While an industry White Paper on spectrum demand is being offered to support the accuracy of FCC’s spectrum demand projections used in its National Broadband Plan, the data actually shows just the opposite.[i] It is difficult to ascertain the exact numbers in the graphs in the paper. However, comparing the actual numbers in the FCC projections to the actual numbers published in the CTIA’s Annual Wireless survey, it’s clear the traffic growth was slower than expected:
Source: Summit Ridge Group, LLC analysis and FCC and CTIA data
As shown above, actual traffic was 37% lower than the FCC estimates on which that National Broadband Plan was based.
FCC Was Even More Wrong on Need for Spectrum
In 2010, the US wireless industry was using approximately 170 MHz of the 547 MHz allocated to wireless broadband. [ii] The FCC projected it would need to augment the existing supply of mobile broadband spectrum by 275 MHz, to 822 MHz by 2015 to meet expected demand. [iii] It rounded this figure to 300 MHz or 847 MHz, a number that is part of the National Broadband Plan.
The FCC missed its targeted 300 MHz of new spectrum, adding only approximately 98.5 MHz net, [iv] bring the total mobile broadband allocation to 645.5 MHz. But wireless companies don’t seen to be pinched for spectrum. They’ve been restoring unlimited data plans and rolling out new advanced networks, while, according to the CTIA’s recent survey,[v] reducing the number of cell sites since last year. Moreover, the industry is only using 348 MHz of spectrum as of the end of 2014[vi] – about 200 MHz less than what was available in 2010 when the FCC issued its urgent cry for an additional 300 MHz by the end of 2014.
To put this in perspective, the FCC projected the wireless industry would need approximately 266% more spectrum than it has proven it needed by yearend 2014![vii] These results transpired despite the fact that cell site growth was lower than expected (about 4% annual growth vs. 7% projected by the FCC and negative cell site growth between 2013 and 2014). The decline in cell site growth suggests the industry is well within it comfort of handling current traffic.
The table below shows the impact of the traffic estimates and the spectrum utilization efficiency:
Source: Summit Ridge Group, LLC analysis, FCC and CTIA data
How did this happen?
How could the FCC get this so wrong? Several possibilities:
- More wi-fi offloading than expected may have reduced network traffic.
- Traffic growth not proportional to cell site growth. Although cell site grew slower than FCC projections, cell site growth was formerly used primarily to expand coverage. Now as coverage has expanded, cell site growth is more focused to increase capacity in high traffic areas. A new cell site in a high traffic area can handle high levels of traffic. A new cell site to expand coverage in a rural area, will likely have far less traffic.
- Expansion of peak traffic periods. As prices have fallen, more consumers are using wireless devices for entertainment purposes in evening and late night hours. The trend of spreading the times of peak demand is likely to continue as more consumers use their wireless devices for video applications.
How Do we Square Lower Demand with High AWS-3 Auction Prices?
It’s difficult to square the lower than expected traffic growth and even lower spectrum utilization with results from the AWS-3 auction. The AWS-3 auction generated approximately twice the revenue as high-end estimates or $2.65 per MHz/PoP for the paired spectrum. There are a few possibilities – all revolving around DISH. DISH needs a partner to help develop is spectrum, as the build out deadlines for its AWS-4 spectrum approach. It may have targeted critical areas where other operators, particularly T-Mobile, needed spectrum in order to thwart them so as to gain leverage in encouraging them to partner with DISH. Another possibility is that operators were equally determined to limit the amount of spectrum DISH acquired, as they did not want DISH, as a new entrant, to wreck havoc on the US wireless market in the way Iliad did in France. It’s clear something, or some combination of factors was strange, private market transactions at about the same time did not have such premiums with AT&T paying $1.85 per MHz/PoP for theoretically more valuable 700 MHz spectrum a year earlier or Ntelos’ sale for PCS spectrum to T-mobile for about $1.07 per MHz/Pop.
The FCC Should “Own-Up” to these Errors and Devise Realistic Models for Spectrum Demand
As we’ve discussed elsewhere, regulators have frequently relied on biased demand projections.[viii] Spectrum is an irreplaceable national asset. In addition to its market value of tens of billions of dollars in a single auction, it has economic impact of many multiples of that as well as difficult to measure quality of life implications including access to healthcare, education etc. Its management is policy issue that simply too serious to leave to outdated forecasts that we know are wrong by a factor of hundreds of percent.
[i] Sawanobori, Thomas K. and Roche, Robert; “Mobile Data Demand: Growth Forecasts Met: Significant Growth Projections Drive the Need for More Spectrum.” CTIA (June 22, 205). Herein After “CTIA Paper.”
[ii] FCC Staff Technical Paper, “Mobile Broadband: The Benefits of Additional Spectrum” (October 2010). Herein after “FCC 2010 Projections.” Page 18. Available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-302324A1.pdf
[iii] FCC 2010 Projections at p.18
[iv] Bazelon, Coleman and McHenry, Guilia “Substantial Licensed Spectrum Deficit (2015-2019): Updating the FCC’s Mobile Data Demand Projections.” Prepared for CTIA – The Wireless Association (June 23, 2015). Hereinafter Brattle Paper Page 7. Available at: http://www.brattle.com/system/publications/pdfs/000/005/179/original/Substantial_Licensed_Spectrum_Deficit_%282015-2019%29_-_Updating_the_FCC’s_Mobile_Data_Demand_Projections.pdf?1435613854
[v] CTIA Annual Industry Survey indicates cell sites nationwide decreased from 304,360 in 2013 to 298,055. Available at: http://www.ctia.org/your-wireless-life/how-wireless-works/annual-wireless-industry-survey
[vi] Brattle Paper p. 16
[vii] 178 MHz of additional spectrum (348 MHz in use now minus 170 MHz in use at end of 2009) as opposed to the 652 MHz it predicted would been needed (822 MHz – 170 MHz)
[viii] See generally, Mehta, Alok and Musey, Armand; Overestimating Wireless Demand: Policy and Investment Implications of Upward Bias in Mobile Data Forecasts” 23 CommLaw Conspectus 300 (2015) . Available at: http://scholarship.law.edu/commlaw/vol23/iss2/3