Wireless carriers’ spectrum positions have changed radically during the past six months due to industry consolidation, spectrum auctions and other spectrum deals. These changes have been driven mostly by the country’s larger operators, which-in addition to supporting an increasing number of wireless subscribers-are being more aggressive in launching spectrum-hungry data services.
While the amount of spectrum available to carriers has remained at 170 megahertz for nearly a decade, the distribution of that spectrum has shifted. The country’s five nationwide operators control all of the spectrum in six of the nation’s top 30 markets. Just three years ago, the six nationwide carriers did not control all of the spectrum in any of those top 30 markets. Those exclusive markets include New York; Philadelphia; Washington, D.C.; Boston; Seattle; and Baltimore.
Analysts note the spectrum shifts have solidified most operators’ portfolios and allowed them to continue to support the growing demand for services.
“Most of the nationwide carriers are for the most part fairly well set spectrally,” said Tole Hart, senior analyst for mobile communications at Gartner. “Most have spent the past several years boosting their positions either through acquisitions or auctions.”
Cingular Wireless L.L.C. is a prime example of that as the carrier has gone from a spectrum-challenged position with limited future growth potential to its new position of strength following its acquisition of rival AT&T Wireless Services Inc. and other spectrum acquisitions.
According to a report by Lehman Brothers in mid-2001 and a report released last week by UBS Warburg, Cingular has gone from serving 20.5 million subscribers with an average of 23 megahertz of spectrum four years ago to serving more than 49 million wireless subscribers with an average of 57.3 megahertz of spectrum across the nation’s top 100 markets. The new position breaks down to Cingular previously serving nearly 900,000 subscribers per 1 megahertz of spectrum to now serving around 850,000 subscribers per 1 megahertz of spectrum.
“Mainly as a result of its merger with AT&T Wireless, Cingular Wireless has the industry’s most robust national spectrum position,” wrote UBS Warburg.
The UBS Warburg report noted that Cingular had at least 55 megahertz of spectrum in the nation’s 10 largest markets and had less than 30 megahertz of spectrum in only four of the country’s top 100 markets.
Cingular has said that its fortified spectrum position will allow it to continue to support its industry-leading customer base, which still includes millions of customers on its spectrum-hungry analog network, as well as begin rolling out higher-speed wireless data services.
“`We needed spectrum that gave us room to continue to not only grow voice but to deploy 3G technology,” Cingular Chief Executive Officer Stan Sigman recently explained to RCR Wireless News.
Verizon Wireless, which lost its position as the nation’s largest wireless carrier following Cingular’s acquisition of AWS, has seen a smaller, though still substantial increase in its spectrum position. According to analyst reports, Verizon Wireless has gone from supporting 27 million customers with an average of 29 megahertz of spectrum in mid-2001 to serving nearly 44 million subscribers with an average of 40.4 megahertz of spectrum in the top 100 markets.
While Verizon Wireless is serving more customers per megahertz of spectrum today than four years ago, the carrier has benefited from the spectral efficiency of its CDMA2000 1x-based network as well as the continued migration of customers to digital handsets.
Unlike Cingular, which managed to more than double its spectrum holdings through a single acquisition, Verizon Wireless has had to piece together several deals to keep up with its rapidly expanding customer base. Those deals have included $4 billion in payments for most of NextWave Telecom Inc.’s spectrum holdings; $2 billion for Price Communications Corp.’s network and spectrum; $750 million for 50 spectrum licenses from Northcoast Communications L.L.C.; $414 million for Qwest Communications International Inc.’s network and spectrum; $700 million in bids during the recent Federal Communications Commission Auction 58; and several smaller deals.
Verizon’s wheeling and dealing has been most notable in New York City, where the carrier has added 40 megahertz of 1.9 GHz spectrum to its previously held 25 megahertz of 850 MHz spectrum.
“Verizon has done a good job in picking up pieces of spectrum where it could and has managed to keep ahead of its spectrum needs,” Hart said. “[Verizon] may still be a little short in a few larger markets, but I think in general it’s in pretty good shape.”
The three smaller nationwide operators have seen proportionality smaller spectrum changes, which makes sense considering their relatively smaller customer bases as well as their total reliance on digital-only service offerings that are significantly more spectrum efficient than older analog networks.
Sprint Corp. serves around 25 million wireless customers, including its affiliates and resale partners, with an average of 26 megahertz of spectrum. While the carrier has not dramatically increased its total spectrum position during the past several years, despite a near doubling of its customer base, the carrier has benefited from spectral efficiency generated from its all-digital CDMA network.
“[Sprint’s] all-digital and CDMA technology has lessened the need for them to acquire new spectrum,” Hart noted.
Sprint’s spectrum position is set to explode later this year pending its merger with Nextel Communications Inc. According to UBS Warburg, the combined Sprint Nextel operations will have nearly 51 megahertz of spectrum in which to serve approximately 40 million customers, with the side benefit of having an all-digital network.
Unlike its competitors, Nextel relies on non-traditional spectrum and has managed to piece together approximately 25 megahertz of total capacity spread among several spectrum bands. The carrier’s spectrum portfolio will clear up somewhat during the next several years as a pending resolution with the FCC calls for Nextel to swap some of its 800 MHz spectrum for contiguous spectrum in the 1.9 GHz band.
According to analysts, the only nationwide carrier with spectrum concerns is T-Mobile USA Inc., which similar to Sprint has seen its spectrum position remain relatively constant during the past several years, while its customer base has nearly doubled. The carrier’s once-enviable position of serving less than 200,000 customers per 1 megahertz of spectrum has ballooned to serving more than 600,000 customers per 1 megahertz.
“T-Mobile is the one carrier that has not kept pace from a spectrum position,” said Hart.
T-Mobile USA has an average of 27 megahertz of spectrum in the nation’s top 100 markets, as well as options to acquire additional capacity in a handful of California markets from Cingular. The carrier has noted that its current spectrum position would prevent the carrier from launching UMTS-based high-speed wireless services for at least two years.
T-Mobile USA’s parent company, Deutsche Telekom AG, has set aside $2 billion for spectrum acquisitions, which are expected to be used for upcoming nationwide spectrum auctions. T-Mobile USA did not return requests for comment on its future spectrum plans.
Analysts were expecting T-Mobile USA to shore up some of its deficiencies during the recent Auction 58-including its lack of spectrum in North Carolina and South Carolina-but instead the carrier only added to its current holdings.
“We were a bit surprised that T-Mobile didn’t bid more aggressively in Auction 58 considering its significant spectrum shortcomings as well as its robust subscriber growth performance in 2004,” said UBS Warburg.
Of course, current spectrum positions are not set in stone as industry observers expect a number of FCC auctions lined up during the next several years will provide hundreds of megahertz of additional capacity for carriers as well as the strong possibility for additional consolidation and spectrum-swapping activity.
“I’m sure most of the carriers have their eyes open to all of the possibilities,” Hart added.
