Market Insight

Capacity Concerns Drive MNO Strategies for Future Growth

December 07, 2011

Steven Mather Subject Matter Expert

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Verizon’s recent purchase of SpectrumCo, LLC’s Advanced Wireless Spectrum licenses points to mobile network operators (MNOs) growing need for bandwidth as increased data usage continues to strain their networks. 

SpectrumCo, a joint venture between Comcast Corporation, Time Warner Cable and Bright House Networks, bought 136 Advanced Wireless Services (AWS) B-block spectrum licenses for roughly $2.4 Billion in 2006, covering a population of almost 300 million people at that time in an effort to create wireless networks.  However, acquiring spectrum is only a small portion of the investment required to build a network.  AT&T’s CAPEX reached $7.7B in 2010, and Verizon topped out at $7.4B that same year, up from $6.4B and $6.5B, respectively, in 2006.  To develop their own networks, SpectrumCO would have had to devote an average of $7B yearly in CAPEX just to keep up with these leading MNOs.  The unwillingness of these cable companies to do so and a subsequent rise in value of the spectrum thanks to smartphones is driving their decision to discontinue the venture. 

The average revenue per user (ARPU) attributed to data was roughly 17% when the first iPhone was released in 2007.  As smartphones shipments continue to grow, this percentage has risen to 33% in 2011, and is expected to pass 40% by 2015 according to IHS iSuppli data.  This increase in data usage by consumers is impacting MNOs as they strive to provide fast, reliable coverage, which is limited by wireless infrastructure and licensed spectrum.  Significant investments must be devoted to building and maintaining infrastructure while simultaneously acquiring spectrum licenses to ensure growth.  This purchase gives Verizon the advantage of larger bandwidth, which increases LTE performance by increasing network capacity.  Without the ability to increase capacity through acquiring additional spectrum, competitors such as AT&T will have to develop other ways to handle the influx of data created by smartphones. 

AT&T’s attempt to acquire T-Mobile was primarily an effort to expand their wireless coverage and to deal with capacity issues.  However, at the rate this acquisition is going, AT&T will likely have to develop alternative methods for expanding their network.  For example, upgrading to LTE Advanced would allow various blocks in the spectrum to be patched, creating a virtually larger bandwidth.  Implementing MIMO on handsets, while having BOM ramifications, would help network performance by achieving higher data throughput speeds.  Without the option of buying more spectrum, AT&T will have to develop some strategy before capacity is reached and performance starts to suffer severely.

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