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Can Wireless Spectrum Become Worthless?

Radio frequency spectrum is a finite resource. It cannot be created; it can only be parceled out. That's what gives struggling wireless telecom carriers value even in the midst of financial woe. Their spectrum licenses keep gaining in worth in this world that craves instant access to the Internet almost as much as it thirsts for oil.

Clearwire (Nasdaq: CLWR  ) , for example, which has been going through a "she loves me, she loves me not" financial crisis with its majority owner Sprint Nextel (NYSE: S  ) , has spectrum licenses that it listed in its second-quarter earnings statement as worth $4.3 billion. In reality, though, those licenses could be worth a lot more. In May 2010, Clearwire estimated their open-market value at $20 billion, and J.H. Snider, president of policy think-tank, put that number much higher, at $50 billion.

Here's a look at the listed wireless license values of the major carriers:


Wireless License Value 
(As Stated by the Company)

Clearwire $4.3 billion
Sprint Nextel $20.5 billion
AT&T (NYSE: T  ) $50.4 billion
Verizon (NYSE: VZ  ) $73.2 billion
MetroPCS (NYSE: PCS  ) $2.5 billion
Leap (Nasdaq: LEAP  ) $1.9 billion

Source: Latest available balance-sheet data from SEC filings.

Look what I found!
I didn't lie when I said spectrum is a finite resource. What I didn't say is that there still is some spectrum not being used. It's called "white space" spectrum, and it refers to the up-till-now idle frequencies between television channels. This television white space, which took up a large amount of the TV spectrum, was kept in place to prevent signal intrusion between analogue television channels. But over-the-air TV is now digital, which is much less prone to adjacent channel interference. Hence, those white spaces may no longer be needed.

It's a bird, it's a plane. No, it's Super Wi-Fi! That's what some are calling a technology that regulators in Europe and the U.S. are cooking up to make use of this newly found spectrum. They see it as a way of bringing broadband to sparsely populated areas without the high capital costs of cabling.

The availability of more spectrum has also not been lost on the government. The recently created deficit supercommittee is even considering "incentive auctions" of the television white space as a new source of revenue.

But suppose ...
What if wireless carriers didn't need "licensed" spectrum anymore? That would certainly drain the value away from those scarce but worthless licenses. This is not a far-fetched supposition. Remember when the iPhone's sudden popularity brought down AT&T's mobile broadband network? How did AT&T recover? It didn't buy more spectrum; the iPhones switched over to Wi-Fi to get their data.

According to Harvard Law Professor Yochai Benkler:

"In the past year, Wi-Fi traffic on AT&T's hotspots has tripled. Today, about half of iPhone and 90% of iPad page views are carried over Wi-Fi. Indeed, almost two-thirds of all smartphone and tablet data traffic is carried over Wi-Fi rather than over the carriers' networks."

Unlicensed wireless is everywhere. It's used at the E-Z Pass toll booths. It's used every time you fill 'er up and pay with one of those quick-pay fobs. Companies like Wal-Mart use unlicensed wireless to manage inventory. According to Benkler, 70% of U.S. smart-grid communications and 80% of health-care wireless needs are met by unlicensed wireless technologies. And the second-largest mobile broadband carrier in Japan will be going with a next-generation network that will be centered on unlicensed wireless hotspots.

What would this mean?
The first thing this could mean is that once-invaluable spectrum could lose its value. SpectrumCo, a partnership made up of cable companies Cox, Comcast (Nasdaq: CMCSA  ) , and Time Warner Cable, paid $2.4 billion for wireless licenses at an FCC auction in 2006, but it has never used those frequencies. Buying spectrum may have seemed like a good investment to SpectrumCo at the time, but it could turn out to be one of those collectibles that loses its desirability in the long run.

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Fool contributor Dan Radovsky owns shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2011, at 11:31 AM, akakroke wrote:

    I still haven't figured out if articles like this one are for SA members only or are open to the greater community at large, but if they were for SA only members, they would certainly justify the subscription cost.

    In any event thank you for another 'thinking outside of the box' article Dan!


  • Report this Comment On November 01, 2011, at 1:53 PM, nivegulu wrote:

    But then there is the possibility of receiving TV channels on your phone by mistake if you're surfing for something else. The quality of service will suffer due to "borderline interference (wave resonance theory)". White space just does'nt seem practical.

  • Report this Comment On November 02, 2011, at 1:52 AM, nivegulu wrote:

    It is the spectrum that delivers the Wifi hotspots.

    Because the AT&T spectrum bandwidth is not wide enough that there are so many complaints from the users on dropped calls, network hanging, loading.. etc. The increased speed and volume needs of data on the iphones, pads etc. simply just cannot be met on low depth bandwidth spectrum (At&t) that delivers these sort of Wi-fi hotspots.

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