The Cost of Spectrum

By Eric Griffith

March 28, 2007

Unlike 3G, WiMax deployment in the Third World may cost more than in developed areas due to radio band licensing.

Sometimes the wireless space seems to defy the logic of market dynamics, with cost and availability appearing to fluctuate in unexpected ways.

A recent example of this phenomenon comes from Pyramid Research, where researchers have been delving into the complexities of WiMax spectrum sales -- most WiMax equipment today does not use the unlicensed bands we've come to expect from Wi-Fi. Pyramid examined markets all over the world, looking for trends in the price of these spectra.

Even the researchers themselves were surprised by what they found. By and large, WiMax spectra in developing telecommunications markets cost more than those in more firmly established markets.

Pyramid won’t divulge specific numbers, but they will give out round figures. According to the latest numbers, WiMax spectrum in the United Kingdom was going for about 1 cent per MHz per person. In Jordan and Hungary, meanwhile, that figure was running toward 5 or 6 cents.

“We thought it might be similar to what has happened with 3G spectrum, where it was more expensive in more developed markets,” says Dan Locke, a Pyramid analyst in telecommunications, media and technology. Instead, they found the opposite.

The dynamic of 3G seemed to make sense. Developed markets have a more immediate need for broadband spectra, while less developed markets lack the means to generate high-price auctions for a technology that in any case outstrips their existing capabilities. Simply put, “in less developed markets, they have less money to spend in general,” Locke says.

What, then, is driving the higher prices in less developed markets today? Locke speculates that the trend may be driven by aspiring telecom providers looking to invest in future growth. “In some of these markets, there is not much in terms of broadband penetration -- there may be very little infrastructure built for things like cable or DSL, and it can be very costly to roll out that kind of infrastructure,” he says. “So WiMax could represent a low-cost alternative to that.”

Bidders for WiMax spectra also may be looking to lock out stronger and more powerful players who in the future might try to get a foothold in these markets.

Looking at these developing telecom markets, Locke sees WiMax spectra being allotted largely for fixed as opposed to mobile uses. While mobile uses may be on the cutting edge, Locke sees logic in this move. It means local providers will need to compete only against other fixed spectrum providers, rather than taking on those in the more sophisticated mobile realm.

And fixed WiMax may also offer an easier point of entry. The technology has been tested, and the price has come down dramatically. In any case, Locke notes, telecom companies can always expand on their fixed WiMax investment with mobile offerings in the future. It seems likely that whatever mobile technology comes down the road will be readily interoperable with today’s wired investments.

For companies in the telecom space, the buy-up of WiMax spectra in less developed telecom economies represents a significant opportunity, one that the biggest players have shown themselves ready to seize.

Intel and Motorola have invested a lot of money in companies all over the world -- they are betting on the fact that they can be the chip provider for WiMax, and they are throwing money at operators who will go out and build these networks,” Locke says.

Smaller technology providers have also jumped into the game. Locke points, for instance, to Israeli company Alvarion, a maker of personal broadband service solutions that claims more than two million units deployed in 150 countries.

Returning to the cost of WiMax spectra, Locke says it is possible that the high numbers overseas could influence the domestic price of spectra. While the government does not have any more spectra to sell, Locke said, there still are opportunities for spectra to change hands. AT&T, for instance, sold its 2.5 GHz wireless spectrum to startup WiMax operator Clearwire for a reported $300 million.

“There are small institutions and businesses that do own spectrum across the United States, places like universities,” Locke says. “Now all of a sudden it has a certain value -- they can lease it, they can sell it.”

As with any evolving market, the price of these spectra elsewhere in the world likely will influence their perceived value at home.



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