Spectrum Shortfall Tops Concerns at CTIA, But Signs Growing Carriers Might Embrace Sharing

NEW ORLEANS -- The expected spectrum crunch was a hot topic at CTIA’s annual meeting, which ended Thursday. Numerous carrier officials told us spectrum remains a major concern, especially in light of the recent NTIA report on the 1755-1850 MHz band, which said clearing the band would cost $18 billion. Many questions remain about the pending FCC voluntary incentive auction of broadcast TV spectrum and the extent to which there will be broadcaster buy-in, especially in major markets.

"Things do look worse than they did a year ago,” said a carrier official. “I think everyone’s a little concerned right now. This is going to be difficult.” On a positive note, carriers are starting to explore the possibility of spectrum sharing. Verizon CEO Lowell McAdam urged the federal government to explore options for spectrum sharing, speaking Wednesday at the annual Defense Information Systems Agency (DISA) Mission Partner Conference in Tampa, Fla. T-Mobile last week filed an application for an experimental license to do testing in the 1755 MHz band.

FCC officials told us there’s growing optimism that the broadcast TV auction will be a success, though work getting ready for the auction is still in its early days.

Getting spectrum into play for mobile broadband remains a top priority for the administration, said Tom Power, U.S. deputy chief technology officer, during a panel on spectrum at CTIA late Wednesday. “We've got teams working within every agency,” he said. “We meet for two or three hours and go over where we are and how we're going to achieve this.” With the release of the report on the 1755-1850 MHz band, “we'll be engaging” with carriers “more formally,” Power said. He gets that the industry’s focus is on the lower 25 MHz of the band, but 25 MHz by itself “is nothing,” he said. “We need to think bigger.” Power pointed out that the report outlined 20 agencies with spectrum operations in the band, encompassing 3,100 assignments.

The administration is not trying to dampen industry expectations, Power said. “The president says 500 MHz, we say we're on it,” he said. “We're working double time to make it a reality. Five hundred is a round number, of course -- 510 would be great, 496 would be excellent, but that’s our marching order.”

"It goes without saying, really, that Congress has directed us to make spectrum a priority,” said Angela Giancarlo, chief of staff to Commissioner Robert McDowell. “I think it’s safe to say that this is going to be a very long slog. I think it’s an exciting slog. There'll be plenty to learn and probably many twists and turns along the way. But we're very eager to get going on that. We certainly recognize how important it is to the industry."

"It is a long road,” said Steve Sharkey, chief of engineering and technology policy at T-Mobile. “We always have expectations that things are going to happen very quickly, but they do take a long time. I think there is good cooperation across FCC, NTIA, the administration and the industry to move this forward.” There’s often a perception that the government wants spectrum sharing and industry doesn’t, Sharkey said. “I think we're actually a lot closer than some of that discussion makes it sound lately.”

Verizon always thought getting more spectrum online would be “a long process,” said Vice President Charla Rath. The NTIA report wasn’t a surprise, she said. “We knew that it was going to be the beginning of even more work that we needed to do,” Rath said. “All of this is hard work. The incentive auctions are hard work. The government spectrum … is hard work. I think we and others in the industry are rolling up our sleeves and showing that we want to get something done.” Industry views exclusive use of spectrum as “the Holy Grail” and the “gold standard,” Rath said. “We're all recognizing that if we really do want to get more spectrum out there we're going to be creative about it."

Guggenheim analyst Paul Gallant said Wall Street is taking a “wait and see” view of incentive auctions. “Wall Street hears things out of Washington like auctions always take a long time and this auction is going to be even more complicated by an order of magnitude because of the uniqueness of the reverse auction,” he said. “They also hear broadcasters saying, ‘We're not sure we want to sell.'” Gallant said he’s more of an optimist: “I think this is going to work out well for the broadcasters, the industry, the government."

One key to success of the broadcast auctions will be keeping conditions to a minimum, Giancarlo said. In both the AWS-1 auction and original 700 MHz auction, “we saw different kinks in the rules that had an effect on the auction results,” she said. “If it becomes too difficult, it has a drag on the revenues, which in this particular case are going directly to public safety, much of them. … That’s something that, although it might be further down the road, you will continue to hear us talk about.”

There are many unknowns about the broadcast spectrum auction, Giancarlo said. “We're all very hopeful, but there’s so many factors.” The fact that no other country has held a similar auction adds to the pressure, Giancarlo said. “We're the ultimate guinea pig,” she said. “What we get right will be important. What we get wrong, hopefully, will be minimal and correctable and other countries that are following us will be able to learn from us. That does add to the pressure, no doubt.”

The reverse auction “will be really critical,” Sharkey said. “The legislation only gives you one chance to get it right.” On the 1755 MHz spectrum, Sharkey noted that clearing the AWS-1 band was also difficult, but T-Mobile was able to clear parts within two years, which was much quicker than predicted. “I think we're at the point of let’s get engineers into a room to figure out and solve the problems,” he said. “Neither side has a complete understanding of the way each other’s systems work and operate.” During AWS-1 clearance when industry first tried to clear spectrum on the West Coast, the immediate reaction of government users was “no way, it’s all redlined out and it'll be a long time,” he said. “But we gave them more information about how our systems really operate and the power levels that they would expect -- it cleared up practically a whole coast almost immediately.” Government users have concern that “if we get in there while they're still occupying it and we see some interference we're going to run to Congress and try to push them out,” Sharkey said: “Part of it is to prove to them that there are ways we can address this” without having to resort to “extreme measures.”

Sanford Bernstein analyst Craig Moffett, who spoke earlier in the week at CTIA, said Thursday the wireless industry is “just beginning to come to terms with the idea that there’s no spectrum cavalry about to appear over the hill” and ride to the rescue. “For the FCC, that puts a finer point on the SpectrumCo and S-Band proceedings, as those are probably the only near term blocks we're going to see,” Moffett said of Verizon Wireless’s deals to buy AWS spectrum from four cable operators and Dish Network’s spectrum. “The FCC will be even more focused on making sure Verizon and AT&T don’t wind up with all the spoils,” Moffett said. “For end-users, it means usage caps are going to be a way of life for the foreseeable future. And for technologists, it means that the onus is on them to continue to innovate to achieve higher and higher efficiency."

A key to getting more spectrum online is a light-handed approach to regulation, said Free State Foundation President Randolph May. “I think the FCC and Obama Administration are of two minds on spectrum,” he said. “In one mind, they know there is a looming spectrum crunch because of the explosion of video and new apps. In their other mind, they believe that they can determine, better than market mechanisms, how much spectrum companies ought to have to compete and under what conditions. These two mindsets work at cross-purposes. Ultimately, the best way to address the spectrum crunch is to have more faith in marketplace mechanisms, including a well-functioning secondary marketplace."

"The NTIA Report on the 1755-1850 MHz band is a major step forward because it enables government and industry to engage on specifics for the first time,” said Richard Bennett of the Information Technology & Innovation Foundation. “Now that we know what the government applications are, we can develop practical plans for sharing spectrum where it makes sense and for redesigning government applications to use commercial networks in other cases.”