Scarcity and Abundance Have Strategic Implications for Access Providers
We sometimes forget just how much the telco business model is built on scarcity. Only a few fixed networks are viable, long term, in any community.
How many facilities-based mobile service providers are viable, long term, in any country, remains a question, but the number is probably three to possibly four.
Also, with consumer bandwidths climbing into the gigabit range in some markets, speed is going to drop away as a relevant constraint on experience or business models, just as processor speed and memory have ceased to constrain apps and devices.
App and device suppliers long have understood the implications of abundance of bandwidth and processing power for their businesses. Abundance means lower retail prices are possible.
Bandwidth suppliers long have understood this as well, which explains the fear of "commodity dumb pipe" services.
But abundance always has been a key enabler in the Internet ecosystem, at least for app and device providers. It can be argued that firms ranging from Microsoft to Netflix have been built on the notion that neither bandwidth nor processing power or memory would be fundamental constraints on business models.
That model has not worked quite so well in the mobile service provider business, in part because spectrum available for communications use always has been scarce, and licensed access meant whatever resources were available would remain fairly scarce.
That is why unlicensed access, or releasing vastly more spectrum for communications uses, undermines service provider “scarcity” value.
In all, AT&T now holds spectrum licenses worth more than $91 billion, estimates Goldman Sachs analyst Brett Feldman. He also estimates the value of Verizon's spectrum at $79.4 billion.
The current equity value of all AT&T stock is $176.5 billion, implying that spectrum alone represents 51.6 percent of AT&T’s total equity value.
Verizon’s market value is $207.9 billion, implying that Verizon’s spectrum represents 38 percent of total valuation.
Feldman estimates that the U.S. mobile industry, plus Dish Network’s spectrum represents $368 billion in value.
All that could change dramatically in the future, though, as shared spectrum, unlicensed spectrum and dynamic spectrum alternatives are made possible. All those methods could reduce the amount of licensed spectrum mobile service providers have to buy or reduce the market value of current holdings.
To be sure, many proponents of unlicensed spectrum believe releasing much more spectrum in that way will reduce the scarcity value of licensed spectrum held by mobile service providers.
Dish Network owns rights to use spectrum worth perhaps $50 billion, if actually deployed, and virtually nothing if Dish Network does not put the spectrum into commercial use, or sell the rights to some other company able to launch commercial services.
T-Mobile US might own about $55 billion worth of spectrum, while Sprint owns more than $67 billion worth of spectrum, according to Goldman Sachs.
That value is based on scarcity. But what is scarcity is replaced by abundance?