116 per month on these services, both Leap and Metro PCS are likely to find many takers in their new markets.
Satellite broadcasters will have to look elsewhere to add mobility. DBS providers EchoStar and DirecTV cooperated to participate in auction 66, but exited the bidding early in the process. Why? These providers require licenses that span the country in order to match their national TV footprint, and the prices for such an assortment rose beyond their budget. Yet these operators will need to add mobility and voice to remain competitive with cable and telco as services converge, and their options are limited to T-Mobile or a possible new entrant using spectrum currently designated for other uses.
Disagree? Let us know.
[signed] Charlie
Technorati Tags: Forrester, T-Mobile, Comcast, Leap Wireless, DirecTV
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