07.12.12

Spectrum crisis or capex crisis?

Posted in Regulatory, Spectrum at 2:09 am by timfarrar

As others have pointed out recently, the supposed spectrum crunch is really more of an infrastructure crunch, because if wireless data traffic is going to grow by 10 or 20 times, how can 20% more spectrum possibly solve that problem?

Its therefore pretty instructive to look at the CTIA’s own figures, which curiously enough simply trumpet the cumulative capex invested by US wireless operators since the 1980s. When you think about it, that’s a bizarre statistic, since cumulative capex will always go up each year, however much wireless operators invest in their networks. Of course, if you actually look at the annual capex you see a very different picture, and indeed in absolute terms network investment has fallen quite sharply since 2004, and only rebounded partially in 2010 and 2011, despite much trumpeted LTE rollouts by Verizon, AT&T and others.

As a percentage of revenues, capex has fallen even further, and has roughly halved in the last decade. At this point, if I was using the tortured logic (and ludicrously hyped sound bites) of spectrum crisis adherents, I should probably conclude that on current trends we will run out of capex by the end of the decade, as capex falls to zero percent of revenues. On the other hand, if I was arguing the carriers’ point of view, I could conclude that because the GDP contribution of the wireless industry increased from $92B in 2004 to $146.2B per year by mid 2011, while capex fell from 27% to 15% of revenues, each 1% decline in capex as a percentage of revenues should be expected to increase GDP by $4.3B. As a result, if wireless carriers stopped all capex completely, it would increase GDP by $65B!

More rationally, while reductions in operator capex in recent years may have been good for their investors in the short term (and indeed carriers would perhaps view it as necessary because their revenue growth has slowed), these figures clearly demonstrate that there is considerable scope to address growth in data usage (assuming the traffic is valuable enough that customers will pay more for it) simply by modestly increasing capex to a level that would fall well within historical norms. Indeed, even though annual capex in 2011 only increased (in absolute dollars) by 1.7% over 2010, operators added over 30,000 cell sites, an all time record, which increased the total number of cellsites in the US by 12%. Given that the FCC’s own (discredited) model suggested that the purported spectrum “deficit” would vanish with this rate of cellsite growth, it seems we are already well on the way to mitigating any potential spectrum crisis.

11 Comments »

  1. TMF Associates MSS blog » A good job if you can get it! said,

    July 12, 2012 at 3:33 am

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  2. One Chart Explains Why Your Cell Service Sucks | Test said,

    July 12, 2012 at 9:38 am

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  3. geoff goodfellow said,

    July 12, 2012 at 11:26 am

    this was also laid bare by Sanford Bernstein analyst Robin Bienenstock last year — excerpting from under “Sad prospects for improvement in US mobile networks”:

    … Sanford Bernstein analyst Robin Bienenstock noted that a primary reason why US [cellular/mobile] networks are so pathetic is because the American government doesn’t regulate how carriers build their [cellular/mobile] networks as European nations do, providing the example of rules mandating a minimum number of base stations that, if not achieved, will result in the carriers losing their spectrum allocations.

    “Let’s take California and Spain as an example, ” Bienenstock wrote. “Telefonica has some 33,000 base stations in Spain (yes, miserable, economically imploding Spain). Conveniently, California is a similar size, has a similar topography, and has very similar population density. In California, AT&T has just over 6,000 base stations. The spectrum allocation per pop in these two operators (TEF in Spain and AT&T in California) is remarkably similar. A similar analysis looking at New Jersey and Massachusetts vs the Netherlands shows similar results.

    “Why are European [cellular/mobile] networks so much denser than American networks? In large part the answer lies (again) in regulation. In Europe, the spectrum auctions of last decade came with ‘use it or lose it clauses’ that obliged operators to build a minimum of base stations or face sanctions from fines to loss of spectrum. The result is clear to any American visiting Europe… and more frustratingly obvious to any European visiting the States.”

    http://dslprime.com/a-wireless-cloud/61-w/4466-us-wireless-75-fewer-basestations-than-comparable-europe

    this manufactured “Spectrum Crisis” and the bamboozlement/deception/hoodwinking/snookering by the cell tel carriers has been going on since “The Red Herring fast one” PAC*TEL pulled off shortly after the original A & B band 20 MHz CMRS allocations were deployed in Los Angeles on the grounds that the coming Olympics to the area was gonna see one big cellular traffic jam of massive proportions…

    PAC*TEL successfully faked out the FCC in to giving them an extra 5 MHz of Totally Unnecessary and Undeserved (and free!) CMRS 850 MHz spectrum (instead of just investing in and deploying additional [sectorized] cell sites)… the “manufactured” same lies and deceptions by the cell tel carriers have been “working well”/promulgated/promulgating ever since…

    hopefully articles like this, can finally get The Facts/Truth out to educate/enlighten Our ignorant/manipulated/naive journalists, FCC decision makes, members of congress and other responsible parties and put an end was put to this shameful “Spectrum Crisis” sham that’s been going on way way to long…

    the base station vendors ought to love you/this message, what with Europe having around 5.5 times more base stations deployed in similar spectrum, topography and population densities than we do “here”.

    geoff goodfellow

  4. Mischa Dohler said,

    July 13, 2012 at 12:53 am

    Ze’ev Roth, then CTO of Alvarion, and myself had a very similar insight some 4 years ago. Thereupon, we have assembled a team of pretty capable folks in Europe and built the world’s first wireless

    1Gbps/km2

    communications architecture which is very affordable. We brought it live some months ago, to quite some press coverage. We essentially applied a “cost waterfilling” concept, where – instead of having an equal amount of capable and costly elements in the network – we have one which is really expensive and bulky but many elements which are very small and cheap.

    I had keynoted recently at a Telefonica event, summarizing the drives and findings: http://www.youtube.com/watch?v=EJtezd3CW98.

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    July 13, 2012 at 1:21 am

    [...] Via TMF [...]

  6. Today's Scuttlebot - NYTimes.com said,

    July 13, 2012 at 5:15 am

    [...] Spectrum crisis or capex crisis? tmfassociates.com | Analysis of carriers’ spending shows that network investments have fallen sharply in relation to their revenue. — Brian X. Chen [...]

  7. 运营商到底面临频谱危机还是资本危机 | 云动态 said,

    July 13, 2012 at 9:07 am

    [...] Via TMF [...]

  8. Silver Eagle News » In spite of growing 4G deployments, Infonetics forecasts global mobile capex will be roughly flat from 2012 to 2016. One key reason: AT&T and Verizon have been steadily reducing their capex/revenue ratio, even if growth is ha said,

    July 30, 2012 at 3:22 pm

    [...] mobile capex will be roughly flat from 2012 to 2016. One key reason: AT&T and Verizon have been steadily reducing their capex/revenue ratio, even if growth is harmed. Also, European carriers, struggling with macro [...]

  9. the keyboard of geoff goodfellow said,

    November 10, 2012 at 3:14 pm

    there is no spectrum crunch — that’s just a bogeyman story that the telcos tell the government when they want a handout…

    http://www.dslreports.com/shownews/ATT-Acknowledges-Theres-No-Spectrum-Crunch-121990

    PANTS ON FIRE!

    AT&T Admits That The Whole ‘Spectrum Crunch’ Argument It Made For Why It Needed T-Mobile Wasn’t True

    from the well,-implicity dept — excerpt:

    You may recall that back when AT&T was trying to buy T-Mobile, a big part of the argument was a spectrum crunch around its wireless efforts. The company insisted — strenuously — that it would not be able to expand 4G LTE services to more than 80% of the population unless it had T-Mobile. That argument ran into some trouble when a lawyer accidentally posted some documents to the FCC which admitted that the company could fairly easily expand its coverage to 97% of the population of the US without T-Mobile (and, in fact, that it would cost about 10% of what buying T-Mobile would cost). Suddenly, the argument that it absolutely needed T-Mobile rang hollow — even as the company continued to insist exactly that. Still, the FCC suddenly was skeptical and AT&T, seeing the writing on the wall, gave up on the merger…

    http://www.techdirt.com/blog/wireless/articles/20121109/07434820984/att-admits-that-whole-spectrum-crunch-argument-it-made-why-it-needed-t-mobile-wasnt-true.shtml

    geoff goodfellow

  10. 运营商到底面临的是频谱危机还是资本危机 | 站长站 said,

    December 4, 2012 at 4:51 pm

    [...] Via TMF [...]

  11. 运营商到底面临频谱危机还是资本危机 | 科技推 said,

    May 17, 2013 at 12:30 am

    [...] Via TMF 原文 [...]

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