03.16.17

MIMO is like fracking…

Posted in Regulatory, Spectrum at 10:04 am by timfarrar

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.

4 Comments »

  1. mjmarcus said,

    March 16, 2017 at 10:49 am

    deja vu all over again!

    In the early 1980s, Motorola was the “patron saint” (and near monopolist equipment provider) of Part 90 and decided that Part 90 was running out of spectrum. Cellular existed then but no one thought it would over be more important than Part 90- Motorola’s main product.

    So Moto pushed the Part 90 user groups, which they had great influence over, to demand more Part 90 spectrum. They did a similar study to the cellular case and extrapolated demand and efficiency growth and came up for a big shortfall which they wanted to meet through more TV/land mobile sharing. NAB hated the idea and this was what motivated for them to suddenly bring from Japan early analog HDTV technology and said the future of the US depended on it! All this is described in Joel Brinkley’s “Defining Vision: How Broadcasters Lured the Government into Inciting a Revolution in Television”

    Part 90 never got more spectrum but modest increase in technology and crosselastic growth in cellular made the problem go away. Ironically analog HDTV was never implemented as DTV replaced it in the planning cycle. DTV allowed more intense use of TV spectrum so cellular intruded into TV spectrum NOT Part 90!

    After all, if growth is 10-50%/year you just can’t meet it with new spectrum. While some could argue exactly how much cellular capacity would increase with a 50% increase in available spectrum the numbers are in the range of 40-200% increase, not a 5000% increase. Large compound growth rates can not be met with spectrum, but rather with infrastructure and new technology as the main factors.

  2. lte4g said,

    March 20, 2017 at 10:34 am

    Great blog, but did you mean to say “…Sprint declined to participate…”, not Verizon. Thanks.

  3. timfarrar said,

    March 20, 2017 at 12:14 pm

    No, I meant Verizon (although Sprint didn’t participate either). No-one has been able to identify any auction deposit made by Verizon, which would have shown up in their 2016Q3 balance sheet if it were material.

  4. lte4g said,

    March 21, 2017 at 1:09 am

    Thanks for clarifying. Very interesting!

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