Spectrum Abundance Might Change Everything

Business models in the telecom business have tended to change slowly. But everyone likely would agree that the pace of change now is much faster. And the biggest single assumption about telecom business models has been scarcity.

In the past, there was--by law--no competition allowed. That fundamental assumption underpinned the whole business model. But we no longer believe telecom is a "natural monopoly" (just one supplier is sustainable).

Most would agree it probably is an oligopoly (a few providers). But even that assumption is going to be challenged over the coming decade, as spectrum scarcity becomes relative or absolute spectrum abundance.

The global mobile business, like its predecessor fixed line networks business, was built on scarcity. Monopoly regulation created scarcity by policy decision, allowing only one firm to lawfully provide telecom services in a country. The whole business model therefore was shaped by the deliberate lack of competition.

But there are other forms of scarcity. Even in the competitive era, fixed networks are expensive, capital-intensive undertakings that necessarily limit the number of sustainable providers (some would still say the empirical evidence is that some markets can support only one facilities-based provider; two providers in some markets and possibly three contestants in parts of national markets.

In mobile markets it presently seems possible to support more than one facilities-based provider in every market, though observers disagree about the number of indefinitely-sustainable contestants owning their own facilities.

But mobile network business models also have been built on scarcity of the policy sort, namely by the reliance on licensed rights to spectrum. As virtually anybody would acknowledge, traditionally, such spectrum has been valuable because it has been scarce.

The issue now is whether “scarcity” conditions will continue to define most business models.
And that is open to question.

“Since the 1920s, regulators have assumed that new transmitters will interfere with other uses of the radio spectrum, leading to the ‘doctrine of spectrum scarcity,’” said IEEE Spectrum authors Gregory Staple and Kevin Werbach, over a decade ago.

What would change? Spectrum sharing and, to a lesser extent, new spectrum, it was believed. What is different now, more than a decade later, is that ability to use vast amounts of new spectrum in the millimeter wave region, something most would have thought either impossible or unlikely, in the past.

Even though industry executives and regulators “always” have considered spectrum a scarce resource, that is “not so.” Rights to use spectrum has been the scarce ingredient, a major assumption upon which the business model is built.

Also, the traditional reason for such licensing was to prevent signal interference. But “interference” is a function of device and transmitter performance, not simply the number of simultaneous users. Moore’s Law advances mean that signal processing capabilities are far more sophisticated than was possible in the analog or even earlier digital realms.

There are two huge implications. First, the spectrum portfolios of large cellular phone companies will certainly be devalued. Second, scarcity will not provide a “business moat” around suppliers, as it once did. New competitors will be able to enter the business, simply because the barrier of having “rights to use spectrum” is falling.

The initial signs are that coming spectrum abundance already is having an impact on spectrum prices, which are, in a business model sense, too high at the moment, given rational expectations about future capacity.

One example is the sheer amount of new spectrum that is coming in the millimeter bands, in the 5G era. All spectrum now available for mobile operators to use amounts to about 600 MHz to perhaps 800 MHz of licensed spectrum.

But orders of magnitude more spectrum will be allocated and used in the regions above 3 GHz, as 5G becomes a reality.

In substantial part, the ability to use millimeter wave frequencies explains why abundance is coming. But the ability to share existing spectrum in already-licensed bands, and additional license-exempt spectrum, plus much more sophisticated signal processing and radio technologies, plus use of smaller cells, all will contribute to growing conditions of abundance.

As scarcity was the foundation of every monopoly-era business model, and limited competition has been the reality of the competitive era, radical competition could be the reality of the coming 5G and post-5G eras.

Where business models were based on scarcity, they will be built on abundance, in the future.
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