FCC STAFF TECHNICAL PAPER

FederalCommunicationsCommission 44512thStreet,SW Washington,DC20554

MOBILE BROADBAND: THE BENEFITS OF ADDITIONAL SPECTRUM

OCTOBER 2010

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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 spectruminthenearterm,andestimatesthevaluecreatedbymakingnewspectrumavailable. Giventheinherentuncertaintyofanyforecastofthefuture,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 additional spectrum for mobile broadband would create value in excess of $100B in the next 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 available has historically taken between six and thirteenyears, and since mobiledata growth trends are expected to continue beyond the nearterm forecast in this paper, these results supporttheneedfortimelyactiontofreespectrumformobilebroadband,consistentwiththe recommendationsoftheNationalBroadbandPlanandthePresidentsdirective.

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TableofContents
I. Introduction_____________________________________________________________ 4

II.MethodologicalOverview___________________________________________________5 III. TrafficDemandandNetworkCapacity _______________________________________ 6

IV. ModelInputs:DataDemand,NetworkDensity,SpectralEfficiency,andBaselineSpectrumUse 8
a. b. c. d. TrafficDemandIndustryWideTrendsThrough2014 ______________________________________ 9 NetworkDensityCellSiteGrowth _____________________________________________________ 12 NetworkCapacitySpectralEfficiency___________________________________________________ 14 BaselineSpectrumUse _______________________________________________________________ 15

V. VI.

ModelOutput:SpectrumNeedandEconomicValue __________________________________ 17 SensitivityAnalyses _____________________________________________________________ 22

a. b. c. SensitivitytoDataGrowthForecast_____________________________________________________ 22 SensitivitytoCurrentSpectrumUsedforData ____________________________________________ 23 SensitivitytoNetworkDensityCost _____________________________________________________ 23

VII. Conclusion _____________________________________________________________ 26 AppendixA:MethodologySummaryofMobileDataDemandForecasts__________________27

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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 quarterof2010. 4 Exhibit1:DataConsumptionGrowthperLine
Average Data Used Per Line
250 Data Used (megabytes) 182.5 200 150 102 100 50 0 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 43.5 98.9 129.1 201.8

Arangeofrecentwirelessindustrytrendsindicatestronggrowthofmobiledatausage. 42%ofconsumersareestimatedtoownasmartphone,upfrom16%threeyearsago. 5
SeeNationalBroadbandPlanChapter5,Spectrum,atwww.broadband.gov PresidentBarackObama,June28,2010,MemorandumfortheHeadsofExecutiveDepartmentsandAgencies,Unleashing theWirelessBroadbandRevolution.Seehttp://www.whitehouse.gov/briefingroom/presidentialactions/presidential memoranda. 3 InternetAccessServices:StatusasofJune30,2009,releasedSeptember2010bytheFCCsWirelineCompetitionBureau. 4 ValidasLLCdata,September8,2010.Foundatwww.myvalidas.com. 5 PaulCartonandJeanCrumrine,NewSurveyShowsAndroidOSRoilingtheSmartphoneMarket,ChangeWave Research,Jan.4,2010,availableathttp://www.changewaveresearch.com/articles/2010/01/smart_phone_20100104.html. Alsofoundatpara.159oftheFCCs14thMobileWirelessCompetitionReport.DataperiodcitedisbetweenOctober2006and December2009.
2 1

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PCaircardusersconsume1.4gigabytes(GB)permonth56timestheamountofdata usedbyaregularcellphone 6 AT&T,theexclusiveUScarrieroftheiPhone,hasseenmobilenetworktrafficincrease 5,000%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

6

ValidasLLCdata,foundinthe14thMobileWirelessCompetitionReportoftheFederalCommunicationsCommission,at para.182,releasedMay20,2010.Traditionalhandsetsareestimatedtoconsumeapproximately25MBpermonth. 7 KrisRinne,Sr.VicePres.ofArchitecture&Planning,AT&T,RemarksattheFCCSpectrumWorkshop1112(Sept.17,2009), availableathttp://www.broadband.gov/docs/ws_25_spectrum.pdf.Ms.Rinneaddedthatinadditiontoincreaseddatausage, voiceusagecontinuestorisealso.Id. 8 http://gigaom.com/2010/03/12/clearwiresbigbetonourbroadbandaddiction/.WenotethatClearwiresubstypicallyuse theserviceasasubstituteforwiredbroadband.Traditionalhandsetsareestimatedtoconsumeapproximately25MBper month.

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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.

Theeconomicbenefitsestimatedhereinrepresentonlythereductionincostofmeetingmobiledatademand;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).

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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 mobile traffic demand Drivers of available network capacity
Capacity per cell-site Capacity per cell-site

Usage by device type Usage by device type

Wireless network

Spectral efficiency of Spectral efficiency of wireless technology wireless technology Spectrum allocation Spectrum allocation

Penetration of device Penetration of device types types

Number of cell-sites Number of cell-sites

Thisframeworkofmobiledatatrafficandcapacityenablesanunderstandingoftheeffectsof releasingadditionalspectrum.Assumptionsinthispapercouldbeamendedtoyieldsomewhat differentnumericalbenefitestimates;however,anyreasonableapproximationofrelevant variablesislikelytoconfirmtheconclusionthatreleasingadditionalspectrumwillcreate substantialeconomicvalue.

10

KrisRinne,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.

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IV.

ModelInputs:DataDemand,NetworkDensity,Spectral Efficiency,andBaselineSpectrumUse

Futurespectrumneedscanbeunderstoodasafunction,ormultiplier,ofcurrentspectrum usedformobilebroadbandnationwide.Themultiplierusedinourmodelisbasedonan averageofreputableindustryanalystmobiledatademandforecasts,adjustedtoaccountfor additionalnetworkdensityviacellsitegrowthandimprovementsintechnologyresultingin increasedspectralefficiency. Byassumingthatspectrumrequiredtosupporttraditionalvoicewillremainatcurrentlevels, 12 thetotalspectrumrequiredinfutureyearsiscalculatedbyapplyingthemultiplieronlyto spectrumusedfordataduringthe2009baselineyear.Currentvoicespectrumisthenaddedin eachyeartoreachthetotal.Thefollowingflowchartdepictstheanalyticstepsinthismodel: Exhibit3.TopDownForecastFlowchart
Data Traffic Demand Forecasts Average Data Traffic Demand 2009 Spectrum Utilization

Site Growth Forecast

Data Traffic per Site Growth

Spectral Efficiency Forecast

Data Traffic per Site growth adjusted for technology

2009 Data Spectrum

2009 Voice Spectrum

Future Data Spectrum Required

Total Future Spectrum Required

12

Estimatingtherateofvoicegrowth,therateofvoicetrafficmigrationfromcircuitswitchedtoVoIP,andtheassociated spectralefficiencygains,ascomparedwithcountervailingconsiderationssuchastheproliferationofunlimitedtalkplans,are beyondthescopeofthispaper.Theactualspectrumrequiredtosupporttraditionalvoiceinthefuturemaybemoreorless thanassumedhere;however,giventhemagnitudeofprojectedmobiledatatrafficgrowth,anyvariancefromtheconstant usedinthismodelwillnotsignificantlychangetheresultingprojectionoffuturespectrumneeds.Inparticular,mobilecarriers arenotexpectedtofullytransitionvoiceservicesto4GInternetProtocolwithinthefiveyearforecastperiod.

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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
50X 45X Traffic Relative to 2009 40X 35X 30X 25X 20X 15X 10X 5X 0X 2009 2010 2011 2012 2013 2014 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,
13

CiscoVisualNetworkingIndex:GlobalMobileDataTrafficForecastUpdate,20092014,February9,2010.CodaResearch Consultancy,USMobileTrafficForecasts:20092015,2009.YankeeGroup,SpectrumRichPlayersAreintheDriversSeatfor MobileBroadbandEconomics,June2009.SeeAppendixAofthispaperforamethodologicalsummaryofeachforecast.

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consumesfivetimesthedatamonthlyasBlackberry.Andaircards,facilitatingafullmobile computingexperience,consumefivetimesmoredatamonthlythantheiPhone. 14 These devices,aggregatedacrossthenetwork,leadtosignificanttotalmobiledataconsumption. CiscoSystemshasproducedanestimateofaggregatemobiledataconsumptionbydevicetype between2009and2013,showninExhibit5below. 15 ConsistentwithValidasestimates,traffic generatedfromnetbooksandnotebooksishighest,especiallywhenthewirelessnetworkis usedasasubstituteforwiredbroadbandconnection. Exhibit5.Estimateofmobiletrafficbydevicetypeandforecasts
Projections of usage by device type MB/month/device

20,000

15,000

3G Feature phones Smartphones Portable* (Substitute for Fixed Broadband) Portable* (Complement to Fixed Broadband)

10,000

5,000

2009

2010

2011

2012

2013

* 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

ThecorrespondinggrowthrateintheamountofdatausedbydevicetypeisshowninExhibit6. Notetherapidusagegrowthprojectedforalldevicetypes,whichsuggestsadoublingofusage almosteverytwoyearsorlessacrossalldevices.

14

ValidasLLC,http://www.myvalidas.com/industryanalytics.aspx.Validasisacompanythatofferswebbasedwirelessbill analysisandoptimizationservicestoconsumersandbusinesses,usingdatagainedfromsuchanalysistoprovideinsightto industrytrends. 15 ExPartefilingofCiscoSystemsinGNdocket0951,filedMarch23,2010.

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Exhibit6.Projectedgrowthrateoftheamountofdatausedbydevicetype
Projected usage growth rate by device type, 2008-2013 Percent

3G Feature phones Smartphones Portable* (Substitute for Fixed Broadband) Portable* (Complement to Fixed Broadband) 84

67 34 47

Whenportablessuchasnetbooksandnotebooksareusedexclusivelyonthewirelessnetwork (i.e.,thewirelessnetworkisusedasasubstituteforthewirelinenetwork),growthissimilarto whatisseenonfixednetworks. 16 TheaveragemonthlyusagepersubscriberontheClearwire network,whichmanyconsumersuseasasubstituteforwiredbroadband,isalready7GB. 17 Continuedgrowthofthisdevicesegmentislikelytocontributesignificantlytothegrowthof mobiledatatraffic.

* 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

Penetrationbydevicetype
Thenumbersofeachtypeofdeviceinuse(penetration),aswellastheexpectedgrowthin penetration,isshownintheexhibitbelow.Smartphonesincorporatethefeaturesoftraditional, voiceonlyhandsets.So,increasingpenetrationofsmartphonessuggestsadecreasing penetrationoftraditionalhandsets. Notetherapidgrowthinpenetrationexpectedforportablesthedevicecategoryalso correspondingtohighestusage(seeExhibit7).Further,withrelativelymodestpenetration levelsforportablestodayandampleroomforgrowth,rapidpenetrationgrowthcouldcontinue beyond2014.

16 17

CiscoVisualNetworkingIndex:GlobalMobileDataTrafficForecastUpdate,20092014,February9,2010. RemarksofClearwireCEOBillMorrowattheInternationalCTIAWireless2010show,ClearwireExtends4GLeadershipInthe UnitedStates,March23,2010.

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Exhibit7.Forecastednumbersofeachtypeofdeviceinuse(penetration)andcompound annualgrowthrate(CAGR)
Basic and feature phones Smartphones Portable* (Substitute for Fixed Broadband) Portable* (Complement to Fixed Broadband)
Projected penetration by device type, 2014 Millions CAGR of penetration by device type, 2009-14 Percent

153.7 127.1

61 37 51.8 10.7 -6 14

Mobiledatatrafficisakeydriverofspectrumneed,andastheseforecastsshow,theconsensus amongindustryexpertsisthatdemandforsuchtrafficislikelytoincreasesignificantlyoverthe nextfiveyears. Thefollowingsectionsdescribeotherfactorssuchascellsitegrowthandspectralefficiency thatarerelevanttoestimatingspectrumneed.

* 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

b.

NetworkDensityCellSiteGrowth

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 seeninthefollowingtable:

18

CTIA

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Exhibit8.USCellSiteGrowthsince1997
Year over Year Growth 49% 29% 29% 19% 15% 12% 18% 2% 11% 6% 5% 12% 5Year Running Avg Growth 28% 21% 19% 13% 12% 10% 8% 7%

Date 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TotalCellSites 38,650 57,674 74,157 95,733 114,059 131,350 147,719 174,368 178,025 197,576 210,360 220,472 245,912

AsExhibit8shows,cellsitegrowthyearoveryearhasbeenuneven,buttheoveralltrendinthe fiveyearaverageisthatthegrowthhasbeenslowing. 19 Thistrendispartlyafunctionof saturationofwirelessavailabilityasanestimated99.6%ofthepopulationnowhaswireless access, 20 thereforenewcellsitegrowthwillemphasizeincreasedcapacity. 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
19

Theslowdowninsitegrowthislikelyasignofamaturingindustry,butmayalsoreflecttheincreasingdifficultyofacquiring sitesduetoscarcityoflocations,zoning,andotherconstraints.TheFCCrecentlytookactiontoalleviatesomeoftheregulatory barrierstositeexpansion.SeeNovember18,2009DeclaratoryRulinginWTDocket08165. 20 FCCestimatebasedonAmericanRoamerdata.FoundintheFCCs14thMobileWirelessCompetitionReport,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.

NetworkCapacitySpectralEfficiency

Aswirelesstechnologieshaveevolved,sohasperformance.Witheveryevolution,theindustry hasachievedhigherpeakdatathroughputs,improvedspectralefficienciesandlowerlatencies (delays).Forexample,4Gusesanative,allIParchitecture,thusbenefittingfromthe innovationandcostefficiencyofapacketswitchednetwork,relativetolegacycircuitswitched technology. Themostimportantdimensionofwirelessnetworkperformanceisspectralefficiency,typically measuredinbitspersecondperHertz.Thismetricreflectstheamountofdataasectorcan transmitonanormalizedtime/bandwidthbasis.Assuch,spectralefficiencydrivesaverage downlinkdatacapacityofacellsitelinearly.Exhibit9showstheevolutionoftheaverage downlinkdatacapacitiesofasinglesectorina3sectorcellsitefortheGSMfamilyofwireless standards. 22 While4Gtechnologieshaveincreasedspectralefficiencyrelativetopriorgenerationair interfacestandards,suchgainsarelikelytobecomesmallerinthefuture.Indeed,4Gstandards achieveimproveddatathroughputbythecombinednoveluseofseveraltechnologies,andwe donotassumethatfuturegainsinthroughputwillberealizedviafurtherinnovationontheair interfaceonaperdevicebasis,particularlywithinthefiveyeartimehorizonthatistheprimary focusofthispaper. 23 However,as4Gcarriersincreaseasaproportionoftotalcarriersoverthe nextfiveyears,itislikelythatoverallspectralefficiencywillcontinuetoimprove. Exhibit9.Evolutionofdownlinkspectralefficiency 24
Downlink spectral efficiency by technology Bps/Hz
1.5 1.0 0.5 0.0 0.480

1.36-1.5 1.08-1.29
0.720

0.03 GPRS

0.09 EDGE

0.16-0.24 WCDMA HSDPA, Rel 5 HSPA, Rel 6 HSPA, Rel 7 LTE

22 23

QualcommExPartefiling,SpectralEfficiency,GNDocketNo.0951 SeealsoOBITechnicalPaper,TheBroadbandAvailabilityGap,foradditionaldiscussion. 24 Calculatedfora(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 spectralefficiency.Therefore,wemustestimatehowmuchspectrumisusedin2009,including theproportioncurrentlyusedtosupportcircuitswitchedvoicerelativetotheamountusedfor data. TheFCCs14thannualMobileWirelessCompetitionreportdescribedindustrytrendsrelatedto wirelessvoiceservice.Ofnote,the14threportnotedthenearsaturationofthewirelessvoice 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
25 26

See,forexample,forecastsbyWiseHarborathttp://www.wiseharbor.com/forecast.html Whiletechnologywillcontinuetoimprove,spectralefficiencyofcurrentOFDMbased4Gsolutionsisapproachingmaximum expectedlimits.Whileabsoluterealizedvaluesofspectralefficiencymayvary,theprojectionofincreasingefficiencyis generallyaccepted,anditsincorporationintothepresentmodelappropriatelyadjustsexpectednetworkcapacityforthisfactor. 27 BasedondatafromCTIA,theFCCs14thWirelessCompetitionreportshowsthatvoiceminutesdeclinedbetween2007and 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.

28

SeeNationalBroadbandPlan,atChapter5,Spectrum.Bandsrecentlymadeavailableforflexibleusethatareexcluded fromthemodelscurrentbaselineincludeAWS,2.5GHz,and700MHz,amongothers.

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V.

ModelOutput:SpectrumNeedandEconomicValue
SpectrumDeficit

a.

Usingthemethodologydescribedabove,weestimatethatanadditional275MHzofspectrum willberequiredtomeetmobiledatademandin2014. TheoutputofthemodelisshowninExhibit10below.Asdetailedintheprecedingexplanation, thekeyforecastassumptionsandoutputshighlightedinExhibit6include: Totaldatademandgrowthrelativeto2009asanaverageofthethreeanalystforecasts (line4),whichisakeydriveroffuturespectrumneeds. Datademandpersiteadjustedtoaccountfora7%CAGRinthenumberofcellsites(line 8),whichasasubstitutefornewspectrum,servestooffsetsomewhattheamountof spectrumneededinthefuture. Datademandpersiteadjustedfurthertoaccountfortechnologyimprovements, specificallyanincreaseofspectralefficiencyovertime(line11),whichisanotheroffset toadditionalspectrum. Totalspectrumrequiredtomeettheadjusteddemand(line16),takingintoaccountthe abovethreeelements. Thefinaloutputiscontainedinline18,whichshowsthespectrumdeficitprojectedfor eachyearthrough2014basedonthecurrentmobilebroadbandspectrumallocationof 547MHz.

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Exhibit10.SpectrumNeedForecastTableofResults
Year: Line 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Description Data Growth Relative to 2009 - Cisco Data Growth Relative to 2009 - Yankee Data Growth Relative to 2009 - Coda D ata Growth Relative to 2009 - Average Cell Sites Absolute Growth CAGR Traffic per Site - Growth Avg. Spectral Efficiency (Mbps/MHz) Absolute Growth Tech-Adjusted Traffic per Site - Growth Spectrum req'd for data (MHz) Percent allocated for data Spectrum req'd for voice (MHz) Percent allocated for voice Spectrum - In U se (MHz) Spectrum - Currently Allocated (MHz) Surplus/D eficit (MH z) 0 2009 100% 100% 100% 100% 245,912 100% 7% 100% 0.625 100% 100% 57 33% 113 67% 170 547 377 1 2010 242% 266% 251% 253% 263,126 107% 2 2011 598% 631% 539% 589% 281,545 114% 3 2012 1253% 1189% 1154% 1199% 301,253 123% 4 2013 2577% 1770% 2200% 2182% 322,340 131% 5 2014 4722% 2332% 3464% 3506% 344,904 140%

236% 0.75 120% 197% 112 50% 113 50% 225

515% 0.88 140% 368% 208 65% 113 35% 322

978% 1.00 160% 612% 346 75% 113 25% 460

1665% 1.13 180% 925% 524 82% 113 18% 637

2500% 1.25 200% 1250% 708 86% 113 14% 822

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
4000% 3500% 3000% 2500% 2000% 1500% 1000% 500% 0% 2009 2010 2011 2012 2013 2014
Data Grow th Relative to 2009 Average Traffic per Site - Grow th Tech-Adjusted Traffic per Site Grow th

Spectrum Utilization 800 Spectrum req'd for data (MHz) 600 Spectrum req'd for voice (MHz) Surplus/Deficit (MHz) 400 200 0 2009 2010 2011 2012 2013 2014 -200 -400 Evenwiththeconservativesetofassumptionsusedinthismodel,itisapparentthatthenation facestheprospectofaspectrumshortagewithinthenextfiveyears.Alatersectionofthis paperundertakesasensitivityanalysistoshowhowalternativeassumptionsreinforcethis conclusion.Whilethemodeldoesnotprojectbeyondthisperiod,areasonableextrapolationof availabledatapointstotheneedforongoingactionoverthelongertermtomakeadditional spectrumavailableformobilebroadband.
MHz

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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 majorityofnewcellsiteswillleverageexistingtowerinfrastructuretoaddcapacity.Thisis 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.

29

Notethatincludingtowerconstructioncostswillonlyincreasethecostofasite,therebyincreasingtheincrementalcostof networkcapacityexpansion.Consequently,costsavingsfromadditionalspectrumallocationwillonlyimproveifthisdimension isaddedtotheanalysis. 30 .SeeSectionVI(c)foranexplanationofcellsitecosts.

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Exhibit22.Capitalvs.SpectrumIndifferenceCurvefor2014

Capital vs. Spectrum Indifference Curve - 2014

600 Spectrum Required (MHz) 500 400 $120B savings 300 200 100 0 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200

Capital Required to Build and Maintain Capacity ($ billions)

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.
31

Thisvalueislikelytobesharedbetweenwirelessconsumersandcarriers;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 Surplus/Deficit (MHz) 400 300 200 100 MHz 0 2009 -100 -200 -300 -400 -500 2010 2011 2012 2013 2014 Data Grow th - 10% Data Grow th +10% Data Grow th - 20% Data Grow th +20%

Ifthedatatrafficforecastusedisoverestimatingfuturedemandby20%,wewillstillhavea spectrumdeficitinexcessof100MHzby2014.Further,itisreasonabletoexpectthatdemand growthwillcontinueinto2015andbeyond,suchthatthespectrumdeficitwillcontinuetogrow. Forexample,ifthecurrentdeficitcurvefor20%overestimateofdatatrafficisextrapolated intothefuture,itappearsthattheneedfor200MHzwillfollowshortlyafter2014,and300 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&ThasdeployedtwoHSPAcarriers 32 in mostmarketsandisaddingathirdinmarketssuchasNewYorkandSanFrancisco. 33 Since eachHSPAcarrierrequires5MHzuplinkand5MHzdownlink(10MHztotal),itisapparentthat atleastoneoperatorrequirescloseto30MHztoservethegrowingappetitefordata.Given thatAT&Talsooperatesa2GGSM/EDGEnetworktoservevoice,itisreasonabletoassume thatmostofthis30MHzisneededfordata.Ifthatisthecase,thenonecanconcludethata singleoperatoraccountsforabouthalfoftheassumed57MHzofcurrentspectrumrequired fordata.Giventhatalllargemarketsareservedbyatleastfouroperators,andmanyare servedbyfive,the57MHzinputassumptionappearsconservative. However,ifwebasetheanalysisonthemajorityoflargemarketsastheyweredeployedin 2009,ratherthanthehightrafficmarketssuchasNewYorkthatarejustreceivingathirdHSPA carrierinearly2010,thenwecansafelyassumethatin2009AT&Taccountedforcloseto20 MHzofdataspectrum.Althoughitisnotunrealistictoassumethattheotherthreeoperators canaccountfortheother37MHz, 34 weshouldalsoconsiderthepossibilitythatspectrum 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.
32

Carrierinthisusereferstotransmissioninfrastructure,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.

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Exhibit34.2014,2016,&2018IndifferenceCurvesfor40MHzInputAssumption
Capital vs. Spectrum Indifference Curves 2009 Data Spectrum = 40 MHz
700 2014 600 Spectrum Required 500 400 300 200 100 0 $0 $25 $50 $75 $100 $125 $150 $175 $200
$29B $121B

2016 2018
$195B

Capital Required to Build and Maintain Capacity Sites

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%

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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

$550k per cell site 600 Spectrum Required (MHz) 500 400 300 200 100 0 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 $450k per cell site $350k per cell site

$350k/site = $77B savings $450k/site = $98B savings $550k/site = $120B savings

Capital Required to Build and Maintain Capacity ($ billions)

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 historicallytakenbetweensixandthirteenyears 35 ,andsincemobiledatagrowthtrendsare likelytocontinuebeyondtheneartermforecastinthispaper,theseobservationssupportthe needfortimelyactiontofreespectrumformobilebroadband.

VII. Conclusion
Mobilebroadbandservicesareexperiencingsignificantgrowth,drivenbyconsumerdemand formobiledata.Industryanalystsexpectthisgrowthtocontinue,callingintoquestionthe capacityofcurrentmobilenetworkstokeepup.Evenwithsubstantialinvestment,itislikely thatmobiledatademandwillexhaustspectrumresourceswithinthenextfiveyears.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.

35 36

SeeNationalBroadbandPlanatCh.5,Spectrum. Thispaperdoesnotestimatethecoststothirdpartiesofmakingavailablenewspectrum,likelyauctionrevenue,orother factors.

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AppendixA:MethodologySummaryofMobileDataDemand Forecasts
Thethreeindustryanalysesusedinthispaperasabasisforestimatingfuturemobiledata trafficarriveattheirforecaststhroughanalysisofthelikelymixofdevices,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 generaleconomicconditions,andthepotentialfornewpricingstrategiessuchastolleddata (i.e.,alacarte,ratherthanallyoucaneat)thatcanaffectmobiledatademand.

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