Back in 2010 the FCC came out with its notorious forecast that there would be a 275MHz spectrum deficit by the end of 2014, based on projections of traffic growth, cell site growth and network efficiency. I pointed out at the time that there were problems with their calculations, and in reality it turned out that at the end of 2014 there was a nearly 300MHz spectrum surplus not a deficit.
The primary reason for this error was the flawed estimate of network efficiency, which was predicted only to double from 0.625bps/Hz to 1.25bps/Hz between 2009 and 2014 (note that in practice new cellsites are also placed to meet data traffic demand, but for simplicity I’ve rolled this into overall network efficiency).
In reality, if we plug in the actual growth in reported traffic and cell sites over the period from 2009 to 2014 (as summarized by Brattle in their 2015 CTIA-backed effort to continue the spectrum crisis narrative) the implied network efficiency (i.e. traffic per MHz per cell site) was 525% of the 2009 value by 2014, not 200% as the FCC predicted (i.e. a 425% improvement in efficiency, not the 100% predicted).
The chart above combines this data with Brattle’s predictions of traffic and cellsite growth from 2014-2019 and highlights that once again the prediction is for very modest network efficiency gains over this period, to only 139% of the 2014 figure in 2019, and Brattle use this figure to assert that there will once again be a spectrum deficit of over 300MHz by 2019.
Put another way, Brattle assert that the efficiency gains between 2014 and 2019 (39%) will be less than one tenth of the improvement that occurred between 2009 and 2014 (425%). Of course, in the real world, massive efficiency gains are already flowing from the deployment of MIMO technology, and Gigabit LTE is only just getting started.
Sprint stated in its October 2016 spectrum leaseback transaction that it is already achieving average spectrum efficiency of 1.6-1.95 bps/Hz, well above the Brattle predictions for 2019, and that it expects the average downlink efficiency in its Band 41 spectrum to reach almost 13bps/Hz by 2019 after the introduction of massive MIMO.
Indeed, the only way Sprint was able to justify the high valuation placed on its spectrum (based on a calculation of how much capex Verizon would be able to avoid by purchasing Sprint’s spectrum) was to assume that massive MIMO would not be feasible in paired spectrum bands. In practice massive MIMO is already being addressed in paired spectrum, and will simply be a bit less efficient than in TDLTE implementations. And if even a fraction of the efficiency gains set out by Sprint are applied to the FCC/Brattle model, then it is clear that there will continue to be a large spectrum surplus not a deficit.
So returning to my title, if spectrum is like oil, then MIMO is just as revolutionary for the spectrum market as fracking has been for the oil market. And as we are seeing in the incentive auction, where Verizon declined to participate, and AT&T has said it will be spending less than $2.4B, there are very similar implications for the price of spectrum as we’ve seen for the price of oil.
I’m unashamedly stealing the title of the book which chronicles the Iridium bankruptcy, because not only did John Bloom give a talk at this week’s Satellite 2017 conference, but discussion of new LEO satellite systems dominated the conference itself. The proposed merger of OneWeb and Intelsat is only the most visible sign of this return to the 1990s, when Iridium and Globalstar’s satellite phones and Teledesic’s proposed broadband system fascinated both the satellite industry and the wider investing community.
But below the surface there is an even more radical shift going on, as most leading operators are cutting back on their investments in high throughput GEO satellites for data services, and many of them are focused instead on the potential of LEO and MEO systems. Intelsat has already indicated that it is cutting GEO capex, and the merger with OneWeb will mean most of its future capex will be devoted to LEO, in line with Masa Son’s vision of a huge new opportunity for LEO satellites.
However, SES, whose CEO stayed away from the conference, is also hinting at a reallocation of its priorities towards O3b’s MEO system, probably accompanied by a sizeable reduction in overall capex. Telesat is also focused on developing its Ka-band LEO constellation for next generation data services, leaving only Eutelsat (which has already announced that it will cut capex substantially) amongst the Big 4 focusing solely on GEO.
This is deeply worrying for satellite manufacturers, and even the indication by Boeing that GEO demand will “remain soft” at “between 13 and 17 satellites in 2017″ may prove to be overly optimistic. All satellite manufacturers now need to play in the LEO/MEO world, with Thales constructing O3b and Iridium, and Airbus taking the lead role on OneWeb, with SS/L as a major subcontractor.
That leaves Boeing, which is not part of any announced LEO satellite contract, but has its own proposal for a V-band LEO system, which is under consideration at the FCC, along with several rival filings. While Boeing has suggested in the past that it was open to partnerships to develop this concept, most people in the industry are convinced that it already has funding from a potential customer, given the amount of effort that Boeing is putting into developing V-band service rules at the ITU and FCC. Boeing has also indicated to these people that it does not need export credit funding for the project, which supports the idea that this project is backed by a deep pocketed US entity.
There aren’t many possibilities for such a backer, and of the four large technology companies Boeing mentioned two years ago, Google and Facebook have apparently lost interest in satellites (although Google did invest $900M in SpaceX and Facebook tried with Amos-6), and Amazon is pursuing its own efforts in the launch market through Blue Origin. That only leaves Apple as never having discussed publicly its potential interest in space.
This aligns with the chatter I heard from a number of sources at Satellite 2017 that Boeing’s V-band development work is being funded by Apple, which is clearly trying to find the next big thing and has been exploring cars, TVs and other large market opportunities. Its not hard to discern why Apple might want to consider a satellite constellation, when SpaceX came out with a business plan last year that suggested SpaceX alone could generate $30B in revenue from satellite internet by 2025.
Just as in the car market there’s no guarantee that Apple would take this project forward to full deployment, but with SpaceX, SoftBank and now apparently Apple becoming enthusiastic about non-geostationary satellite systems, in addition to most of the main satellite operators, it seems that a dramatic reshaping of industry priorities is underway.
It remains to be seen whether this enthusiasm will last, or whether, like at the end of the 1990s, the pendulum will eventually swing back towards geostationary orbit. However, over the next few years, until we find out whether the ambitions of these visionaries can be realized, non-GEO satellite systems are likely to be the most important contributor to driving satellite communications technology forward.