Smaller Cells or Additional Spectrum: Which Matters Most?
For decades, most mobile service providers have created new capacity more efficiently (at least cost) from adding spectrum than from changes in network architecture (smaller cells).
“For years spectrum was a much more efficient way to get capacity because of the price of it,” said Shammo. But “AWS-3 flipped that equation over.”
In other words, spectrum might now be getting so pricey that network architecture changes are more affordable ways of adding capacity.
“You need both (additional spectrum and network densification) but spending $10.4 billion and getting the top 48 markets out of the 50 with AWS-3, I walked away from New York and Chicago because of the price,” said Shammo. “ I'm building that through densification at almost 20 percent less cost than I would have in the spectrum.”
The majority of Verizon mobile capital investment now goes to “densification” of the network, mostly small cells in-building and distributed antenna systems. In other words, Verizon’s strategic need is for capacity, not coverage.
“This year alone we are seeing 50 percent to 75 percent increases in data usage on our network,” said Fran Shammo, Verizon CFO.
And lower prices for small cell infrastructure is helping Verizon maintain profit margin despite lower average revenue per device.
At least for the moment, Verizon continues to say it can add capacity more efficiently using small cells and densification, rather than adding 600-MHz spectrum.
Shammo claims Verizon now uses only about 40 percent of its LTE spectrum, carrying more than 87 percent of total data traffic.
So Shammo argues Verizon already has an additional 60 percent of spectrum-based capacity in reserve.
Some will see validation of the general rule that most of the capacity gains made in the mobile industry come from applying new network architectures, not deployment of new spectrum.
Others will see something different, namely a historic change in methods for bandwidth expansion. Where additional licensed spectrum historically has been key, use of small cell architectures (densification) might be more important--and more affordable than buying new spectrum--in the future.
Nor does Verizon necessarily agree that the number of leading providers in the mobile business will remain at four, over the long term. But the direction of change is the startling claim.
“Look, I think if we sat here and said it is only going to be the four carriers in the wireless industry I think that would be pretty stupid on our part,” said Shammo. “I think that if you look at the wireless world and you believe that the world is going to move to wireless, all wireless with no wires, eventually the pie is going to get much bigger for the industry.”
“And people are trying to figure out how they get a piece of that pie,” Shammo said.