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F C C S T A F F T E C H N I C A L P A P E R
FederalCommunicationsCommission
44512thStreet,SW
Washington,DC20554
FCC STAFF TECHNICAL PAPER
MOBILE BROADBAND:
THE BENEFITS OF
ADDITIONAL SPECTRUM
OCTOBER 2010
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 1
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F C C S T A F F T E C H N I C A L P A P E R
FederalCommunicationsCommission
MobileBroadband:TheBenefitsofAdditionalSpectrum
Abstract
The National Broadband Plan recommended that the Commission make available 500
megahertz (MHz) of new spectrum for wireless broadband, including 300 MHz for mobile
flexibleusewithinfiveyears. Inaddition,thePresidentdirectedinaJune28,2010,Executive
Memorandumthat500MHzofnewspectrumformobileandfixedbroadbanduse. Thispaper
provides additional technical analysis to validate the need for additional mobile broadband
spectrum
in
the
near
term,
and
estimates
the
value
created
by
making
new
spectrum
available.
Giventhe inherentuncertaintyofanyforecastofthefuture,thegoalofthisanalysisisnotto
reach definitive numeric findings of spectrum need and economic benefit, but to make a
reasonabledemonstrationthatmobiledatademandislikelytoexceedcapacityundercurrent
spectrum availability in the nearterm, and that meeting this demand by making additional
spectrumavailableislikelytocreatesignificanteconomicvalue. Ouranalysissuggeststhatthe
broadband spectrum deficit is likely to approach 300 MHz by 2014, that making available
additionalspectrum formobilebroadbandwouldcreatevalue inexcessof$100B inthenext
fiveyearsthroughavoidanceofunnecessarycosts. Thisestimateofvaluecreationisnarrow,as
it does not account for the broader social value created through mobile broadband, which
some economists estimate as multiples of the private value. Since making new spectrum
availablehashistoricallytakenbetweensixandthirteenyears,andsincemobiledatagrowth
trends are expected to continue beyond the nearterm forecast in this paper, these results
supporttheneedfortimelyactiontofreespectrumformobilebroadband,consistentwiththe
recommendationsoftheNationalBroadbandPlanandthePresidentsdirective.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 2
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F C C S T A F F T E C H N I C A L P A P E R
TableofContents
I. Introduction_____________________________________________________________ 4
II. MethodologicalOverview___________________________________________________5
III. TrafficDemandandNetworkCapacity _______________________________________ 6
IV. ModelInputs:DataDemand,NetworkDensity,SpectralEfficiency,andBaselineSpectrumUse 8
a. TrafficDemandIndustryWideTrendsThrough2014 ______________________________________9
b. NetworkDensity CellSiteGrowth _____________________________________________________12
c. NetworkCapacity SpectralEfficiency___________________________________________________ 14
d. BaselineSpectrumUse _______________________________________________________________ 15
V. ModelOutput:SpectrumNeedandEconomicValue __________________________________ 17
VI. SensitivityAnalyses _____________________________________________________________ 22
a. Sensitivity
to
Data
Growth
Forecast_____________________________________________________22b. SensitivitytoCurrentSpectrumUsedforData ____________________________________________23
c. SensitivitytoNetworkDensityCost _____________________________________________________23
VII. Conclusion _____________________________________________________________ 26
AppendixA:MethodologySummaryofMobileDataDemandForecasts__________________27
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 3
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F C C S T A F F T E C H N I C A L P A P E R
I. Introduction
TheNationalBroadbandPlanrecommendedthattheCommissionmakeavailable500
megahertz(MHz)ofnewspectrumforwirelessbroadband,including300MHzformobile
flexibleusewithinfiveyears.1 Inaddition,thePresidentdirectedinaJune28,2010,Executive
Memorandumthat500MHzofnewspectrumformobileandfixedbroadbanduse.2 Thedrive
tomakeavailablenewspectrumforbroadbandisgroundedinstrongconsumerdemandfor
highspeedwirelessInternetaccess.
Datausageoverwirelessnetworksisrapidlyincreasingasmoreconsumerssurftheweb,check
email,andwatchvideoonmobiledevices. InjustthelatestsixmonthsofFCCreporting,
subscriptionstomobiledataservicesincreasedby40%.3 Andtheamountofdatausedby
wirelessconsumersisincreasingsubstantiallyexhibit1belowshowsanincreaseofover450%
intheamountofdataconsumedperlinebetweenthefirstquarterof2009andthesecond
quarter
of
2010.4
Exhibit1:DataConsumptionGrowthperLine
Average Data Used Per Line
201.8182.5
129.1
98.9102
43.5
0
50
100
150
200
250
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010
DataUsed(megabytes)
Arangeofrecentwirelessindustrytrendsindicatestronggrowthofmobiledatausage.
42%ofconsumersareestimatedtoownasmartphone,upfrom16%threeyearsago.5
1SeeNationalBroadbandPlanChapter5,Spectrum,atwww.broadband.gov
2PresidentBarackObama,June28,2010,MemorandumfortheHeadsofExecutiveDepartmentsandAgencies,Unleashing
theWirelessBroadbandRevolution. Seehttp://www.whitehouse.gov/briefingroom/presidentialactions/presidential
memoranda.3InternetAccessServices:StatusasofJune30,2009,releasedSeptember2010bytheFCCsWirelineCompetitionBureau.
4ValidasLLCdata,September8,2010. Foundatwww.myvalidas.com.
5PaulCartonandJeanCrumrine,NewSurveyShowsAndroidOSRoilingtheSmartphoneMarket,ChangeWave
Research,Jan.4,2010,availableathttp://www.changewaveresearch.com/articles/2010/01/smart_phone_20100104.html.
Alsofoundatpara.159oftheFCCs14th
MobileWirelessCompetitionReport. DataperiodcitedisbetweenOctober2006and
December2009.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 4
http://www.changewaveresearch.com/articles/2010/01/smart_phone_20100104.htmlhttp://www.changewaveresearch.com/articles/2010/01/smart_phone_20100104.html8/7/2019 FCC Mobile Broadband paper Oct 2010
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F C C S T A F F T E C H N I C A L P A P E R
PCaircardusersconsume1.4gigabytes(GB)permonth 56timestheamountofdatausedbyaregularcellphone6
AT&T,theexclusiveUScarrieroftheiPhone,hasseenmobilenetworktrafficincrease5,000%overpast3years.
7
UsersofClearwiresfourthgeneration(4G)WiMAXserviceconsume7GBpermonth
280timestheamountofdatausedbyaregularcellphone.8
Lookingahead,industryanalystsgenerallysharetheviewthatmobilenetworkdatatrafficwill
continueasignificantupwardtrend. Assmartphones,laptops,andotherdevicesbecome
increasinglyintegraltoconsumersmobileexperiences,mobiledatademandisexpectedto
growbetween25and50timescurrentlevelswithin5years.
TheNationalBroadbandPlan(Plan)recognizestheenormouspotentialofmobiledatagrowth.
Toensurethatadequatewirelesscapacityisavailabletomeetthisdemand,thePlancallsforan
additional500megahertzofnewspectrumtobemadeavailableoverthenexttenyears,
includinganadditional300megahertzofspectrumsuitableformobileflexibleusewithinfive
years.
ThispaperprovidesthetechnicalbasisforthisfundamentalrecommendationofthePlan.
Specifically,byestimatingvariousfactorsaffectingaggregatemobilenetworkcapacityand
mobiledatagrowth,itisclearthat:1)mobiledatademandwilloutstripavailablewireless
capacityinthenearterm;andthat,2)makingavailable300MHzofadditionalspectrumfor
mobilebroadbandislikelytoentaileconomicvalueofatleast$100billioninthenextfiveyears.
Also,beyondthefiveyearforecastperiodinthispaper,mobiledatademandisexpectedto
continueitsstronggrowth,supportingtheneedforactionoverthelongertermtomake
availableadditionalspectrumformobilebroadband.
II. MethodologicalOverview
Thispaperexploreshowmobilebroadbandgrowthwillaffectspectrumneeds. Inaddition,
recognizingthatincreasingtheamountofspectrumavailableisonealternativeamongseveral
toincreasemobilenetworkcapacity,thispaperalsoestimatestheeconomiceffectsofmaking
availablenewspectrumtomeetmobiledatademand.
First,industrywidetrendsandforecastsareusedtopredictspectrumneeds. Industryanalysts
havepredictedtotalmobiledatatrafficrelativetocurrentlevels,andtrendssuchasthe
6ValidasLLCdata,foundinthe14
thMobileWirelessCompetitionReportoftheFederalCommunicationsCommission,at
para.182,releasedMay20,2010.Traditionalhandsetsareestimatedtoconsumeapproximately25MBpermonth.7KrisRinne,Sr.VicePres.ofArchitecture&Planning,AT&T,RemarksattheFCCSpectrumWorkshop1112(Sept.17,2009),
availableathttp://www.broadband.gov/docs/ws_25_spectrum.pdf.Ms.Rinneaddedthatinadditiontoincreaseddatausage,
voiceusagecontinuestorisealso.Id.8http://gigaom.com/2010/03/12/clearwiresbigbetonourbroadbandaddiction/.WenotethatClearwiresubstypicallyuse
theserviceasasubstituteforwiredbroadband.Traditionalhandsetsareestimatedtoconsumeapproximately25MBper
month.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 5
http://www.broadband.gov/docs/ws_25_spectrum.pdfhttp://www.broadband.gov/docs/ws_25_spectrum.pdfhttp://www.broadband.gov/docs/ws_25_spectrum.pdfhttp://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://gigaom.com/2010/03/12/clearwires-big-bet-on-our-broadband-addiction/http://www.broadband.gov/docs/ws_25_spectrum.pdf8/7/2019 FCC Mobile Broadband paper Oct 2010
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F C C S T A F F T E C H N I C A L P A P E R
increasingnumberofcellsitesareknownandcanbeextrapolatedforward. Byadjustingthe
expectedgrowthindatademandforoffsettinggrowthinnetworkdensity(whichistheresultof
addingnewcellsites)andspectralefficiency,wecanforecastfuturespectrumneedsrelativeto
abaselineindexofcurrentspectruminuse. Therefore,reasonableapproximationofboththe
baselineandfuturetrendsassociatedwithmobiledatauseandnetworkcapacityenablea
realisticprojectionofspectrumneed. Whilethevaluesoftheseinputstothemodelmayvary
inpractice,theincorporationoftrendsanticipatedbyrelevantexpertsallowsforacogent
forecast.
Theoutputfromthisapproachisthereforeanaggregatenationalprojectionoflikelyspectrum
needs,whichislikelytomaskdifferencesacrossmarkets,butisnonethelessusefulfor
approximatingtheeconomiceffectsofmakingnewspectrumavailableformobilebroadband.
Theprojectionsofmobiledatademandusedinthisanalysisarebasedinpartonhistoric
marketdynamics,suchasallyoucaneatpricingfordata. Theeffectofnewpricingstrategies
onconsumerdatademandisnotyetknown,buthasthepotentialtoimpactdatatraffic
projectionsifwidelyadoptedinthemarket.
Thispaperwilldemonstratethatevenwhenusingconservativeassumptionsaboutthemarket
factorsthataffectspectrumneed,itislikelythatspectrumwillbecomeanincreasinglyscarce
resourceinthenearterm,andthatfreeingspectrumformobilebroadbanduseoverthenext
fiveyearswillentailsignificanteconomicbenefits.
Theestimateofvaluecreatedbyreleasingnewspectrumforbroadbandisnarrow,andlimited
totheavoidanceofunnecessarycostsbutforthenewspectrum. Thispaperdoesnot
undertakeacomprehensiveanalysisofthebenefitstosocietythatmayresultfrommakingnew
spectrumavailable,whichsomeeconomistsestimateasmultiplesoftheprivatevalue.9 These
findings,takentogether,clearlysupporttheneedfortimelyactiontomakenewspectrum
availableformobilebroadband.
III. TrafficDemandandNetworkCapacity
Todeterminetheneedforandbenefitsofreleasingadditionalspectrumforbroadband,the
firststepistoanalyzethedriversofmobiletrafficdemandandtotalavailablenetworkcapacity.
AsillustratedinExhibit22below,theleftsideoftheexhibit,demandandgrowthindemand
dependsondataconsumptionbydevicetypeandthenumbersofeachtypeofdeviceinuse.
9Theeconomicbenefitsestimatedhereinrepresentonlythereductionincostofmeetingmobiledatademand;no
approximationofproducerorconsumersurplusisoffered,andnoestimateofexogenouscostsisprovided. Thispaperdoes
notestimatethecoststothirdpartiesofmakingavailablenewspectrum,likelyauctionrevenue,orotherfactors. Fora
discussionofconsumerandproducersurplusinthewirelessmarket,seeHazlettandMunoz,AWelfareAnalysisofSpectrum
AllocationPolicies,RANDJournalofEconomics,V.40,No.3,Autumn2009. AlsoseeGregoryRosston,TheLongandWinding
Road:TheFCCPavesthePathwithGoodIntentions,TelecommunicationsPolicy,V.27,No.7,August2003;and,JerryHausman
"ValuingtheEffectofRegulationonNewServicesinTelecommunications",BrookingsPapersonEconomicActivity,
Microeconomics.Vol.28(1997).
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 6
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AnexampleofdemandsidegrowthisapparentinAT&Tsrecentexperienceasthenumberof
iPhoneusershasincreased,mobilenetworktraffichasincreased5000%.10
Networkcapacity(theamountofdataanetworkcancarry),ontheotherhand,dependson
spectralefficiencyofwirelesstechnologies(theamountofspectrumneededtotransmitagiven
amountofdata),availablespectrum,andthenumberofcellsitesusedtoprovideservice.11
In
thissense,newspectrumissubstitutable,toapoint,withcapitalexpenditurestobuildnew
cellsitesanddevelopandimplementmoreefficientwirelesstechnologies.
Therefore,onemeansofapproximatingthemarginalbenefitofallocatingadditionalspectrum
formobilewirelessusageisbydeterminingthereductioninincrementalcostsofsubstitutes,
suchasnewcellsitesandtechnologies.Ineffect,weconsideranindifferencecurvebetween
additionalspectrumandadditionalnetworkinvestment. Theindifferencecurveplotsthe
numberofsitesandtheirrespectivecostagainstthespectrumrequiredforanticipatedmobile
datademandin2014. Thismethoddemonstratesdifferentcombinationsofspectrumand
capitalneededtomeetprojectedmobiledatademand.
Exhibit2.Driversofmobiletrafficdemandandmobilenetworkcapacity
Drivers of mobiletraffic demand
Drivers of availablenetwork capacity
Capacity per cell-siteCapacity per cell-site
Usage by device typeUsage by device type
Penetration of devicetypes
Penetration of devicetypes
Spectral efficiency ofwireless technology
Spectral efficiency ofwireless technology
Spectrum allocationSpectrum allocation
Number of cell-sitesNumber of cell-sites
Wirelessnetwork
Drivers of mobiletraffic demand
Drivers of availablenetwork capacity
Capacity per cell-siteCapacity per cell-site
Usage by device typeUsage by device type
Penetration of devicetypes
Penetration of devicetypes
Spectral efficiency ofwireless technology
Spectral efficiency ofwireless technology
Spectrum allocationSpectrum allocation
Number of cell-sitesNumber of cell-sites
Wirelessnetwork
Thisframeworkofmobiledatatrafficandcapacityenablesanunderstandingoftheeffectsof
releasingadditionalspectrum. Assumptionsinthispapercouldbeamendedtoyieldsomewhat
differentnumericalbenefitestimates;however,anyreasonableapproximationofrelevant
variablesislikelytoconfirmtheconclusionthatreleasingadditionalspectrumwillcreate
substantialeconomicvalue.
10KrisRinne,Sr.VicePres.ofArchitecture&Planning,AT&T,RemarksattheFCCSpectrumWorkshop1112(Sept.17,2009),
availableathttp://www.broadband.gov/docs/ws_25_spectrum.pdf.Ms.Rinneaddedthatinadditiontoincreaseddatausage,
voiceusagecontinuestorisealso.Id.11
SeealsoFCCOBITechnicalPaper,TheBroadbandAvailabilityGap,releasedApril2010.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 7
http://www.broadband.gov/docs/ws_25_spectrum.pdfhttp://www.broadband.gov/docs/ws_25_spectrum.pdfhttp://www.broadband.gov/docs/ws_25_spectrum.pdfhttp://www.broadband.gov/docs/ws_25_spectrum.pdf8/7/2019 FCC Mobile Broadband paper Oct 2010
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IV. ModelInputs:DataDemand,NetworkDensity,Spectral
Efficiency,andBaselineSpectrumUse
Futurespectrumneedscanbeunderstoodasafunction,ormultiplier,ofcurrentspectrum
used
for
mobile
broadband
nationwide.
The
multiplier
used
in
our
model
is
based
on
an
averageofreputableindustryanalystmobiledatademandforecasts,adjustedtoaccountfor
additionalnetworkdensityviacellsitegrowthandimprovementsintechnologyresultingin
increasedspectralefficiency.
Byassumingthatspectrumrequiredtosupporttraditionalvoicewillremainatcurrentlevels,12
thetotalspectrumrequiredinfutureyearsiscalculatedbyapplyingthemultiplieronlyto
spectrumusedfordataduringthe2009baselineyear. Currentvoicespectrumisthenaddedin
eachyeartoreachthetotal. Thefollowingflowchartdepictstheanalyticstepsinthismodel:
Exhibit3.TopDownForecastFlowchart
DataTraffic
DemandForecasts
Data Trafficper SiteGrowth
SiteGrowth
Forecast
SpectralEfficiencyForecast
Data Trafficper Site growth
adjusted fortechnology
Average DataTraffic
Demand
2009SpectrumUtilization
2009 Voice
Spectrum
2009 DataSpectrum
Future DataSpectrumRequired
Total FutureSpectrumRequired
12Estimatingtherateofvoicegrowth,therateofvoicetrafficmigrationfromcircuitswitchedtoVoIP,andtheassociated
spectralefficiencygains,ascomparedwithcountervailingconsiderationssuchastheproliferationofunlimitedtalkplans,are
beyondthescopeofthispaper. Theactualspectrumrequiredtosupporttraditionalvoiceinthefuturemaybemoreorless
thanassumedhere;however,giventhemagnitudeofprojectedmobiledatatrafficgrowth,anyvariancefromtheconstant
usedinthismodelwillnotsignificantlychangetheresultingprojectionoffuturespectrumneeds. Inparticular,mobilecarriers
arenotexpectedtofullytransitionvoiceservicesto4GInternetProtocolwithinthefiveyearforecastperiod.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 8
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a. TrafficDemandIndustryWideTrendsThrough2014
AnalystsandindustryprofessionalshaveforecastedsignificantfuturegrowthinUSmobiledata
usage,thoughtheprecisemagnitudeofprojectedgrowthvariesbetweenforecasts. Acertain
degreeofuncertaintyisexpectedinanyprojectionofthefuture. Sincetheforecasts
collectivelyprojectarangeoffuturedemand,takinganaverageofthreeinformedindustry
analysesnormalizesthevarianceacrossprojections. Theanalysesusedinthispaperarefrom
therespectedindustrysourcesofCiscoSystems,CodaResearch,andtheYankeeGroup. Their
quantitativeprojectionsoffuturemobiledatademandareshowninthechartbelow,expressed
relativetoactual2009datatraffic.13
Exhibit4.IndustryMobileDataForecasts
Industry Forecasts of Mobile Data Traffic
0X
5X
10X
15X
20X
25X
30X
35X
40X
45X
50X
2009 2010 2011 2012 2013 2014
TrafficRelativeto2009
Cisco
Coda
Yankee Group
Average
Theaverageofthesethreeprojections,asseeninExhibit4,revealsstrongexpectedgrowthin
mobiledatatrafficfrom2009levelsbyafactoroffiveby2011,morethan20timesby2013,
andreaching35times2009levelsby2014. Inallthreeforecasts,thetrendremainsupwardin
2014,implyingcontinuedgrowthbeyondtheforecastperiod.
Mobiletrafficdemandisdrivenbythedatausagecharacteristicsofeachdevicetypeandthe
numbersofeachtypeofdeviceinuse.Webrieflyreviewtheseinthesectionsbelow.
Usagebydevicetype
Deviceswithenhancedfunctionalitytendtoconsumemoredata. Thisisdemonstratedin
estimatesofmobiledatauseduringthesecondhalfof2009byindependentindustryanalyst
Validas. Blackberry,withsuperioremailutility,consumestwicetheamountofdatamonthlyas
anormalmobilehandset. TheiPhone,usefulformobilewebbrowsingandapplications,
13CiscoVisualNetworkingIndex:GlobalMobileDataTrafficForecastUpdate,20092014,February9,2010. CodaResearch
Consultancy,USMobileTrafficForecasts:20092015,2009. YankeeGroup,SpectrumRichPlayersAreintheDriversSeatfor
MobileBroadbandEconomics,June2009. SeeAppendixAofthispaperforamethodologicalsummaryofeachforecast.
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Exhibit6.ProjectedgrowthrateoftheamountofdatausedbydevicetypeProjected usage growth rateby device type, 2008-2013
Percent
4734
84
67
3G Feature phones
Smartphones
Portable* (Substitute for Fixed Broadband)
Portable* (Complement to Fixed Broadband)
* Portable refers to computing devices (netbooks and notebooks), tablets, handheld gaming consoles, e-readers,digital cameras and camcorders, digital photo frames, and in-car entertainment systems
Whenportablessuchasnetbooksandnotebooksareusedexclusivelyonthewirelessnetwork
(i.e.,thewirelessnetworkisusedasasubstituteforthewirelinenetwork),growthissimilarto
whatisseenonfixednetworks.16
TheaveragemonthlyusagepersubscriberontheClearwire
network,whichmanyconsumersuseasasubstituteforwiredbroadband,isalready7GB.17
Continuedgrowthofthisdevicesegmentislikelytocontributesignificantlytothegrowthof
mobiledatatraffic.
Penetrationbydevicetype
Thenumbersofeachtypeofdeviceinuse(penetration),aswellastheexpectedgrowthin
penetration,isshownintheexhibitbelow.Smartphonesincorporatethefeaturesoftraditional,
voiceonlyhandsets. So,increasingpenetrationofsmartphonessuggestsadecreasing
penetrationoftraditionalhandsets.
Note
the
rapid
growth
in
penetration
expected
for
portables
the
device
category
also
correspondingtohighestusage(seeExhibit7). Further,withrelativelymodestpenetration
levelsforportablestodayandampleroomforgrowth,rapidpenetrationgrowthcouldcontinue
beyond2014.
16CiscoVisualNetworkingIndex:GlobalMobileDataTrafficForecastUpdate,20092014,February9,2010.
17RemarksofClearwireCEOBillMorrowattheInternationalCTIAWireless2010show,ClearwireExtends4GLeadershipInthe
UnitedStates,March23,2010.
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Exhibit7.Forecastednumbersofeachtypeofdeviceinuse(penetration)andcompound
annualgrowthrate(CAGR)
Projected penetrationby device type, 2014
Millions
10.7
127.1
153.7
51.8
Basic and feature phones
Smartphones
Portable* (Substitute for Fixed Broadband)
Portable* (Complement to Fixed Broadband)
CAGR of penetration bydevice type, 2009-14
Percent
-6
14
61
37
* Portable refers to computing devices (netbooks and notebooks), tablets, handheld gaming consoles,
e-readers, digital cameras and camcorders, digital photo frames, and in-car entertainment systems
Mobiledatatrafficisakeydriverofspectrumneed,andastheseforecastsshow,theconsensus
amongindustryexpertsisthatdemandforsuchtrafficislikelytoincreasesignificantlyoverthe
nextfiveyears.
Thefollowingsectionsdescribeotherfactorssuchascellsitegrowthandspectralefficiency
thatarerelevanttoestimatingspectrumneed.
b. NetworkDensity CellSiteGrowth
Wirelessoperatorscontinuetoinvestcapitalinbuildingnewcellsites. Cellsitescanbe
engineeredfordifferentpurposes,includingincreasingcapacity,toimprovesignalquality,and
toexpandcoverage. Thelatteremphasisexpandstheoperatorsfootprint;theprimary
purposeofothersocalledinfillsitesistoincreasecapacity,andinthisrespectcanbe
conceivedasanalternativetonewspectrum. Theamountofcapacityanyparticularnewsite
addstoawirelessnetworkisdifficulttocharacterize;therefore,wefocusonnationalaverages
andtrends.
AccordingtodatapublishedbyCTIA,thenumberofcellsitesintheUnitedStateshasbeen
growingatabouta7%compoundannualgrowthrate(CAGR)overthepastfiveyears.18
Thisis
seen
in
the
following
table:
18CTIA
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Exhibit8.USCellSiteGrowthsince1997
Date TotalCellSites
Year
over
Year
Growth
5Year
Running
Avg
Growth
1997 38,650
1998 57,674 49%
1999 74,157 29%
2000 95,733 29%
2001 114,059 19%
2002 131,350 15% 28%
2003 147,719 12% 21%
2004 174,368 18% 19%
2005 178,025 2% 13%
2006 197,576 11% 12%
2007 210,360 6% 10%
2008 220,472 5% 8%
2009 245,912 12% 7%
AsExhibit8shows,cellsitegrowthyearoveryearhasbeenuneven,buttheoveralltrendinthe
fiveyearaverageisthatthegrowthhasbeenslowing.19
Thistrendispartlyafunctionof
saturationofwirelessavailabilityasanestimated99.6%ofthepopulationnowhaswireless
access,20thereforenewcellsitegrowthwillemphasizeincreasedcapacity.
Projectingnewcellsitegrowthisanimportantinputtospectrumdemandforecasts. Forthe
purposeofthisanalysiswewillassumeflatgrowthatthe2009levelof7%overthenextfive
years. Thisisamoreconservativeapproachthanprojectingintothefuturetheflattening
growthseeninrecentyears,sincenewinfillcellsitesthataddcapacityareasubstitutefor
newspectrum. Additionally,weassumeallfuturecellsitegrowthwillemphasizecapacityover
coverage,whichisalsoconservativefromthestandpointofestimatingspectrumneedssince
newcoveragesitesdonotaddresscapacityconstraints.21
Theassumptionofconstantcellsitegrowthatcurrentlevelsenablesestimationofspectrum
demandaswellasthebenefitsofreleasingadditionalspectrum. Werecognizethatsincenew
cellsitescanbeasubstitutefornewspectrum,onemightforecastrenewedgrowth
accelerationofcellsiteconstructionasmobiledatatrafficincreases,absentconstraintsrelating
tolocationscarcity. Indeed,therateofcellsitegrowthincreasedfrom2008to2009,andone
19Theslowdowninsitegrowthislikelyasignofamaturingindustry,butmayalsoreflecttheincreasingdifficultyofacquiring
sitesduetoscarcityoflocations,zoning,andotherconstraints.TheFCCrecentlytookactiontoalleviatesomeoftheregulatory
barrierstositeexpansion.SeeNovember18,2009DeclaratoryRulinginWTDocket08165.20
FCCestimatebasedonAmericanRoamerdata. FoundintheFCCs14th
MobileWirelessCompetitionReport,atpara.42.21
Sincethispaperisfocusedonmobiledatatraffic,strategiestooffloadtraffictofemtocellsandWiFiisnotdirectly
considered. Inaddition,therolloutofsuchnetworkarchitecturestrategieshasbeenslowtodate,anditseffectsareunclear.
Foradiscussionofthisissue,seeforexample,RysavyResarch,MobileBroadbandCapacityConstraintsandtheNeedfor
Optimization,updatedFebruary24,2010.
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mightexpectthistocontinueifnoadditionalspectrumwastocomeavailable. However,by
holdingcellsitegrowthconstant,weareabletocomparethemarginalcostofmeetingmobile
datademandbyaddingnewcellsitesrelativetoaddingnewspectrum. Doingsodemonstrates
thataddingnewspectrumwillyieldsubstantialeconomicvalue.
c. NetworkCapacity SpectralEfficiency
Aswirelesstechnologieshaveevolved,sohasperformance. Witheveryevolution,theindustry
hasachievedhigherpeakdatathroughputs,improvedspectralefficienciesandlowerlatencies
(delays). Forexample,4Gusesanative,allIParchitecture,thusbenefittingfromthe
innovationandcostefficiencyofapacketswitchednetwork,relativetolegacycircuitswitched
technology.
Themostimportantdimensionofwirelessnetworkperformanceisspectralefficiency,typically
measuredinbitspersecondperHertz. Thismetricreflectstheamountofdataasectorcan
transmit
on
a
normalized
time/bandwidth
basis.
As
such,
spectral
efficiency
drives
average
downlinkdatacapacityofacellsitelinearly.Exhibit9showstheevolutionoftheaverage
downlinkdatacapacitiesofasinglesectorina3sectorcellsitefortheGSMfamilyofwireless
standards.22
While4Gtechnologieshaveincreasedspectralefficiencyrelativetopriorgenerationair
interfacestandards,suchgainsarelikelytobecomesmallerinthefuture.Indeed,4Gstandards
achieveimproveddatathroughputbythecombinednoveluseofseveraltechnologies,andwe
donotassumethatfuturegainsinthroughputwillberealizedviafurtherinnovationontheair
interfaceonaperdevicebasis,particularlywithinthefiveyeartimehorizonthatistheprimary
focusofthispaper.23
However,as4Gcarriersincreaseasaproportionoftotalcarriersoverthe
nextfiveyears,itislikelythatoverallspectralefficiencywillcontinuetoimprove.
Exhibit9.Evolutionofdownlinkspectralefficiency24
0.720
0.480
0.0
0.5
1.0
1.5
LTE
1.36-1.5
HSPA,
Rel 7
1.08-1.29
HSPA,
Rel 6
HSDPA,
Rel 5
WCDMA
0.16-0.24
EDGE
0.09
GPRS
0.03
Downl ink spectral efficiency by technologyBps/Hz
22QualcommExPartefiling,SpectralEfficiency,GNDocketNo.0951
23SeealsoOBITechnicalPaper,TheBroadbandAvailabilityGap,foradditionaldiscussion.
24Calculatedfora(paired)2x10MHzspectrumallocationforalltechnologies.WCDMAperformancebasedon1x1and1x2
antennaconfigurations;HSDPARel5andHSPARel6resultsbasedon1x1and1x2configurations,respectively.HSPARel7
performanceassumes1x2and2x2configurationswhileLTEresultassumes2x2.Performanceof(3G)EVDO,whichisnot
showninthechart,iscomparableto(3G)HSPA.
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Exhibit9aboveshowsthespectralefficiencyofairinterfacestandardsastheyhaveevolved
from2G(GPRS)to3G(HSDPA)to4G(LTE). Theoverallspectralefficiencyofallwireless
networkscanbeviewedasaweightedaverageofthetechnologymix. Overthenextfiveyears
themixislikelytoshiftfrom2Gand3Gtechnologiestoprimarily3Gand4Gtechnologies.25
Ouranalysisassumesthatthiswilleffectivelydoubletheaveragespectralefficiencyofwireless
networks,fromabout0.625bps/Hzin2009to1.25bps/Hzin2014.26
Weshouldcontinueto
seeincreasedmigrationfrom3Gto4Gtechnologiesbeyond2014,resultinginanoverall
improvementinnetworkspectralefficiency. Thesespectralefficiencygainsservetoreduce
networkcapacityaugmentationachievedbyaddingspectrumbandwidthtomeetmobiledata
demand. Evenwhenaccountingforthisfactor,however,itisclearthatadditionalspectrumwill
beneededtomeetmobiledatademand.
d. BaselineSpectrumUse
Thisforecastoffuturespectrumneedsisbasedonmobiledatademandgrowthexpectedfrom
2009forward,withoffsettingadjustmentsmadefortheeffectofnewcellsitesandincreasing
spectral
efficiency.
Therefore,
we
must
estimate
how
much
spectrum
is
used
in
2009,
including
theproportioncurrentlyusedtosupportcircuitswitchedvoicerelativetotheamountusedfor
data.
TheFCCs14th
annualMobileWirelessCompetitionreportdescribedindustrytrendsrelatedto
wirelessvoiceservice. Ofnote,the14th
reportnotedthenearsaturationofthewirelessvoice
marketandtheflatteningofwirelessvoiceminutesofuse,perhapsduetosubstitutionbydata
services,whichareincreasing. Atthesametime,prepaidplanswithunlimitedvoiceminutes
areincreasingandlandlinephoneserviceislosinggroundtowirelessservicetrendsthatcould
offsetfurtherdeclineinwirelessvoice. Therefore,ourpresentmodelwillassumethatthe
spectrumneededforvoiceservicesremainsatcurrentlevels. Thespectrumimpactsofany
futuregrowthinvoiceservices,drivenviaprepaidservices,populationgrowth,substitutionof
wirelessserviceforwireline,orotherfactors,islikelytobeoffsetinthelongtermbymore
efficienthandlingofvoicetrafficthrough4GVoiceoverInternetProtocol,thoughwedonot
expectasignificanttransitionofaggregatevoicetrafficto4Gwithinthefiveyearforecast
period.27
Inestimatingthespectrumbaselinewehave,again,takenaconservativeapproach. The
NationalBroadbandPlannotedthat547MHz,intotal,iscurrentlylicensedunderflexibleuse
rules,whichallowsformobilebroadbandandvoiceservices. Ofthisamount,the170MHzthat
comprisethecellularandPCSbandsisthemostheavilyused. Themajorityoftheremaining
25See,forexample,forecastsbyWiseHarborathttp://www.wiseharbor.com/forecast.html
26Whiletechnologywillcontinuetoimprove,spectralefficiencyofcurrentOFDMbased4Gsolutionsisapproachingmaximum
expectedlimits. Whileabsoluterealizedvaluesofspectralefficiencymayvary,theprojectionofincreasingefficiencyis
generallyaccepted,anditsincorporationintothepresentmodelappropriatelyadjustsexpectednetworkcapacityforthisfactor.27
BasedondatafromCTIA,theFCCs14th
WirelessCompetitionreportshowsthatvoiceminutesdeclinedbetween2007and
2009,whileprepaidsubscribershavegrownasapercentageofthetotalsubscriberbaseoverthepastseveralyears, andalso
notedanationwidewirelesssubscriberrateofnearly90%. Asnotedinthereport,thedeclineinvoiceminutesofusecouldbe
relatedtosubstantialincreasesintextmessaging,asconsumerssubstitutealternativemethodsofcommunicationforstandard
voice.
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377megahertzhasbeenmadeavailablewithinthepastsixyearsandisjustnowcoming
online.28 Ofcourse,manyofthelargestmajormetropolitanareasarecurrentlyusingmore
than170MHzofspectrumtosupportexistingvoiceanddataservicesforexample,TMobile
hasexpandedits3GserviceinmajormarketsusingtheAWSband,andSprinthasrecently
launchedits4Gserviceusingthe2.5GHzband.
Sincespectrumisusedmostintensivelyinmajorurbanareas,wirelesscarriersgenerally
prioritizesuchareaswhenbringingnewspectrumonline. However,tomodelspectrumneeds
nationwide,wewilluse170MHzasourcurrentbaseline,sincethatamountbestreflects
frequencyuseacrossthecountry. Thisisaconservativebaselinefromtheperspectiveof
projectingfuturespectrumneeds,sinceasmallerstartingpointeffectivelyincreasesthe
availabilityofcurrentlylicensedbutnotyetbuiltoutfrequenciestoaccommodatefuture
mobiledatagrowth,therebyreducingtheadditionalspectrumthatwouldbeneededto
accommodatesuchgrowth.
Finally,becauseourforecastfocusesongrowthindatatraffic,thecurrentspectrumuse
estimatesmustdistinguishbetweenspectrumcurrentlyusedforvoiceversusspectrum
currentlyusedfordata. Informationaboutprovidersprivateallocationofspectrumbetween
voiceanddataservicesisnotsystematicallyreportedandthereforedifficulttoobtain.
Discussionswithvendorsandcarrierssuggestthatthesplitforsomeoperatorsinmajor
marketsisapproximately50%/50%. Forpurposesoftheforecast,wehaveestimatedthatonly
33%ofcurrentspectrumisusedtosupportdataservicesandthat67%iscurrentlyusedto
supportvoice. Thisapproachisconservativeintworespects. First,byassumingalarger
proportionofvoicespectrumuse,weprotectthemodelfromanyunanticipatedgrowthin
voiceusewhichisforecastedtobeflat. Second,byassumingasmallerproportionofdata
spectrumuse,wedecreasetheeffectofthemobiledatademandmultiplierthatisusedto
projectfuturespectrumneeds. Sincetheprojectedgrowthofmobiledatademandismuch
greaterthananypossibledecreaseinvoiceuseorspectralsavingsrelatedto4Gvoicemigration
inthefiveyearforecastwindow,thisapproachensuresthatwedonotuseuncertaintyin
baselinespectrumusetoinflateourprojections.
Bymakingconservativeassumptionsontheamountofspectrumcurrentlyinuse,aswellasthe
proportioncurrentlyusedforvoicerelativetodata,wecangainareasonableprojectionof
futurespectrumneeds. Totheextentthatthisforecastisdifferentthanactualuseinthefuture,
itismorelikelytounderestimatefuturespectrumneedthantooverestimateit. Thefollowing
sectionofthepaperdescribesthefindingsofthismethodology.
28SeeNationalBroadbandPlan,atChapter5,Spectrum. Bandsrecentlymadeavailableforflexibleusethatareexcluded
fromthemodelscurrentbaselineincludeAWS,2.5GHz,and700MHz,amongothers.
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V. ModelOutput:SpectrumNeedandEconomicValue
a. SpectrumDeficit
Usingthemethodologydescribedabove,weestimatethatanadditional275MHzofspectrum
willberequiredtomeetmobiledatademandin2014.
TheoutputofthemodelisshowninExhibit10below. Asdetailedintheprecedingexplanation,
thekeyforecastassumptionsandoutputshighlightedinExhibit6include:
Totaldatademandgrowthrelativeto2009asanaverageofthethreeanalystforecasts(line4),whichisakeydriveroffuturespectrumneeds.
Datademandpersiteadjustedtoaccountfora7%CAGRinthenumberofcellsites(line8),whichasasubstitutefornewspectrum,servestooffsetsomewhattheamountof
spectrumneededinthefuture.
Datademandpersiteadjustedfurthertoaccountfortechnologyimprovements,specificallyanincreaseofspectralefficiencyovertime(line11),whichisanotheroffset
toadditionalspectrum.
Totalspectrumrequiredtomeettheadjusteddemand(line16),takingintoaccounttheabovethreeelements.
Thefinaloutputiscontainedinline18,whichshowsthespectrumdeficitprojectedforeachyearthrough2014basedonthecurrentmobilebroadbandspectrumallocationof
547MHz.
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F C C S T A F F T E C H N I C A L P A P E R
Exhibit10.SpectrumNeedForecast TableofResultsYear: 0 1 2 3 4 5
Line Description 2009 2010 2011 2012 2013 2014
1 Data Growth Relative to 2009 - Cisco 100% 242% 598% 1253% 2577% 4722%
2 Data Growth Relative to 2009 - Yankee 100% 266% 631% 1189% 1770% 2332%
3 Data Growth Relative to 2009 - Coda 100% 251% 539% 1154% 2200% 3464%4 Data Growth Relative to 2009 - Average 100% 253% 589% 1199% 2182% 3506%
5 Cell Sites 245,912 263,126 281,545 301,253 322,340 344,904
6 Absolute Growth 100% 107% 114% 123% 131% 140%
7 CAGR 7%
8 Traffic per Site - Growth 100% 236% 515% 978% 1665% 2500%
9 Avg. Spectral Efficiency (Mbps/MHz) 0.625 0.75 0.88 1.00 1.13 1.25
10 Absolute Growth 100% 120% 140% 160% 180% 200%
11 Tech-Adjusted Traffic per Site - Growth 100% 197% 368% 612% 925% 1250%
12 Spectrum req'd for data (MHz) 57 112 208 346 524 708
13 Percent allocated for data 33% 50% 65% 75% 82% 86%
14 Spectrum req'd for voice (MHz) 113 113 113 113 113 113
15 Percent allocated for voice 67% 50% 35% 25% 18% 14%
16 Spectrum - In Use (MHz) 170 225 322 460 637 822
17 Spec trum - Cur rent ly A ll ocated (MHz) 547
18 Surplus/D eficit (MH z) 377 322 225 87 -90 -275
Exhibit11depictsthetrafficgrowthinputstothemodelandspectrumutilizationprojections.
Ofparticularnoteistheinsightthatmobiledatademandwillexceedavailablecapacityby2013,
andwillreachanearly300MHzdeficitby2014. TheTrafficGrowthchartbelowshowsthe
totalassumeddatademandfromindustryforecasts,datademandadjustedforcapacityfrom
additionalcellsites,anddatademandfurtheradjustedforspectralefficiencyimprovements.
TheSpectrumUtilizationchartshowstheforecasteddataspectrum,thespectrumassumed
forvoiceservices,andthespectrumsurplus/deficitovertime.
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Exhibit11.TrafficGrowthandSpectrumUtilization
Traffic Growth
0%
500%
1000%
1500%
2000%
2500%
3000%
3500%
4000%
2009 2010 2011 2012 2013 2014
Data Grow th Relative to 2009 -
Average
Traff ic per Site - Grow th
Tech-Adjusted Traff ic per Site -
Growth
Spectrum Utilization
-400
-200
0
200
400
600
800
2009 2010 2011 2012 2013 2014
MHz
Spectrum req'd for data (MHz)
Spectrum req'd for v oice (MHz)
Surplus/Deficit (MHz)
Evenwiththeconservativesetofassumptionsusedinthismodel,itisapparentthatthenation
facestheprospectofaspectrumshortagewithinthenextfiveyears. Alatersectionofthis
paperundertakesasensitivityanalysistoshowhowalternativeassumptionsreinforcethis
conclusion. Whilethemodeldoesnotprojectbeyondthisperiod,areasonableextrapolationof
availabledatapointstotheneedforongoingactionoverthelongertermtomakeadditional
spectrumavailableformobilebroadband.
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b. EconomicEffects
Asnotedearlier,increasingnetworkdensitythroughtheadditionofcellsitesistheprimary
substitutetonewspectrumforaddingbroadbandcapacitytothenetwork. Thatis,inthe
absenceofnewspectrum,carriersmaybeexpectedtoincreasethegrowthrateofcellsitesas
ameanstomeetdatatrafficdemands. Therefore,wecanusetheresultsofthespectrum
analysisabovetostudytheeconomicbenefitofnewspectrumrelativetothissubstitute. This
isaccomplishedthroughanindifferenceanalysisinwhichthenumberofsitesandtheir
respectivecostisplottedagainstthespectrumrequiredforanticipatedmobiledatademandin
2014. Ineffect,weareablegenerateanindifferencecurveshowingdifferentcombinationsof
spectrumandcapitalneededtomeetprojectedmobiledatademand.
Thisindifferencecurverequiresanapproximationofthecostofacellsite,whichisthemain
capitalsubstituteforspectruminmeetingmobiledatademand. Forthepurposesofour
analysis,wehavenotincludedthecostofnewtowerconstructionbecauseitislikelythatthe
majority
of
new
cell
sites
will
leverage
existing
tower
infrastructure
to
add
capacity.
This
is
consistentwithourpriorassumptionthatallnewcellsitegrowthwillberelatedtoinfillsites,
ratherthanthoseengineeredtoexpandcoverage.29
Ourestimateoftheaveragecostofacell
siteis$550,000,whichincludesinitialsitedevelopmentcostsaswellasoperatingexpenses.30
Thus,forexample,thecostofanetworkexpansionthatinvolvesahundredadditionalcellsites
isapproximately$55millionplusthecostofthenetworkequipment.
BasedonthesecostassumptionsandtheoutputoftheTopDownforecast,theindifference
curveshowsthat,by2014,releasinganadditional275MHzofspectrumsavesapproximately
$120billionincapitalexpensestoaccommodatemobiledatademand.
Theseestimatedsavingsassume7%CAGRcellsitegrowthinvestment,asdescribedearlier.
Sincethismodelmakesconservativeassumptionsonthecostofmarginalcellsitesubstitutes,
andassumesthattherearenoexogenouslimitationstoaddingsuchsitessuchaslocalzoning
laws,itispossiblethatthesavingsrelatedtonewspectrumcouldbeevenhigherthan$120
billion.
Whilemodelingpreciseconsumereffectsisoutsidethescopeofthispaper,itisverylikelythat
theseunnecessarycostswillaffectconsumerpricesifnewspectrumisnotmadeavailable. And,
recognizingthattherearelikelytobeexogenouslimitationstotheadditionofnewcellsites,
mobilebroadbandservicequalityisalsolikelytosufferifnewspectrumisnotmadeavailable.
29Notethatincludingtowerconstructioncostswillonlyincreasethecostofasite,therebyincreasingtheincrementalcostof
networkcapacityexpansion.Consequently,costsavingsfromadditionalspectrumallocationwillonlyimproveifthisdimension
isaddedtotheanalysis.30
.SeeSectionVI(c)foranexplanationofcellsitecosts.
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Exhibit22.Capitalvs.SpectrumIndifferenceCurvefor2014
Capital vs. Spectrum Indifference Curve - 2014
0
100
200
300
400
500
600
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Capital Required to Build and Maintain Capacity ($ billions)
SpectrumRequired(MHz)
$120B savings
InExhibit12above,thebluediamondrepresentsthepointontheindifferencecurve
correspondingtothe7%CAGRsitegrowthassumptionsdescribedabove. Thisrepresentsa
capitalinvestmentbythemobilebroadbandindustryof$54Binadditionto275MHzof
additionalspectrum. Thecurveimpliesthatifnoadditionalspectrumisreleased,thecostto
buildenoughcapacitysitestohandlethedemandwillbe$174B. Thedifferencebetweenthese
costsrepresentsthevaluecreatedbyadditionalspectrumin2014,whichis$120B.31
ThismodelofnationalwirelesstrendsclearlysupportstheNationalBroadbandPlans
recommendationtomakeavailableanadditional300MHzofspectruminthenearterm.
Reasonableindustryestimatesofmobiledatademandgrowthandoffsettingcapitalinvestment
toincreasecapacity,alongwithconservativeestimatesoftheamountofspectrumcurrently
usedformobiledata,revealastronglikelihoodthatdemandfordatawillexceedspectrum
capacityoverthenextfiveyears. Thevaluethatwillbecreatedbyreleasingspectrumtomeet
thisdemandissignificantandlikelytoexceed$100billion.
Theseconclusionsarereinforcedbytestinghowpossiblevariancesofthemodelsinput
assumptionsleadtosubstantivelysimilarconclusions,asdiscussedinthefollowingsection.
31Thisvalueislikelytobesharedbetweenwirelessconsumersandcarriers;determiningtheproducerandconsumersurplus
effectisnotwithinthescopeofthispaper. Alsonotethattheestimateof$120billionineconomicvaluefromthereleaseof
newspectrumislikelytobeoffsetsomewhatbythecostsofacquiringandmakinguseofnewspectrum. Spectrumacquisition
costsvaryasafunctionofmanyfactorsandarenotestimatedinthispaper. Capitalcostsofupgradingasitetosupportnew
spectrumbandsarelikelytobesmallrelativetototaleconomicvalueestimatesperhapsseveralbilliondollarsanddonot
impacttheconclusionofsubstantialeconomicvalueresultingfrommakingnewspectrumavailable.
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VI. SensitivityAnalyses
Adjustingtheinputassumptionstothemodelallowsustounderstandthesensitivityofthe
resultstopotentialvarianceofcriticalinputdata. Inparticular,theoutputispotentially
sensitivetothreecriticalassumptions: thedatademandforecast,thebaselineamountof
spectrumusedtoservedatatraffic,andthecostofmeetingdatademandthroughnetwork
density.
a. SensitivitytoDataGrowthForecast
Exhibit13belowshowstheeffectofadjustingthetrafficgrowthforecastbyplusorminus10%
andplusorminus20%:
Exhibit13.DataGrowthSensitivity
Data Growth Sensitivity - Spectrum Surplus/Deficit
-500
-400
-300
-200
-100
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014MHz
Surplus/Deficit (MHz)
Data Growth - 10%
Data Grow th +10%
Data Growth - 20%
Data Grow th +20%
Ifthedatatrafficforecastusedisoverestimatingfuturedemandby20%,wewillstillhavea
spectrumdeficitinexcessof100MHzby2014. Further,itisreasonabletoexpectthatdemand
growthwillcontinueinto2015andbeyond,suchthatthespectrumdeficitwillcontinuetogrow.
Forexample,ifthecurrentdeficitcurvefor20%overestimateofdatatrafficisextrapolated
into
the
future,
it
appears
that
the
need
for
200
MHz
will
follow
shortly
after
2014,
and
300
MHzwillbeneedednomorethanoneortwoyearsafter.
Ontheotherhand,thissensitivityshowsthatifthedatatrafficforecastisunderestimating
futuredemandby20%,thespectrumdeficitwillreach300MHzsixto12monthsearlierthan
currentlyforecasted,and400MHzwillbeneededby2014.
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b. SensitivitytoCurrentAmountofSpectrumUsedforData
RecallfromtheBaselineSpectrumUsesectionthatouranalysisassumes170MHzofspectrum
iscurrentlyinuseinthelargestmarketsthatdrivetheneedforspectrumandthat33%ofthis
(or57MHz)isusedtoservedatatraffic. Thisassumptioniscriticalbecauseforecasted
spectrumneedisamultiplierofthecurrentspectrumusedfordata,basedontheinputstoour
model. Sincethemultiplierin2014isabout12.5X,itmeansthateveryMHzofinputspectrum
affectstheoutputby12.5MHz. Therefore,theoutputisverysensitivetothisassumption.
Giventhefactthat3GtechnologiessuchasHighSpeedPacketAccess(HSPA)canserveboth
voiceanddata,itisincreasinglydifficulttoseparatespectrumusedforvoicefromspectrum
usedfordata. However,givenpublicreportsthatAT&ThasdeployedtwoHSPAcarriers32
in
mostmarketsandisaddingathirdinmarketssuchasNewYorkandSanFrancisco.33
Since
eachHSPAcarrierrequires5MHzuplinkand5MHzdownlink(10MHztotal),itisapparentthat
atleastoneoperatorrequirescloseto30MHztoservethegrowingappetitefordata. Given
thatAT&Talsooperatesa2GGSM/EDGEnetworktoservevoice,itisreasonabletoassume
that
most
of
this
30
MHz
is
needed
for
data.
If
that
is
the
case,
then
one
can
conclude
that
a
singleoperatoraccountsforabouthalfoftheassumed57MHzofcurrentspectrumrequired
fordata. Giventhatalllargemarketsareservedbyatleastfouroperators,andmanyare
servedbyfive,the57MHzinputassumptionappearsconservative.
However,ifwebasetheanalysisonthemajorityoflargemarketsastheyweredeployedin
2009,ratherthanthehightrafficmarketssuchasNewYorkthatarejustreceivingathirdHSPA
carrierinearly2010,thenwecansafelyassumethatin2009AT&Taccountedforcloseto20
MHzofdataspectrum. Althoughitisnotunrealistictoassumethattheotherthreeoperators
canaccountfortheother37MHz,34weshouldalsoconsiderthepossibilitythatspectrum
deployedtoservedatawasnotfullyutilizedin2009. Ifweassumethatonaverage,data
spectrumwasrunningat70%offullcapacity,thentheresultingassumptionisthatroughly40
MHzofspectrumwasrequiredtosupportdataservicesin2009,insteadofthe57MHz
assumedinourprimarymodel.
Torevealtheeffectofthislowerdataspectrumbaseline,Exhibit14showstheindifference
curvefor2014,andalsoprojectsoutto2016,and2018basedonthelowestofthethree
growthextrapolationsshowninExhibit3. Inaddition,the7%CAGRcellsitegrowthisassumed
tocontinue,andspectralefficiencycontinuestoimprove,to1.5b/s/Hzin2016andto1.75
b/s/Hzin2018.
32Carrierinthisusereferstotransmissioninfrastructure,ratherthanthealternateuseofthewordtodescribeawireless
serviceprovider.33
Macquarie(USA)EquitiesResearch,AT&TInc.NetworkDinnerTakeaways,March22,2010at
http://macq.wir.jp/e.ut?e=4rzyJFhQhM54SSBH75Yr4rBt9Kt(lastcheckedMarch30,2010)34
Forexample,itsnotunreasonabletoassumethattwoofthethreeremainingoperatorsrequiretheequivalentofoneHSPA
carrierandthelargestofthethreerequirestheequivalentofnearlytwo. Inaddition,afifthcellularoperatorisavailablein
manymarkets,andClearwireoffers4Gdataservicesinseveralmarkets,buttobeconservative,thisspectrumhasnotbeen
considered.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 23
http://macq.wir.jp/e.ut?e=4rzyJFhQhM54SSBH75Yr4rBt9Kthttp://macq.wir.jp/e.ut?e=4rzyJFhQhM54SSBH75Yr4rBt9Kt8/7/2019 FCC Mobile Broadband paper Oct 2010
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F C C S T A F F T E C H N I C A L P A P E R
Exhibit34.2014,2016,&2018IndifferenceCurvesfor40MHzInputAssumption
Capital vs. Spectrum Indifference Curves
2009 Data Spectrum = 40 MHz
0
100
200
300
400
500
600
700
$0
$2
5
$5
0
$7
5
$1
00
$1
25
$1
50
$1
75
$2
00
Capital Required to Build and Maintain Capacity Sites
SpectrumRequired
2014
2016
2018
$195B
$121B
$29B
Inthissensitivityanalysis,theeconomicbenefitofnewspectrumisfarsmallerin2014thanin
ourprimarymodel,at$30billioninsteadof$120billion. However,thesebenefitscontinueto
increaserapidlybeyondthefiveyearforecastperiodasmobiledatademandcontinuestogrow,
evenwithsignificantongoinginvestmentofcapitalinnewsites.
c. SensitivitytoNetworkDensityCost
Theestimatedcosttodeployandoperateacellsiteisanimportantfactorinouranalysis,since
addingnetworkdensityinthismanneristheprimaryalternativetonewspectruminmeeting
mobilebroadbanddemand. Differentcellsitecostestimateswillyieldchangestoourestimate
ofeconomicbenefitsfrommakingavailablenewspectrum.
The$550,000unitcellsitecostusedinthemodelisbasedoninitialcapitalcostsof
approximately$130,000(whichexcludestowercostsastheyaregenerallyexogenousto
wirelesscarriersandmaynotberelevantforalltypesofcellsites),andincludesthenetpresent
value(NPV)ofapproximately$50,000annualoperatingexpensesovera20yearperiodata
10%discountrate. Thesecalculationsarebasedondiscussionswithwirelessandinfrastructure
firmsandapproximatethelifecycleinvestmentcostasthesubstitutefornewspectrum.
Thirdpartyestimatesvalidatethisassumption. BernsteinResearchrecentlyestimatedthecost
todevelopanewsiteat$300,000,whileRysavyResearchmakesasimilarestimateof$250,000
to$350,000. Bothestimatesareofinitialcapitalexpendituresthatincludetowercostsand
excludeoperatingexpenses. Taking$300,000inassumedupfrontcapitalandadding20year
operatingexpensesof$30,000peryear(whichexcludestowerleasingcosts)witha10%
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 24
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F C C S T A F F T E C H N I C A L P A P E R
discountrate,toaccountforthetotalcostofspectrumsubstitutes,theNPVofasiteis
$550,000.
Exhibit15belowshowsthecapitalspectrumindifferencecurvein2014fordifferentcellsite
costestimates,including$350,000persite,$450,000persite,andourprimarymodelestimate
of$550,000persite. Whiletheprimarymodelestimateappearsreasonable,thissensitivity
analysisenablesprojectionsofunexpectedcircumstances,suchassignificantamountsof
infrastructuresharingamongcarriers,deflationarysupplycosts,alternativeandlesscapital
intensivenetworkarchitectures(e.g.,microcells,picocells,and/ordistributedantenna
architectures),orothereconomicconditions.
Inaddition,whilethenetpresentvalueofoperatinglikelyoperatingexpensesisincludedinour
primarymodelestimateof$550,000,thelower$350,000numbercanbeviewedasastrict
comparisonofcapitalexpenditures,thoughitisreasonabletoassumethatoperatingexpenses
wouldalsofactorintoafullaccountingofeconomicvalueresultingfromnewspectrum.
Exhibit15.CapitalVs.SpectrumIndifferenceCurveatDifferentCellSiteCostLevels
Capital vs. Spectrum Indifference Curve - 2014
0
100
200
300
400
500
600
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Capital Required to Build and Maintain Capacity ($ billions)
SpectrumRe
quired(MHz)
$550k per cell site $450k per cell site $350k per cell site
$350k/site = $77B savings
$450k/site = $98B savings
$550k/site = $120B savings
Inthesecircumstances,andholdingallelseinourprimarymodelconstant,theeconomic
benefitofmakingavailableanadditional275MHzofspectrumcouldbeaslowas$77billionat
verylowcellsitecosts. Atacostof$450,000persite,thebenefitofnewspectrumisnearly
$100billion. Whilelowerthanthe$120billionestimateinourprimarymodel,thissensitivity
analysisdemonstratesthattheeconomicbenefitsofnewspectrumapproach$100billionby
2014evenwithreducedcostofnetworkdensityalternatives.
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Together,thesesensitivityanalysesshowthatalthoughmodelinputvariablesmayvary,a
spectrumdeficitwillverylikelybecomesignificantbymiddecade,andthevalueofreleasing
morespectrumappearsverylikelytosurpass$100Binthelatterhalfofthedecadeatthelatest.
Giventhecorrespondingpossibilityofanunderestimationinthemodelofdatagrowthand
currentspectrumusedfordata,thespectrumdeficitcouldberealizedsooner,andthevalueof
releasingadditionalspectrumcouldbeevengreater. Sincemakingnewspectrumavailablehas
historicallytakenbetweensixandthirteenyears35
,andsincemobiledatagrowthtrendsare
likelytocontinuebeyondtheneartermforecastinthispaper,theseobservationssupportthe
needfortimelyactiontofreespectrumformobilebroadband.
VII. Conclusion
Mobilebroadbandservicesareexperiencingsignificantgrowth,drivenbyconsumerdemand
formobiledata. Industryanalystsexpectthisgrowthtocontinue,callingintoquestionthe
capacityofcurrentmobilenetworkstokeepup. Evenwithsubstantialinvestment,itislikely
that
mobile
data
demand
will
exhaust
spectrum
resources
within
the
next
five
years.
The
NationalBroadbandPlanrecommendedthatnewspectrumbemadeavailabletoenable
continuedgrowthofmobilebroadband.
Thispaperdemonstratesthataspectrumdeficitapproaching300MHzislikelyby2014,and
thatthebenefitofreleasingadditionalspectrumislikelytoexceed$100billion. Themodel
usedinthispaperisgeneratedfromexplicitandreasonablemarketassumptions,whichproject
substantialbenefitfromreleasingadditionalspectrumformobilebroadbandinthenearterm.
Thispaperdoesnotundertakeananalysisofnetsocialbenefitsresultingfrommakingnew
spectrumavailable. Theeconomicbenefitsestimatedhereinrepresentonlythereductionin
costofmeetingmobiledatademand. Thisestimateofvaluecreatedbyreleasingnew
spectrumforbroadbandisnarrow,andlimitedtotheavoidanceofunnecessarycosts. This
paperdoesnotundertakeacomprehensiveanalysisofthebenefitstosocietythatmayresult
frommakingnewspectrumavailable,whichsomeeconomistsestimateasmultiplesofthe
privatevalue.36
Themethodusedinthisanalysistoforecastfuturespectrumneeddemonstratesthelikelihood
ofenormouseconomicvaluebeingcreatedbyreleasing300MHzofadditionalspectrumto
meetgrowingdemandformobiledata. Giventhatnewspectrumhashistoricallytaken
betweensixandthirteenyearstomakeavailable,andsincemobiledatagrowthtrendsare
likelytocontinuebeyondtheneartermforecastinthispaper,theseresultssupporttheneed
foractiontoimplementtheNationalBroadbandPlansrecommendationandthePresidents
directivetomakenewspectrumavailableformobilebroadband.
35SeeNationalBroadbandPlanatCh.5,Spectrum.
36Thispaperdoesnotestimatethecoststothirdpartiesofmakingavailablenewspectrum,likelyauctionrevenue,orother
factors.
F E D E R A L C O M M U N I C A T I O N S C OM M I S S I O N | M O B I L E B R O A D B A N D : T H E B E N E F I T S O F A D D I T I O N A L SP E C T R U M 26
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AppendixA:MethodologySummaryofMobileDataDemand
Forecasts
Thethreeindustryanalysesusedinthispaperasabasisforestimatingfuturemobiledata
traffic
arrive
at
their
forecasts
through
analysis
of
the
likely
mix
of
devices,
applications,
and
servicesinthemobilemarket. Eachanalysishasadistinctmethodology,summarizedbelow.
CiscosVNIforecastmethodologybeginswiththenumberandgrowthofconnectionsand
devices,appliesadoptionratesforapplications,andthenmultipliestheapplicationsuserbase
byCiscosestimatedminutesofuseandkilobytesperminuteforthatapplication. Ciscouses
uniquedatasources,andprovidesapplication,segment,geographic,anddevicegranularity,
andadjustsforfactorssuchasthelikelihoodofoffloadingtrafficthroughmeanssuchasWiFi.
Codasforecastusesdatafromavarietyofsources,includingpublishedandunpublished
forecastsandsurveydata.Forecastsofmobiledatatrafficentailprojectingbehavioracross
traffictypesandconnectionsanddataservicetakeup,aswellasdatavolumes,dataspeedand
hourspermonthaccessingandgeneratingtraffic.
TheYankeeGroupreportusesmodelsofmobiledatatrafficdevelopedthrough20primary
researchinterviewswithtechnologyvendorsandserviceproviderstoidentifytrendsinthe
marketbroadbandmarket.Theyforecastdevicemigrationanddatatrafficdemandsacrossa
varietyofmarketsandwithseveralassumedservicedeliverymodels.
Itshouldbenotedthattheseanalysesforecasttechnologyandmarkettrendsbasedinparton
historicexperience. Thereareunknownfuturevariablesthatcouldaffectprojections,suchas
general
economic
conditions,
and
the
potential
for
new
pricing
strategies
such
as
tolled
data
(i.e.,alacarte,ratherthanallyoucaneat)thatcanaffectmobiledatademand.