10.22.10
Analyzing the spectrum “crisis”: can the FCC add up?
Yesterday the FCC announced with much fanfare the release of a new technical paper giving its “Mobile Broadband Spectrum Forecast”, which was trumpeted by the FCC Chairman as putting “the importance of this debate in perspective by assessing the economic value of this spectrum, which it estimates to be as high as $120 billion”.
The FCC paper is a fairly unsophisticated analysis, and its results contrast significantly with an Ofcom study released in April 2009 which found that under most scenarios for data growth the UK was unlikely to experience a spectrum crisis until 2020 or beyond. Although the UK is of course a very different market to the US, it was a surprise that the results were so dramatically different, which prompted us to take a closer look at the FCC calculations.
Unfortunately it appears that the FCC analysis contains a significant error in its calculations. Specifically, while the study assumes that all future cell sites are deployed to add capacity, it neglects to take into account that a significant fraction of current cell sites were deployed purely for coverage in rural and suburban areas, and are unlikely to ever need more spectrum beyond that available today. As a result, following the FCC’s methodology, these cell sites should not be included when calculating how much new capacity and spectrum is needed (as the FCC indicates elsewhere in the paper, upgrading to more spectrally efficient technologies would provide significant gains and presumably sufficient capacity when data usage does increase in rural areas).
UPDATE: Assuming somewhere between 20% and 50% of current cell sites (as of 2009) have been deployed for coverage rather than capacity (which seems reasonable, as according to the FCC Competition Report, cellular voice services are provided to 60M people in rural census blocks covering 2.3M square miles, and 76% of these regions have two or more providers) then the FCC’s own analysis shows that the incremental spectrum demand by 2014 is reduced from 275MHz to between 117MHz and 227MHz and the cost of deploying extra cell sites to serve this demand (the FCC’s definition of “economic value”, assuming a cost of $550K per cell site) is reduced from $120B to between $33B and $85B. Only 60K-155K additional cell sites are needed to meet demand, compared to the 99K that the FCC’s model estimates will be deployed anyway in the next 5 years. Put another way, the annual growth in the number of base stations would increase from 7% p.a. to between 10% and 15% p.a., which is not significantly out of line with the 12% growth in base stations that occurred in 2009, according to the FCC’s own figures.
