U.S. Mobile Spectrum Prices Quadruple Since 2006

source: Wall Street Journal

U.S. mobile spectrum prices have quadrupled since 2006, one sign of the growing need for mobile data resources. In 2006, prices were 56 cents per potential customer (MHzPop). The current auction for AWS-3 mobile spectrum already has reached levels of $2.10 per "MHzPop" (price of one megahertz of bandwidth per potential customer).

The price per MHzPop is derived by multiplying the number of available megahertz of bandwidth covered by a license by the number of people in the area covered by the license.

If a license of 15.0 MHz reached a million people, with a bid price of $11.4 million, the price per MHzPop is $11,400,000 divided by (1,000,000 people x 15 MHz), or 76 cents per MHzPop.

To put the current bids into perspective, the $34 billion staked so far represents about a year’s worth of capital investment by AT&T Mobility, Verizon Wireless, T-Mobile US and Sprint, put together.

So far, one can only speculate about why prices have been so robust, as the identities of bidders are secret. 

Most had expected more modest prices, as AT&T and Verizon were expected to be the leading buyers, while Sprint said it would not bid at all, and T-Mobile US had particular needs in Chicago, but arguably could afford not to engage in a bidding war elsewhere. 

Most speculation centers on the presence of a third unexpected bidder in the major markets, however. 

Beyond that possibility, the robustness of the bids might indicate concern about the timing of anticipated auctions of TV spectrum, or the amount of capacity that might be made available. 

There are other ways to acquire spectrum, but some of those paths are closed to AT&T and Verizon. Since it appears impossible for either firm to acquire Sprint or T-Mobile US, buying another mobile company, to get its spectrum, is off the table.

There might be some small opportunities for either AT&T or Verizon to acquire regional assets, but nothing that immediately adds national scale, with a few exceptions. Dish Network has more than 50 MHz that could be sold, if Dish does not decide to move ahead and become a mobile service provider in its own right.

There are some other potential assets (Lightsquared and Globalstar), plus possible future shared spectrum assets that are likely to be made available, but none are available as immediately or are as useful, as the AWS-3 spectrum, one might argue. 

Source: Daily Wireless

Most observers think a purchase of Dish Network spectrum by AT&T or Verizon would not be blocked, but it is unclear whether Dish would sell at a price either firm might be willing to pay. 

For AT&T and Verizon, the most certain path is to acquire spectrum now, as the other options are uncertain. 

Also, Dish Network has a vested interest in pushing for high AWS-3 auction prices because higher prices will enhance the valuation of similar assets Dish purchased earlier in 2014, boosting Dish equity value. 

If there is uncertainty about the amount of new capacity made available by future auctions, or its possible availability, bidding now in the only certain auction might take on more importance. 

Zero Rating is a Normal Part of Content Services, on Internet, or Not

Ironically, zero rating of Internet apps--opposed by some because it favors some apps over others--is a standard practice in other parts of the media and content universe. Consider newspapers, magazines, broadcast television and broadcast radio, which are zero rated.

Some argue zero rating is unfair because it favors some apps over others. One could make exactly the same argument about TV and radio stations, newspapers, books or magazines. Ownership of broadcasting licenses, or simply editorial discretion, favors some content providers over others.

How regulation of Internet access fosters or hinders application and software innovation is a legitimate policy concern. But there are huge private financial interests intrinsic to the policy concerns.

Zero rating is about revenue models, for example. Many app suppliers subsidize content consumption by selling advertising, and not charging end users directly. Zero rating is another form of doing that, especially where an app provider and a specific Internet access provider have a business arrangement where the app supplier pays the access provider for data consumption.

The point is that “non-neutral” pricing and availability are a fundamental part of the content delivery business. And much of the Internet’s top activities are about content products.

Analyst John Strand points out that network neutrality rules in the Netherlands have, in one important instance, not lead to a flowering of new apps from new providers. Instead, Netflix has grown from zero consumption of Internet capacity to 20 percent of all downstream network capacity almost immediately.

“Neutrality” rules do not, in other words, prevent highly-popular or large content providers from gaining dominance in a market. Neither will an absence of zero rating rules prevent markets from operating, either.

U.S. Cable TV Companies Gain 83% of Net High Speed Access Customers

The largest U.S. cable TV companies accounted for 83 percent of net high speed access  additions in the third quarter of 2014, continuing a trend that has been in place for some time.

Of some 700,000 net new subscribers, cable TV companies added 580,000 net new customers, according to Leichtman Research Group.

The largest U.S.  telephone companies added about 120,000 net high speed access subscribers in the third quarter of 2014, a figure complicated by customers adding fiber connections and dropping all-copper digital subscriber line connections.  

Those figures are based on tracking of performance by the 17 largest U.S. cable TV and telephone companies that represent about 94 percent of all subscribers in the market.

Those suppliers now account for 86.6 million subscribers, with cable companies having over 51.2 million broadband subscribers, and top telephone companies having nearly 35.4 million subscribers.

The telco performance requires some explanation. Where copper facilities have not been upgraded with optical fiber (either “to the home” or “to the neighborhood”), cable providers arguably are taking share because the cable services offer faster speeds and roughly equivalent prices.

Where telcos offer upgraded service using fiber to neighborhood or fiber to home, DSL losses tend to be balanced by equivalent gains in fiber-enabled high speed access. Also, the largest telcos are adding net subscribers, while smaller telcos generally are losing customers.

Also, in some areas, telcos might have made deliberate decisions to lose share rather than upgrade networks. That might be the case either because the expected return on invested capital is higher if investment goes to mobile facilities, or because the actual business case for an upgrade provides a negative or very-low financial return.

Over the past year, there were about 2,930,000 net broadband adds, compared to about 2,540,000 over the prior year, and 2,925,000 two years ago, Leichtman Research Group says.

Broadband Internet	Subscribers at End of 3Q 2014	Net Adds in 3Q 2014
Cable Companies
Comcast	21,586,000	315,000
Time Warner	12,073,000	108,000
Charter	4,956,000	106,000
Cablevision	2,756,000	(23,000)
Suddenlink	1,135,500	32,200
Mediacom	997,000	10,000
WOW (WideOpenWest)*	729,700	-
Cable ONE	486,142	3,417
Other Major Private Cable Companies**	6,505,000	30,000
Total Top Cable	51,224,342	581,617
Telephone Companies
AT&T	16,486,000	38,000
Verizon	9,146,000	69,000
CenturyLink	6,063,000	8,000
Frontier^	1,922,000	21,500
Windstream	1,142,000	(11,800)
FairPoint	329,494	(3,927)
Cincinnati Bell	270,500	200
Total Top Telephone Companies	35,358,994	120,973
Total Broadband	85,583,336	702,590

Sources: The Companies and Leichtman Research Group, Inc.

Household Bandwidth Requirements Will Grow 31% Annually, Next 5 Years

Average household bandwidth requirements will increase by 31 percent annually over the next five years, from a peak hour average usage per household of 2.9 Mbps in 2014 to 7.3 Mbps in 2018, according to a study sponsored by Ciena and conducted by ACG Research.

Some might argue the absolute speeds are less important than the growth rate, as different studies come up with different conclusions about the current state of peak hour speeds.

A study of peak hour speeds in the United Kingdom suggested speeds of about 6.2 Mbps during the peak evening hour.

Some would argue peak hour speeds are higher in the United States and Europe, ranging between 15 Mbps and 19 Mbps during the hours of heaviest household usage.

Over the top unicast video traffic is predicted to be 4.6 times greater than traditional multicast traffic by 2018, according to the study.

Usage of Internet video, which includes smart TVs, is expected to grow from 12 percent of overall peak average bandwidth in 2014 to 25 percent in 2018, a compound annual growth rate (CAGR) of 56 percent.

Internet video will be the largest contributor to household bandwidth consumption by 2018.

But there are several drivers of increased bandwidth consumption. Households and users now connect multiple Internet-using devices in a household, ranging from streaming consoles to smartphones, tablets and Internet-connected TVs.

Larger screen TVs consume more data than small screen devices, as does consumption of HDTV content, while new ultra-high definition 4K TVs consume even more data than HJDTV..

In fact, 4K streaming video services consume three to four times more bandwidth than HDTV.

Why Dish Network Wants Higher Spectrum Prices, in AWS Auction

Typically, would-be acquirers of new mobile spectrum would prefer to pay lower prices. Sometimes, though, a bidder might actually act to increase overall prices. That appears to be the case for the on-going U.S. auction of AWS spectrum.

The actual identities of bidders are secret, but Dish Network, which has three entities able to bid, actually has a valid business reason for desiring higher prices. Dish Network purchased similar spectrum earlier in 2014, namely a paired 10-MHz block of spectrum that runs from 1,915-1,920 MHz (for the uplink) and from 1,995-2,000 MHz (for the downlink). Dish also controls 40 MHz worth of spectrum adjacent to those frequencies.

If the current AWS auction prices climb, the value of spectrum Dish Network already owns should climb as well. That, in turn, should boost Dish Network’s stock price, which in turn would become a currency to be used for additional transactions, perhaps a bid to buy T-Mobile US, for example.

Some would argue the current AWS auction prices boosted Dish Network equity value equity value 10 percent.  Some also would estimate the value of Dish Network spectrum usable to support mobile communications mobile communications at more than $12 billion.  

Others might peg the value of potential mobile communications as representing most of Dish Network’s equity value, in excess of 75 percent of the firm’s market value. That is a stunning thought, for a company with 14 million video customers and zero mobile customers.

Skeptics might argue that all prior efforts by Dish Network to reinvent the company have essentially failed, though.

Of course, Dish Network could decide simply to sell all of its spectrum, and not become a mobile operating company. But that entails risk as well, since some of the equity valuation of Dish Network includes the assumption it will become a mobile service provider, adding not only subscribers, new product lines, revenue and cash flow, but giving Dish Network an opportunity to escape the clutches of a declining business (satellite TV entertainment).

But some might well question the viability of a fifth national U.S. mobile provider, leading to speculation Dish Network “has” to buy T-Mobile US.

Facebook Mobile Traffic Load Grows 60% in 1 Year Because of Video

Perhaps the single biggest new development in mobile data consumption over the past year has been Facebook’s embedding of video that automatically plays on user feeds.

Over a year, Facebook traffic increased by 60 percent on the mobile network, and by over 200 percent on the fixed network, according to Sandvine measurements.

That is the sort of unexpected and  significant action by a third party app provider that directly affects user data consumption, Internet service provider bandwidth planning, capital investment and retail service plan features.

That is particularly the case for mobile networks, which have spectrum constraints not faced in the same way by fixed network operators.

Real time entertainment (streaming video and audio) has been the largest traffic category on most networks, fixed or mobile. But it is mobile video consumption that has the greatest impact on network demand, performance and investment requirements, since bandwidth is more limited and costs-per-bit for end users are much higher than for fixed networks.  

In North America, “average” (mean, or arithmetic average)  monthly usage grew 18 percent in six months, from 465 MB to 522 MB, according to Sandvine.

As with some other physical networks, adding more capacity (Long Term Evolution fourth generation networks) actually increases usage. Median usage (a mid-point figure, with half higher and half lower) grew from 102 MB to 118 MB over six months.

During peak period, real time entertainment traffic accounts for 40 percent of downstream bytes on mobile networks.

In Europe, mean monthly mobile data consumption was 449.5 MB, an increase of over 13 percent from 394.4 MB observed six months ago. Real time entertainment traffic accounts for 38 percent of downstream traffic during peak usage periods.

In Latin America, mean monthly mobile data usage was 390.3 MB, a slight increase over the 355.4MB seen six months earlier.

In Latin America, social networking is the largest driver of mobile usage, accounting for 31 percent of peak downstream traffic.

One reason is the popularity of low-cost, “all-you-can use” social networking plans offered by mobile service providers.

The Asia-Pacific mobile typical data consumption is at least 1 GB a month on average. Real time entertainment represents 47 percent of total data consumption during peak hours.

In Africa, in contrast, real time entertainment accounts for only 6.6 percent of peak downstream traffic.

How Much Danger Does Google Pose to Other ISPs?

After Google Fiber, the notion that a major app provider might actually become an Internet service provider is no longer a possibility, but is a reality. The only issue now is how far that might extend, and which other firms might decide to do something similar.

Facebook appears likely to emerge as a satellite-based Internet service provider in Africa. And both Google and Facebook now own assets that produce unmanned aerial vehicles that could be used to supply Internet access.

Google is testing balloon-based Internet access for rural Australia, a test being conducted in conjunction with Telstra, existing Internet service providers have to be thinking about how far Google, Facebook and others might be looking at the ISP business.

Add to the that the fact that Amazon already is a specialized type of mobile virtual network operator, using AT&T’s mobile network to deliver content to Kindle devices.

There has been speculation that Apple might someday want to do something similar, perhaps becoming a provider of services that connect to any available mobile network network, something that has become a feature of the iPad.

Given the fact that, by perhaps 2020, 80 percent of all Internet access globally will use a smartphone, one has to wonder when that might become a focus for one or more application providers.

GoogleNet is Google’s vision to offer global, near-free Internet-access, mobile connectivity, and Internet-of-Things connectivity using a global, largely-wireless, Android-based, “GoogleNet,” according to Scott Cleland, of Precursor, a site with an admittedly “anti-Google” orientation.

Critics argue Google is following a business strategy of identifying markets with a valuable stream of consumer data, then creating an "open" or "free" product to induce adoption and “undermine the business model of existing market participants,” according to Fairsearch.org, an entity funded by Google competitors.

Once it gains dominance, Google then “closes” the market and excludes competitors, Fairsearch argues.

One does not have to accept the premise of the argument to agree that something important has happened. Google effectively disintermediates and commoditizes the direct relationships Internet or communications or entertainment suppliers have with their customers.

And telcos, cable companies and Internet service providers might have to worry more than they used to about Google. Initially, one might argue, Google was about businesses built on bits in virtual worlds. That is no small matter, as Google arguably has created rival communication products that displace products supplied by communications companies.

But Google now is moving into different realms, including “atoms in the physical world.” including Google Fiber, an Internet service provider operation that competes directly with cable TV company and telco high speed access and video entertainment products.

Beyond that, Google has invested in, and is testing, high-­altitude Wi-Fi balloons, and unmanned aerial aircraft that might also be used to support Internet access.

All of that, building on earlier Google investments, creates at least the potential for a “global Internet access” capability that would disintermediate other existing Internet service providers, as Google Fiber does in a growing number of U.S. cities.

Google bought Skybox Imaging (satellite technology) and plans to spend $1-3 billion on “180 small, high capacity satellites at lower altitudes than traditional satellites” to enable two-way Internet access.

Google also bought Titan Aerospace, a supplier of solar-powered, high-flying drones. Project Loon likewise is testing use of balloons for Internet access, most recently inking a deal to test them to provide Internet access in Australia, working with Telstra.

Google also operates its own global undersea network, including investments in four cable systems.

The issue is how widely Google’s ambitions might extend.