Rural already covered and urban, 5G, need higher frequencies
ANOTHER CANADIAN SPECTRUM auction is coming up and this is good news for many folks. It should be good news for consumers because more spectrum means more capacity which generally means more competition. It should be good news for auction consultants – that strange breed with PhDs in Astrophysics or Game Theory who advise bidders on what to do. And of course, it should be good for regulatory lawyers who will argue about whether there should be set-asides or not.
But will it be good for the government? How much money will they bring in? The 600 MHz auction in the U.S. was a significant disappointment. It was expected to bring in about $60 billion and instead it brought in “only” $20 billion.
To understand why hopes were so high, understand that 600 MHz spectrum is low band spectrum. The U.S. spectrum pundits said this makes it the “beachfront property” that everyone wants. With low band spectrum, the radio waves go farther and penetrate buildings better. Going farther is important, because you can build cell towers every five or six miles instead of every three with high band spectrum. That means spending much less than half as much to reach rural areas.
Building penetration is important because we now use our cellphones 80% of the time from inside buildings – much more than we use than them in vehicles.
However, as the U.S. auction showed, these things are not as important anymore. Most of the carriers already have towers in rural markets. They are not building those markets from scratch – but are filling in holes in existing coverage.
While in-building coverage is important, low band spectrum may not facilitate it. A lot of big glass office towers have been coated with glazes to make them more energy efficient and unfortunately, those glazes keep energy in and radio waves out. As a result, carriers have built a lot of in-building DAS (distributed antenna systems) to provide indoor cell coverage. So, getting in-building coverage from low band spectrum is not that easy any more.
The cell phone business has also changed from a voice to a data business where the big money is being made in providing data service to urban customers. For that business, low band spectrum is not the best either. It goes too far! Carriers instead need to cram a lot of towers together to provide lots of data capacity and when they do that, the low band spectrum from one tower interferes with the low band spectrum at another tower.
The best spectrum for urban data service is higher band spectrum. It doesn’t go as far but it carries more information and propagates better within buildings – perfect for urban environments with heavy data usage.
The 600 MHz spectrum is most valuable then for carriers who must build their entire network or who at least have to build a lot of rural areas from scratch. The big winners in the American market in their auction were: Dish Network and Comcast who haven’t deployed mobile wireless networks yet and T-Mobile, a company that has a lot of coverage to complete. T-Mobile spent US$8 billion, Dish spent $6.2 billion, and Comcast $1.7 billion on the spectrum re-purposed from TV stations.
AT&T spent $1 billion on 600 MHz spectrum, but just announced they are selling it. In fairness, this may not mean that AT&T doesn’t want low band spectrum. They won the bid to supply First Net with a public safety broadband network and that lets them use 20 MHz of First Net’s 700 MHz spectrum when it is not being used by police, fire and ambulance (about 90% of the time.) So, they have lots of new low band spectrum coming their way.
Verizon spent no money at all on 600 MHz spectrum.
“In Canada, the big carriers have low band spectrum and have already built to most rural areas. They may not be willing to shell out big bucks for the 600 MHz spectrum.”
What all this means for Canada is not yet clear. (We don’t even have a date or set rules for the auction yet). Another reason for the disappointment in the U.S. is because the FCC left it up to the auction winners to clear the 600 MHz spectrum which is currently encumbered with television stations. The uncertainties of the costs for clearing the spectrum made the business case risky. This should be less of a problem in Canada, however.
There are also spectrum caps for sub-GHz spectrum in the US which affect Verizon and AT&T. This may have diminished the bidding exuberance in some markets.
In Canada, the big carriers have low band spectrum and have already built to most rural areas. They may not be willing to shell out big bucks for the 600 MHz spectrum.
Plus, we’re getting closer to the launch of 5G, which has the potential to change the broadband game altogether. This next gen is able to use very high frequency, above 28 GHz millimeter-wave spectrum bands, which can transmit enormous amounts of data, albeit across short distances. Again, 600 MHz isn’t needed for this, either.
In the States, the 700 MHz auction brought in $20 billion in 2008. The Canadian auction brought in $5.2 billion but that was in 2014 when spectrum prices had been going up for six years.
If the usual 10:1 rule between the US and Canada applies, the Canadian spectrum auction should bring in $2 billion. If the 4:1 ratio from the 700 MHz auction applies, it could bring in $5 billion.
I really shouldn’t hazard a guess (especially because I don’t have a PhD in Applied Math) but I think it will be closer to $2 billion.
Ken Engelhart practises telecommunications and broadcasting law with Engelhart Law.
