FCC Votes to Ease Spectrum Crunch for Mobile Communications

Since the late 1990s, America's wireless economy has faced a serious credit crunch, digital style, due to a series of regulatory impasses that have reduced the flow of new radio spectrum to a trickle. That has placed rising burdens on existing mobile communications networks and led many carriers to postpone next generation, multi-media services.

On November 7, however, the nation's top "spectrum banker," the Federal Communications Commission (FCC), began to provide some relief by allocating 90 MHz of new spectrum for so-called Third Generation (3G) advanced wireless services. The FCC's action reflects a historic band-clearing agreement with the Department of Defense and, with the prior reallocation of several UHF TV channels, might lead to the sale in 2003-2005 of over three times the amount of mobile radio spectrum now licensed for cellular telephone service. See Figure 1.

The release of large blocks of new spectrum may have far reaching consequences. On the one hand, it is likely to provide a much needed stimulus to a maturing mobile communications industry. Just as the Internet boom of the mid-1990s was underpinned by ever cheaper fiber optic transmission networks, falling spectrum prices could help to jump-start a mass market for unwired Internet services from handheld games and instant messaging, to streaming music and portable video entertainment. On the other hand, the sale of new spectrum is likely to devalue the frequency portfolios of existing players and thus provide a further impetus for industry consolidation.

To better understand the implications of the FCC's new "monetary expansion" and why it has been so long in coming, some history is helpful.

Why did it take so long?

The bulk of the spectrum now used for public mobile radio services ó approximately 195 MHz ó has been licensed in two tranches. In the early 1980s, the FCC awarded licenses for 50 MHz of spectrum in the 800 MHz band (just above the UHF TV channels) for two competing types of cellular telephone operators: one for existing local exchange carriers (today Verizon, BellSouth, etc.) and one for new entrants (e.g., McCaw Cellular, now AT&T Wireless). The latter licenses were primarily assigned by lottery, allowing many speculators to quickly resell their rights for millions of dollars but adding nothing to the U.S. Treasury.

About a decade later, the FCC allocated another 120 MHz of spectrum in the 1800-1900 MHz band for a new (second-generation) mobile service known as PCS (Personal Communications Service). This time, at the direction of Congress, the FCC...