Precisely how the U.S. communications market will develop over the next decade is less clear than we might believe, even as a major round of mergers appears to be developing. But a reasonable person might argue that something bigger than the Telecommunications Act of 1996 is coming.
But even a Comcast acquisition of Time Warner Cable, a merger of Dish Network and DirecTV, or a Sprint acquisition of T-Mobile US, though important shapers of market structure in the near term, capture the magnitude of future potential disruption.
The biggest potential challenges will come from developments affecting the ease with which new providers can enter communication markets.
Those developments might easily be greater than the impact of abolishing local exchange service monopolies in the Telecommunications Act of 1996.
As “who can be in the business?” was the question answered by the Act, so too will an additional set of changes made possible by regulator action shape possibility over the next decade.
In the wireless and mobile business, “spectrum is market entry.” Without spectrum rights, a contestant generally cannot enter the market (the exception being wholesale access provided by a contestant with spectrum rights).
And while the Act initially allowed the Federal Communications Commission to operate in what might be called a “European model” of stimulating competition (mandatory wholesale access with high discounts), the next wave will rely on more of a “United States” model of applying technology and market mechanisms.
In other words, instead of relying on “wholesale,” the next big wave of market shaping will be driven by facilities-based service providers whose primary asset is spectrum access.
This next wave will be built on use of radically-new methods of clearing communications spectrum, a vast expansion of spectrum and a new mix of mobile, untethered and fixed assets.
In the area of spectrum, the U.S. market will move from exclusive licensed and shared unlicensed spectrum to a new pattern where those models will be augmented by substantial use of shared spectrum.
One common way of describing how the market will add 1,000 times more spectrum over the next decade is to say an order of magnitude increase will be obtained from new spectrum, another 10 times increase from technology improvements and an additional 10-fold gain from use of small cell architectures.
But another way of looking at the spectrum supply is to say that network architecture, device capabilities and application of software to allow interference-free sharing will drive most of the change. Better air interfaces will help some, but the big changes will come from dynamic allocation and use of spectrum.
Though mobile service providers will likely continue to rely mostly on licensed and exclusive use of spectrum, a new wave of competitors will be able to enter markets using unlicensed or shared spectrum, sometimes paying a fee to obtain assured access, in other cases relying on “best effort” only.
This will provider new answers to the question of whether firms such as Google, Facebook, Apple, Amazon and others might become ISPs or communication service providers.
Though Google Fiber already has made Google an ISP and video service provider, while Google Voice, Hangouts and calling from inside Gmail already have made Google a voice and video communications providers, observers also have wondered whether Apple or others might become mobile service providers, using either the wholesale route (mobile virtual network operator) or simply becoming a facilities-based mobile carrier.
But spectrum is market entry, and a facilities-based approach has not been possible, except for the scenario where Apple, Google, Facebook or Amazon actually buys an existing mobile service provider.
There will be new options in the future. Mobility might or might not be crucial. Instead, a mix of access modes, both mobile and fixed, will be possible, using a mix of licensed, shared and unlicensed spectrum resources.
The biggest single change will be access to perhaps 1,000 MHz of shared spectrum, sometimes with payments for assured levels of access, other times with the ability to dynamically hop to alternative frequencies in the event of congestion in any one band.
The big change is in how spectrum property rights are handled. Formal licensees will retain first priority for use of their assigned spectrum. But when not in full use, other users will be able to share use of that spectrum, so long as interference is avoided.
Perhaps a better formulation would be that sharing will be allowed so long as interference remains at negligible levels. There is a meaningful difference between “small amounts of interference that do not materially degrade a channel,” and “amounts of interference that do degrade a channel.”
The point here is that the market will be reshaped to allow wireless access (mobile and fixed or stationary) for a great many new providers who do not have primary and exclusive use of any particular frequency allocations.
In conjunction with the new importance of Wi-Fi capable devices, dynamic radios, database-based access, small cell architectures, shared spectrum will enable many new contestants, with many possible revenue models, to become wireless service providers.
More than any current round of big service provider mergers, that is going to be the next big change in U.S. communications market dynamics, with the biggest new opportunity for additional service providers since the Telecommunications Act of 1996.
by Gary Kim