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The FCC to explore the Spectrum Frontiers

Yesterday Federal Communications Commission chairman Tom Wheeler channeled President John F. Kennedy in his announcement that the Commission will be issuing rules that release additional spectrum for use by 5 G devices and services. The release will also include 14 GHz of unlicensed spectrum. Mr. Wheeler wants to make 5 G a national priority given the role it plays as a platform for the internet of things. Mr. Wheeler did not come to this point overnight or by himself.

Working groups in the private sector have been making regulators aware of the spectrum requirements necessary for deploying effective 5 G networks. For example in August 2015, 4 G Americas, a wireless trade association, released a whitepaper identifying the best spectrum bands for 5 G. The paper makes the following key points:

  • “Mobile spectrum bands below 6 GHz will be valuable to allow the smooth integration of 4 G and 5 G systems.
  • Spectrum bands in the range above 6 GHz will offer technical challenges; however, capabilities for mobile services are possible in the higher band ranges with new radio solutions.
  • A variety of bands are needed to address both coverage and capacity needs of evolved 4G and 5G systems.
    • Lower frequencies have better propagation characteristics for better coverage and thus can support both macro and small cell deployments.
    • Frequencies beyond those traditionally used for cellular systems, especially those above 6 GHz are important to consider.
    • Higher frequencies can support wider bandwidth carriers due to large spectrum availability at millimeter-wave bands for providing very high peak data rates in specific areas where traffic demands are very high.
  • Action is needed by regulators to ensure that new spectrum needs are addressed for the evolution of 4 G and additionally to address the timely introduction of 5 G by identifying new spectrum ranges to be studied in the ITU- Radiocommunication Sector (ITU-R).” (Source: Yahoo! Finance)

The telecommunications services sector was in the positive this morning along with other sectors in the economy so saying that Mr. Wheeler’s announcement moved mountains much less the telecom sector would be a reach.Acting as a monopoly licensor of spectrum, I suspect that wireless companies will be seeking licenses at a premium given the scarcity of the resource. Mr. Wheeler admits that the emerging technology should be driving demand for spectrum. Fortunately in this case he appears willing not to hinder deployment but issuing new rules.

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Sprint may plan to mortgage its license proceeds but not the spectrum license

Posted March 16th, 2016 in spectrum, Sprint and tagged , by Alton Drew

Sprint, a mobile broadband provider, has been plodding through eight years of losses. It has been toiling under the weight of $34 billion of debt. To give itself relief, Softbank, the entity with majority control of the carrier, has come up with a plan that involves creating another subsidiary of Softbank and have that subsidiary lend Sprint the money to bail itself out. According to Bloomberg Businessweek:

“According to Sprint Chief Financial Officer Tarek Robbiati, the proposal is to create another subsidiary of Son’s Japanese corporation that will lend Sprint money. The new unit plans to accept the carrier’s wireless equipment and some of its rights to slices of the wireless spectrum as collateral. Sprint says that while it won’t give up control of those precious airwaves—worth more than $115 billion, according to Bloomberg Intelligence—it’s aiming for $3 billion to $5 billion this year from these loans.”

The way Bloomberg Businessweek reports the initiative the first impression one gets is that the actual spectrum licenses can be mortgaged. What can happen is that a security interest in the proceeds of a sale of a spectrum license can be formed. The United States Court of Appeals-Ninth Circuit in MLQ Investors v. Pacific Quadracasting, Inc.held that:

In other words, the FCC may prohibit security interests in licenses themselves because the creation of such an interest could result in foreclosure and transfer of the license without FCC approval.   Such approval is necessary to regulate the airwaves in the public interest.   No such public interest is implicated, however, by a security interest in the proceeds of licenses, which does not grant the creditor any power or control over the license or the segment of the broadcast spectrum it represents.

Sprint investors should be aware of this distinction.

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Is there enough flexibility for innovation in the high frequency spectrum space?

I wouldn’t exactly say that a political battle is brewing per se around the Federal Communications Commission’s proposed rule making on opening spectrum use beyond 24 gigahertz but some interested parties would like to see the Commission open up this portion of the electromagnetic wave opened up to more technology than just mobile wireless.

For example, the Consumer Electronics Association wants the Commission not to focus solely on mobile broadband but on a wider range of services.  Harold Furchgott-Roth in apiece for Forbes argues that the Commission should allow for flexibility in spectrum use by not limiting the type of technology that can be developed and commercialized in the high frequency bands.  Like CEA, Mr. Furchgott-Roth believes just limiting the 24 GHz to 39 GHz to mobile broadband would be a waste of spectrum’s final frontier.

During the comment period on the Commission’s proposed rules we may get a better view as to how the private sector wants the spectrum real estate developed.  From an entrepreneurial and investor perspective, Mr. Furchgott-Roth and the CEA make good arguments.  Can the markets afford a restriction on innovation in the high-frequency space where the Commission for the most part limits use of this spectrum to mobile wireless?

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Why is FCC spectrum policy favoring weak business models?

Reading Jeff Mazella’s piece for the Center of Individual Freedom regarding T-Mobile’s two-sided arguments on spectrum has me wondering why the Federal Communications Commission even attempts to implement spectrum auction policies that favor carriers like T-Mobile and Sprint.  In my opinion, Sprint and T-Mobile’s business models are primitive and lack the vision of AT&T or Verizon’s business models, models that recognize the convergence of broadband platforms and media.

Mr. Mazella makes the argument that the FCC should not accept T-Mobile and Sprint’s request that portions of spectrum be set aside during the 2016 incentive auction.  T-Mobile and Sprint have portfolios filled with an ample amount of spectrum, are backed by large foreign corporations, and in the case of Sprint, have even exercised the option of sitting out a spectrum auction, in Sprint’s case an auction for advanced wireless services (AWS-3) spectrum.

I would add to Mr. Mazella’s argument that Sprint and T-Mobile simply haven’t shown that they are worthy of more favorable treatment simply because they are stuck in the early 2000s and have not shown me that they can or even want to take their business model to the next step.  As a platform, what are they prepared to do in a converging media and broadband environment?  Why should the FCC pick a loser if they are going to pick and choose which companies will succeed in the first place?

After reviewing company filings with the U.S. Securities and Exchange Commission as well as company press releases, I determined that neither Sprint or T-Mobile plan to innovate or make acquisitions in the media space.  In my opinion the next great moves that the duopoly has embarked on, namely acquiring content and the advertising space and technology they provide, is a business model that goes back to the future and works.  The content model puts a premium on the spectrum that wireless carriers compete for and should signal to regulators which carriers are willing to do more than just make rhetorical arguments about competition and innovation.

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I don’t see the benefit of denying an AT&T, DirecTV merger

Posted May 1st, 2014 in AT&T, Broadband, DirecTV, spectrum, video and tagged , , , , , by Alton Drew

The Wall Street Journal today reported that AT&T and DirecTV are talking courtship.  This comes on the heels of a proposed marriage of Comcast and Time Warner.  I think the biggest difference between two mergers is that under the Comcast transaction you have  a formidable owner of content that also has distribution pipes seeking to combine with another significant provider of access.  AT&T and DirecTV don’t own any content to speak of and although, according to the article, they would rival a combined Comcast-Time Warner subscriber base with both companies providing broadband access to approximately 40 million plus subscribers, it’s still basically one video distributor getting together with a broadband company.

I don’t see how stopping the merger would improve broadband adoption.  Put another way, a merger would not prevent more people from signing up for broadband and I don’t see a combination as reducing the level of competition among broadband providers.  It should be seen by the FCC as the opposite of dampening competition.  Consumers will see two major brands combining forces to add choice in the broadband arena.

Maybe the companies can come up with some technological innovation that combines DirecTV’s satellite technology with AT&T’s fiber capability.  Dish Network chairman, Charlie Ergen, was quoted last year in Bloomberg Businessweek that a satellite company teaming with a wireless company would help meet consumer demand for seeing more video on wireless devices.  If the two combine, I would guess the next step will be a content play.  It would be the only way to truly keep up with a Comcast-Time Warner combination.

Besides, AT&T won’t hurt by having some of DirecTV’s spectrum.  No social policy violation here, FCC.  Go ahead and let it happen.