Tuesday, April 19, 2011

Too strategic to be true?

The cellular industry has been very vocal in calling on the FCC to allocate more spectrum licenses to satisfy the forecast demand for mobile data services. For two examples more or less at random, see this CTIA white paper, and the 4G Americas white paper “Sustaining the Mobile Miracle” (PDF).

On reflection, though, it strikes me as rather curious behavior for cut-throat competitors. More spectrum licenses won’t satisfy the insatiable demand for wireless data capacity any more than building highways reduces traffic congestion, and while it might make strategic sense, in the short term – and isn’t that all that really matters for listed companies, when all the rhetoric is said and done? – it means that the cellcos are giving up a wonderful opportunity to make money.

If the supply of spectrum licenses were fixed, and not increased by reallocation of other services to mobile wireless, then Economics 101 dictates that the price for wireless data would rise. (This is ignored in the forecasts; see e.g. my post Cisco’s Fascinating Flaky Forecast.) Operators wouldn’t incur the capital costs of lighting up new frequencies, and so their profits would rise – a lot!

On the other hand, if more cellular licenses were made available, the carriers would not only have to buy them at auction, but they would have to buy and install the infrastructure to use them. The price they could charge for wireless data service wouldn’t change much, and so their profits would go down, or at best stay flat.

All that said, though: these companies are much, much smarter business people than I am. I must be missing something. But what?

Perhaps this is all just a big CYA operation. When the inevitable demand crunch happens (with or without new cellular licenses, demand is set to outstrip supply), the operators will be able to blame the government: “Dear customer, it’s not our fault, we’ve been asking the government to help us give you the services you want, but they didn’t come through. We’re sorry, but all we can do to make sure that those who really need wireless services get them is to increase prices.”