Spectrum: Where It Came From, Where It Goes

Dark Side of the Moon album cover

In the the beginning, wireless spectrum in the U.S. was free. In  1983, the Federal Communications Commission created the first analog cellular networks by assigning two chunks of airwaves in the 800 MHz band. One chunk was reserved for the incumbent local wireline carrier, or Baby Bell as they were then known. This ancient history is important because the leg up that was given to the companies that gradually coalesced into Verizon Wireless and AT&T formed the basis for these carriers’ domination of the U.S. market. The story of spectrum over the past three decades is mostly a tale of the rich getting richer, all the while bemoaning their poverty.

Over time, the government assigned more and more spectrum to wireless voice and (eventually) data. New competitors did arise. Sprint, until then primarily a wireline long-distance operator, created its network out of the 1994 auction of 1900 MHz “personal communications services” spectrum. Wireless phone pioneer Craig McCaw built the Nextel network out of bits and pieces of “special mobile radio” licenses intended for dispatch services. T-Mobile and its predecessors assembled a bunch of smaller carriers using the GSM standard, which was then widely used everywhere but the U.S.

But through auctions and acquisitions, the biggest carriers managed to get even bigger. The last major wireless spectrum auction was the 2007 sale of television bandwidth that had been freed by completion of the transition to digital TV broadcasting. To the surprise of just about no one, the overwhelming winners in the sales  were Verizon and AT&T, which have been using the spectrum in the 700 MHz band to build out their fourth-generation LTE networks.

The problem we now face is that after 30 years of freeing bandwidth for mobile data use, we’ve pretty much run out of spectrum that can be reassigned without a major fight. The only sale on the horizon is an additional 100 MHz of TV bandwidth. But among many other complexities, availability of this spectrum will require some stations to give up their licenses (in exchange for a share of the proceeds from the auction) and others to move to new frequencies to create usable blocks of contiguous spectrum. The convoluted process mandated by Congress means that the sales won;t begin until 2014 (at the earliest) and are likely to yield a good bit less than 100 MHz in many parts of the country.The problem we now face is that after 30 years of freeing bandwidth for mobile data use, we’ve pretty much run out of spectrum that can be reassigned without a major fight.

In the absence of new allocations coming down the pike, Verizon and AT&T have been bulking up on spectrum through mergers and acquisitions. AT&T failed to convince Justice Dept. anti-trusters that its need for spectrum justified its proposed 2011 acquisition of T-Mobile. It announced on Jan. 22 that it intends to acquire the remainder of regional carrier Alltel, the bulk of which was bought by Verizon in 2008. Verizon is buying the spectrum of a consortium of cable companies, which once had dreams of building their own wireless networks.

The incumbent wireless carriers insist that the system is header for crisis without additional bandwidth and the the best, and perhaps only, way to get it is by selling them the rights to spectrum currently held by others. In a post on a the AT&T public policy blog, Joan Marsh, vice-president, federal regulatory, responded to a recommendation that sharing spectrum with federal agencies might be a good way to increase capacity, saying:

The Report [of the President’s Council of Advisors on Science & Technology] found that the new norm for spectrum use should be sharing, not exclusive licensing.  While we agree that sharing paradigms should be explored as another option for spectrum management, sharing technologies have been long promised but remain largely unproven.  The over-eager pursuit of unlicensed sharing models cannot turn a blind eye on the model proven to deliver investment, innovation, and jobs–exclusive licensing.  Industry and government alike must continue with the hard work of clearing and licensing under-utilized government spectrum where feasible.

John Marinho, vice-president of technology and cyber security for CTIA-The Wireless Association, which speaks for the wireless incumbents, wrote:

Trust me, the carriers are deploying and using every single technology and “trick” they can to try to solve the looming spectrum crisis in the near-term, but nothing will solve the problem like more spectrum. Claude Shannon proved that there are practical limits to how much bandwidth capacity is available from a limited amount of spectrum. One has to look no further than the father of information theory to realize that the solution is more spectrum.

I’ll have more to say about Shannon’s laws and its implications for wireless networks in future installments, but the truth is that there are lots of techniques for expanding the capacity of wireless networks that have yet to be deployed in any serious way. Martin Cooper, who built the first cellphone for Motorola before there was a network to use it on, says: “I can tell you that the way not to create more spectrum is to redistribute it. And that is what the government is proposing to do now, take it away from some people and give it to others. That’s not going to do it.”

The next articles in this series will explore some better ways.


Microsoft, IBM, and AT&T: History Comes Around

IBM, AT&T, and Microsoft logos

In his post “Why the Wheels Are Falling Off at Microsoft,” John Kirk paints a bleak picture of the company’s future. It got me thinking about a relevant bit of history about how rich companies handle existential challenges. Around 1990, IBM and AT&T found themselves in similar, difficult positions. The iconic companies had been among the dominant forces of the 20th century, but their world was changing in very unpleasant ways. Each had been through a long and wrenching antitrust battle with the government; AT&T’s loss cost it the local phone business in a breakup, IBM’s victory cost it more than a decade of heavy distraction. Each was seeing its core business eroded by technological change: Satellites and new networking technologies were lowering the barriers to entry into AT&T’s lucrative long distance business, while minicomputers and PCs were eating away at IBM’s mainframe dominance. But each company also had a tremendous advantage–the enormous cash flow from its legacy businesses could buy the time needed for reinvention. It’s what happened next that is important for the future of Microsoft.

IBM turned to new leadership, hiring Louis Gerstner, who had earned his stripes at RJR Nabisco and American Express. He put IBM through a meat grinder that included the dumping of whole divisions and massive layoffs of employees, many of whom had been with the company for years. But the IBM that emerged was fierce  and focused, ready to take advantage of a booming technology market. Today IBM is again one of the country’s most successful companies.

AT&T , by contrast, used its money for what turned out to be a calamitous series of acquisitions. The post-breakup AT&T desperately wanted to get into the computer business  and in 1991, it bought NCR Corp. for $33 billion. The company launched an unsuccessful series of minicomputers and lost billions getting into, then out of, the PC business. NCR was spun out in 1997. In 1994, AT&T bought the two-thirds of McCaw Wireless it didn’t already own for $11.5 billion.  This acquisition, too, withered under new ownership and AT&T ended up spinning the wireless business out as an independent company that eventually became Cingular.

In the most humiliating deal of all, AT&T in 1998 bought Tele-Communications Inc., the country’s second-largest cable operator, for $48 billion. After spending many billions to upgrade the network, AT&T sold its cable operations to Comcast for $45 billion. These failed attempts to get into new businesses left AT&T an empty husk with a proud history, a valuable brand, and an aging backbone network. In 2005, SBC, a company born of the merger of AT&T Bell System subsidiaries, bought what was left of its former corporate parent and assumed its name. The AT&T name and its T stock symbol lived on, but the company founded by Alexander Graham Bell was gone.

Like AT&T and IBM, Microsoft was battered by a long antitrust battle with the government. Like them, it is having serious problems coming up with an adequate response to technological and competitive change eating away at its core businesses. And like them, it still has a lot of money coming in that will make a transition possible.

The question is, which model will Microsoft follow, AT&T or IBM? Will it emerge as a chastened, perhaps smaller, but very competitive company? Or will it just slowly fade away? The money gives it time to fix things, but it has to make key decisions about what sort of future it wants soon, and whether the leadership the company now has can get it there.

Why We Hate Carriers (AT&T Edition)

AT&T logo

Watching folks try to untangle themselves from messes of their own making is often painful. No, I’m not talking about Missouri Senate candidate Todd Akin, but AT&T and the trouble it has made for itself by restricting the use of Apple’s FaceTime on its wireless network.  AT&T’s latest effort, a posting by its top regulatory official, Bob Quinn on the AT&T Public Policy Blog, only makes things worse.

AT&T had prohibited FaceTime on its network since Apple introduced the app, allowing its use from AT&T iPhones and iPads only over Wi-Fi. It recently announced that it would allow FaceTime use for customers of its new Mobile Share plans, but not others. Presumably, the intention is to drive customers toward the Mobile Share plans. Or something. It makes no sense from any technical perspective since all the customers are using the same network.

The blog post, a nice piece of sophistry, is dedicated to explaining why the policy does not violate the Federal communications Commission’s network neutrality guidelines. The crux of the argument is that FaceTimes is a “preloaded” app and “the rules do not require that providers make available any preloaded apps.” Meanwhile, Quinn notes, customers are free to download and use other video chat apps. If this makes sense to you, you are living on a different planet than I am.

The question of whether the AT&T rules violate FCC guidelines isn’t very important. For one thing, there’s a better than even chance the guidelines won’t survive a legal challenge. The bigger issue is that the AT&T policy is a badly conceived, anti-customer business practice.

AT&T meters customers’ wireless broadband use, effectively charging by the byte. If customers choose to use up their monthly allotment in FaceTime chats, what business is it of AT&T? It’s their data, to use as they please. In fact, the company ought to be happy because the use of a bandwidth-gobbling app like FaceTime is likely to push customers into overages, producing more revenue.

Another weirdness about the post is that it suggests that after five years of selling iPhones, AT&T still has no idea of how this business works. There are no preloaded apps on iPhones, not in the sense of the often junky applications carriers used to pile onto their phones (and still do on some Android models.) The software load of the iPhone is completely controlled by Apple and FaceTime is a core feature of iOS. The statement, “Although the rules don’t require it, some preloaded apps are available without charge on phones sold by AT&T, including FaceTime, but subject to some reasonable restrictions” comes off as nonsense when applied to the iPhone.

What Next for T-Mobile?

AT&T’s proposed $39 billion acquisition of T-Mobile USA has been unraveling ever since the U.S. Justice Dept. sued to block the deal  and was effectively doomed when the Federal Communications Commission said last month that it also was opposed. So it was  a bit of an anticlimax today when AT&T officially called the deal off.

The collapse of the merger leaves T-Mobile’s corporate parent, Deutsche Telekom, $4 billion richer in a termination payment from AT&T. But other than acquiring some spectrum from AT&T as a consolation prize, T-Mobile is left to stagger forward on its own facing the same problems that led DT to seek the AT&T deal in the first place.

T-Mo is in a fairly distant fourth place behind Verizon Wireless, AT&T, and Sprint, has a relatively weak nationwide footprint, and currently has no clear path to LTE, the next generation wireless technology. But finding a new partner won’t be easy. A combination with Sprint looks out of the question because Sprint, with serious financial strains of its own, is occupied salvaging the wreckage of its 4G partner, Clearwire. And Verizon is a nonstarter for the same antitrust reasons that killed the AT&T deal.

Furthermore, a combination with either Sprint or a second-tier carrier, such as US Cellular or C-Spire, would be very difficult technologically. Like AT&T, and unlike nearly every other U.S. carrier, T-Mobile uses GSM network  technology. While LTE may eventually provide a common technology platform for all carriers, the reality is that at least for the next few years, T-Mobile and AT&T will be carrying the bulk of their traffic on GSM-derived protocols (EDGE, UMTS, HSPA), while Verizon, Sprint, and most second-tier networks will run primarily on CDMA 2000 technologies. Trying to mix and match these technologies isn’t impossible, but it would add a huge burden to the already difficult business of wireless mergers.

DT has made it clear that it would much rather get out of the U.S. market than dive in deeper, so a major investment in T-MO USA from its German parent is unlikely. One reason that many consumer groups, and much of the technology industry, opposed the AT&T deal is that T-Mo had earned a reputation for being open to innovative handsets and aggressive pricing. We’ll have to see if they’ll be in a position to keep that up following the non-deal.

At least with AT&T no longer in a position to oppose it, T-Mobile might finally persuade Apple to give it the iPhone.