10.26.10

Analyzing the spectrum “crisis”: can upgrade costs be ignored?

Posted in Regulatory, Spectrum at 2:19 pm by timfarrar

We’ve already expressed some skepticism about both the methodology and the underlying growth assumptions used in the FCC’s Mobile Broadband Spectrum Forecast. It also appears that there is a limitation in how upgrade costs are treated in the FCC’s model. Specifically, the FCC model assumes that the “economic value” of additional spectrum is based on avoiding the construction of more cell sites by using additional spectrum at existing cell sites to accommodate the increased traffic load. However, the model ignores the cost of upgrading existing base stations to make use of this additional spectrum.

The underlying assumption which is used to justify ignoring this upgrade cost is that existing base stations will be upgraded anyway to 3.5G or 4G technologies. However, it is not always the case that these upgrades can accommodate more spectrum at no incremental cost. That might be a reasonable assumption if a PCS base station adds more PCS spectrum. However, if the new spectrum is at a considerably different frequency (e.g. adding 2.5GHz spectrum to a 850/PCS/AWS network), then it may not be possible to re-use a common set of antennas (potentially implying additional tower lease costs) and in some circumstances it may even be necessary to use a completely new cellsite plan, due to the different propagation characteristics (cell radius) of the new spectrum (although this may be mitigated if the spectrum is being used to add capacity in dense urban areas where the cell radius is very small regardless of the frequency). Thus though these incremental upgrade costs might be somewhat limited (perhaps a few billion dollars?) they can’t be completely ignored when operators decide whether to buy more spectrum or add cell sites in their existing spectrum, and they become more significant if usage growth and the need for spectrum are lower than expected.

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