by Erik Sherman
The race is on for the United States to catch up to China’s lead on 5G. Yet Washington is fighting over whether the valuable electromagnetic spectrum should be sold to AT&T and other big telecom giants, which have contributed to congressional campaigns for decades, or whether it should be leased to a well-funded upstart named Rivada, some of whose board members have donated to President Donald J. Trump.
Whichever firm wins the spectrum has the potential to reap billions in revenue and spend billions in infrastructure and equipment. With these high stakes, a classic inside Washington duel is underway.
The spectrum is currently held by the U.S. Defense department; it was awarded to the military several decades ago and has rarely, if ever, been used by war fighters. 5G is a wireless standard that allows faster and more data-intensive uses of the Internet. 4G is the standard most widely used on U.S. smartphones; 3G still dominates in some regions. Everything from self-driving cars to remote diagnoses of homebound patients turns on the rapid adoption of 5G.
5G is critical to many businesses because it offers “a faster and more improved wireless network for data,” according to wireless and telecom analyst Jeff Kagan.
At bottom, the fight is over whether the government should sell or lease the unused spectrum. An outright sale could pour billions into the U.S. Treasury in a giant one-time financial event. By contrast, a lease would produce fewer dollars at first but yield a stream of payments to the Treasury over many years. The government’s take in that scenario is projected to be more money over the life of the lease than a sale would produce. (A lease renewal would produce yet another string of payments.) The idea of a lease was first advocated by former Google CEO Eric Schmidt.
At stake for consumers is the cost of accessing the Internet on their smartphones. Since a spectrum lease would have lower upfront costs, Rivada says it would not have to recover billions in lease costs for mobile Internet users—potentially saving Americans money while speeding adoption of 5G technologies. AT&T and other telecoms typically amortize their spectrum acquisition costs over a period of years. AT&T lobbyists did not return calls for comment from Zenger News.
The debate about selling or leasing the spectrum is largely being waged with claims of “nationalization.” Since a lease would leave ownership of the spectrum in the hands of the federal government, the telecom giants’ spokesmen have said President Trump wants to “nationalize” the spectrum. Leasing it to private firms isn’t nationalization, which typically involves a government seizing private assets, Rivada CEO Declan Ganley said.
This is the latest battleground between potentially disruptive entrepreneurs and major carriers like Verizon, T-Mobile and AT&T.
The Pentagon’s bands of spectrum are important because they are “mid-band,” sitting in the middle of all frequencies that companies need to provide robust 5G service. High-band is good for the densest urban settings. Low-band matches rural settings well. Mid-band can do both.
As for mid-band, “it’s excellent for coverage and capacity,” said Alex Besen, CEO of mobile data industry management consulting firm The Besen Group. The Pentagon has some of the choicest spectrum allocations in the ranges that will be the 5G workhorse. “This is the crème de la crème,” Besen said.
And everyone in the industry wants it.
The ‘nationalization’ charge
The Department of Defense has more spectrum than it needs, barring a big national emergency, and has considered how to make more of it available for private use. The DoD already said it will make some available for lease through auction conducted by the Federal Communications Commission.
The U.S. spectrum fight is also part of larger global trend. India and other nations are debating plans to auction the spectrum held by their own defense agencies. “Every other country is moving in the same direction,” Kagan said.
The Defense department sought ideas for making even more frequencies available, in a recent Request for Information. One question it posed was whether the department could operate a domestic 5G network and make its capacity available to for-profit firms and others. “They know the answer is no, [the Defense department] should not own and operate a commercial 5G network and they have no notion of doing so,” said Ganley, whose Rivada Networks has unique dual-use technology for sharing 5G networks that would allow the Pentagon, in seconds, to take back the spectrum in a national emergency. Rivada would profit from a spectrum-sharing arrangement. “Sharing raw spectrum, they’ve been every much open to that and they’ve been open to that for some time now,” Ganley said.
As for running a data network, “There’s no one in the DoD [Defense department] that would ever want to do that,” Ganley said. “There’s nobody in the department of defense, neither side of the aisle politically, who wants that.”
The interest in making spectrum available, though, isn’t popular throughout the wireless industry. “It’s going to upset a lot of operators,” Besen said. A large amount of spectrum that did not land in the control of the big carriers would rock Establishment players. “It’s going to impact their bottom line on the wholesale side of the business.”
This would create a whole new, competitive market, Ganley said. “You’d have a capacity wholesale market,” Ganley said. Companies could run their uses at odd hours, with lower pricing as happens in the electric market. “Imagine if the cost of each device is 3 cents a year [rather than something like $30 a month] because it’s doing its thing at 4 am.”
The change in pricing would make it possible for more experimentation and for services and devices to offer more than is currently economically viable. “You’re going to see whole new industries develop around that kind of access,” Ganley said. “That changes the game.”
It could also make big companies with profit-hungry investors nervous. More entrants and more competition usually translates into lower margins for higher-cost legacy players. So expect more talk about “nationalization” until the Pentagon and the White House announce a final decision, which is expected Friday.