Last week, the CEO of T-Mobile sat down in front of a camera and tried to get people riled up about spectrum. The world of wireless spectrum can be dense and confusing, and unless you really need to, you probably wouldn't try to get people talking about it. But T-Mobile really needs to do it: the difference between getting spectrum and not getting spectrum could be the difference between competing with AT&T and Verizon and wasting away in third place.
Spectrum makes a network better, and T-Mobile wants more of it
When T-Mobile talks about spectrum, it's talking about the airwaves used to connect your phone to its network. Broadly speaking, the more spectrum a carrier has, the better its network can be. But there's a bit more to it than that. Some spectrum is much, much better than other spectrum. "Sprint has all of this spectrum, but ... it doesn't travel very far and it gets stopped by wet leaves. Literally wet leaves," says Harold Feld, senior vice president of the advocacy group Public Knowledge.
T-Mobile wants to get people riled up because it and other carriers are going to have another chance to get more spectrum very soon. And not just any spectrum. If this spectrum were an illicit drug, it would undoubtedly be called the good shit. The kind of spectrum you get once in a lifetime. The kind of spectrum you'd shell out huge sums of money for.
That's because this spectrum falls within a particularly low range of frequencies, the 600MHz band, and that makes it far more capable than the higher frequency airwaves that get caught up by wet leaves. The 600MHz spectrum is much better at penetrating walls and traveling long distances. Fewer cell towers have to be put up to transmit it, which results in lower costs and a stronger network all at the same time.
The FCC already plans to give small carriers their own bucket to bid on
An auction for this spectrum is scheduled to begin in the first quarter of 2016, but the rules for the auction will likely be finalized next month by the FCC. And that's why T-Mobile's CEO sat down to record a video. His company wants the FCC to make a big change before the rules are finalized.
Right now, the FCC is setting aside a block, at most 30MHz in size, for companies that don't already own a large portion of good low-band spectrum in any given market — it's basically a safe haven from AT&T and Verizon. But T-Mobile, as well as a group of others including Sprint, Dish, and Public Knowledge, argue that 30MHz is too small. They claim that AT&T and Verizon already control almost three-quarters of the available low-band spectrum, so the maximum reserved block should be bumped up to at least 40MHz so the field doesn’t become even more unbalanced. The result might be roughly equal blocks of 40MHz that AT&T and Verizon can win and 40MHz that smaller companies, like T-Mobile and Sprint, can win. In short, the four-company mobile landscape thrives. Everyone wins! Or so the argument goes.
T-Mobile's latest spectrum ad. Click only if you're comfortable with seeing cartoon Tom Wheeler in spandex.
T-Mobile has indicated that it wants this spectrum to help build out its rural coverage, something that the 600MHz band is particularly good for because it can travel far. But AT&T says that isn’t a good reason to boost the reserve. The reserve will primarily be in effect in big markets like New York City, San Francisco, and Chicago, AT&T says, so it won’t be barred from bidding in rural areas in, say, Iowa. Essentially, the reserve is most meaningful when it comes to cities. "Instead of falling for that magenta herring, policymakers should be inviting all bidders to compete for rural licenses that come with stringent build requirements," Joan Marsh, AT&T’s federal regulatory VP, wrote last week.
Verizon is more blunt in identifying at least one reason why T-Mobile wants the larger reserve, calling it "more discounted spectrum on the taxpayer’s dime."
Spectrum in the reserve will likely cheaper
"It's as much about the economics as it is about anything else," says Mark Lowenstein, leader of the consulting firm Mobile Ecosystem and a former Verizon Wireless executive. "If there is some sort of reserve than it is likelier that the price doesn't get bid up in quite the same way."
Getting some of — if not a sizable portion of — this chunk of spectrum is particularly important to would-be AT&T and Verizon competitors because it's pretty much the last chance they're going to get for a while. Spectrum is limited, and there isn't another auction like this one for, potentially, decades. Getting more spectrum now doesn't just mean having a higher quality network, it also means being able to grow.
"The amount of spectrum you have sets a natural limit on how many customers you have," Feld says. "If you cram too many customers into too little spectrum, the quality of the network goes down. If they don't get this stuff, then they’re kinda at their natural limit of how many customers they can get." Without winning some of this spectrum, Feld says, "They're really not going to be able to challenge AT&T and Verizon."
"No single party will be happy with everything we’ve done."
It's not clear how the FCC decided on the size of the auction reserve, but there is the matter of money to consider: the reserved block will have fewer bidders, which means it may bring in less money. In this auction's case, that's a particularly important consideration, because the auction needs to entice television broadcasters into giving up their spectrum to carriers. The commission has to balance the need for money with the need for competition, and that's not an easy task.
"No single party will be happy with everything we’ve done, but the final product is a balanced solution to a challenging situation with more moving parts than a Swiss watch," Tom Wheeler, FCC chairman, wrote last week.
The 30MHz reserve is still a win
That's why, chances are, T-Mobile is going to have to work with the maximum 30MHz chunk that's already been announced as a reserve. Early reports have suggested that the FCC isn't interested in increasing its size, which means that those smaller companies will likely have a harder time picking up as much new spectrum as they'd like.
Of course, that's not exactly a bust. There's still a large chunk of spectrum set aside for T-Mobile, Sprint, Dish, and other small carriers — they just aren't getting the even sweeter deal that they were pushing for.
This is still only the very beginning of the auction; if it were a race, the competitors wouldn’t even be at the starting line yet. We still have to wait to see how much 600MHz spectrum will actually be made available. And from there, we'll have to wait to see what T-Mobile, Sprint, and Dish — not to mention the two biggest carriers — actually want out of it. More spectrum may be better, but when you're spending huge sums of money to acquire and put it into use, you have to pick and choose carefully.