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"Spectrum Crunch" Is a Lie

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Wireless providers are rallying around the cry of "spectrum crunch," or the notion that America will soon run out of available broadband capacity as increasingly popular smartphones, tablets, and other mobile devices drain the airwaves. The problem is: That's not entirely true. Carriers have made it sound like more spectrum is the only solution to our growing mobile-phone usage, but there's another way to fill the air. Companies are already developing technology to alleviate the strain of smartphones on the system, and one of them is going to hit the jackpot.

The spectrum crunch problem
The broadcast spectrum is finite -- that's the first problem. The spectrum is made up of radio frequencies, which only exist within certain bands of the electromagnetic spectrum. Compounding this physical limitation are the limitations we've imposed on the bands. We -- rather, the FCC -- have cut up the spectrum into bands and said, "This entity can use this bit, that entity can use that bit, no one can use this one," and so on.

As a result, there are whole sections reserved for companies that aren't interested in using the space they've been allocated, nonadjacent bands are held by the same carrier, and big sections are given over to fading technology. Because the setup is a mess, companies are scrambling to buy up whatever bandwidth they can get their sticky little mitts on.

Last year, AT&T (NYSE: T  ) made a bandwidth grab by going after T-Mobile. AT&T offered $39 billion for T-Mobile, and it would have entered 128 new markets. While the purchase ultimately failed, it showed just how valuable companies think increased spectrum will be in the future. The problem is that it's all a facade.

The spectrum crunch lie
Spectrum crunch has a great ring to it, but expansion isn't the only answer. The nearsighted allocation of bandwidth and the explosive growth of users mean that there are lots of places where carriers can fix inefficient setups without hogging more airspace. For instance, instead of using more spectrum, companies can use their existing spectrum cut into smaller areas.

Imagine three adjacent towns. Two have coverage, and the other doesn't. As shown below, the carrier can either grab a new piece of spectrum or simply broadcast the existing spectrum in smaller segments.

This is a harder point to rally around, and it drives home the fact that carriers made mistakes -- not just the government. It's also likely that companies will both fight for more spectrum and upgrade existing technology to make things more efficient. This is where we find some unexpected winners.

Feeding the mobile beast
One of the biggest advances on the horizon is the microcell tower. These little transmitters cover much smaller areas, are cheaper to put in place, and allow companies to make full use of their spectrum, all by cutting down on overlap. Imagine the difference between packing a box with bowling balls, which would leave a lot of space between them, and packing it with marbles, which would leave very little space.

Alcatel-Lucent (NYSE: ALU  ) has had some success with its lightRadio architecture. The small cubes can be used to create smaller areas of coverage than a normal cell tower. This means that the same frequency can be used in a number of locations, even within the same city. The company is also integrating Wi-Fi with the cubes to increase their usefulness (more on this later). While the technology is still new, it has had a lot of interest already: Alcatel-Lucent has announced more than 30 existing contracts worldwide.

Another interesting solution has come from Ericsson (Nasdaq: ERIC  ) . The company announced the creation of a pico base station earlier this year, which would, like the Alcatel-Lucent cube, combine traditional cell broadcasting and Wi-Fi capabilities. This would mean that companies could ease the load running through their networks by offering voice-over-IP services through their smartphones. This would skip the traditional phone system and allow communication through the Internet instead. Users would likely be charged data rates instead of minutes.

The cleverly named joint venture between Nokia (NYSE: NOK  ) and Siemens (NYSE: SI  ) , Nokia-Siemens, has a different solution. Its Liquid Radio network can adapt broadcasting based on user location and need. This means that if there are a lot of users near the bases, then the system can switch to broadcasting local, low-frequency transmissions, allowing a wider range of spectrum to be used for people farther from the bases.

The takeaway
The spectrum specter can only last so long. Sometime soon, cell towers and the nature of the cellphone network will have to change. That's when these infrastructure providers are really going to shine.

My favorite play here is Nokia. The stock has taken it on the chin over the last year, in part due to a reported loss in the first quarter of this year. Shares are under $3 after trading around the $6 mark for most of 2011. The Liquid Radio technology seems to have taken a bigger-picture view of the problem, and I think carriers are going to get hooked on its reactive nature.

Once all the hype fades, I think Nokia-Siemens is going to come out on top with an industry-leading way of distributing cell signals. But they aren't the only ones looking to profit from the boom in cellphone usage. The Fool has created a free report highlighting one mobile stock ready to pop. Get in before the rest of the market catches on -- get your copy today.

Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (3)

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  • Report this Comment On June 20, 2012, at 10:25 PM, ldownes2 wrote:

    There may be new technologies coming (some available) for making more efficient use of existing spectrum, but that hardly makes the spectrum crunch a "lie." The crunch is happening NOW. Just ask anyone in New York or San Francisco.

    More towers, microcells and the like are all good ideas, but you don't seem to realize that deploying any of those technologies is subject to local zoning authorities, who regularly delay or refuse new towers, changes in equipment to existing towers, or pole attachments in name of aesthetics, perceived health risks, corruption, or just plain incompetence.

    Right now, there are over 1,000 pending applications for new equipment deployments, some pending as long as three years.

    It's the most counter-productive example of not in my backyard you can imagine, because the equipment has to be placed near where users are most demanding capacity, and these are often the same communities who say no or simply stall.

    The FCC has proven unable to make any headway on this problem, despite the creation of a 180-day shot clock for approving or denying applications. The legality of the clock is still being challenged, for one thing.

    It would be nice to assume away these regulatory constraints. Nice, but utterly unrealistic.

  • Report this Comment On June 21, 2012, at 10:57 AM, exeter17 wrote:

    Simply cutting everything up smaller doesn't really work. You'd need over 1,000 microcells (1500 sq feet) to cover what a full cell (3-9 miles) covers now. And in aggregate are you using more power?

    I'd rather see more efficient coding used (you lose 50% of capacity with overhead, retransmitting, and error correction) than myriads of towers.

  • Report this Comment On June 23, 2012, at 5:29 PM, CalBubba wrote:

    This article is a lie. It's so disconnected from reality it reads like a tout for a perpetual motion machine. Here are the basic facts about spectrum:

    1. Radio Frequencies from 500 MHz to 3 GHz are best for mobile networks, but only 20% of these frequencies are currently assigned to mobile network use.

    2. The largest user of prime radio frequencies is the federal government, who uses as much as the largest mobile network for no purpose but video spying on American citizens, and another 400 MHz that they mainly waste because it costs the agencies nothing.

    3. New technologies for spectrum efficiency develop slower than technologies that consume spectrum. Demand moves faster than supply in terms of technology and always has. Look up "Cooper's Law" and "Moore's Law." 30 months vs. 18 months.

    4. Building new towers is extremely costly, and as the man says, it requires zoning approval.

    5. The more towers you have, the more spectrum you need. Look at your picture. You have blue and green circles, with turquoise areas of overlap. Unless green and blue use different frequencies, users in the turquoise area have no service. The more towers, the more turquoise, hence the more spectrum you need.

    6. Hence, the government needs to back off the spectrum it occasionally uses and set mobile users free.

    7. There will never be a perpetual motion machine.

    Thank you.

  • Report this Comment On July 19, 2012, at 9:50 PM, richalt2 wrote:

    I have to ask if you have actually measured the spectrum utilization at your local celltower? Cell towers plug into a wired network. Suppose the cell tower spectrum bandwidth is a peak of about 200Mbits, for 3G. What is the wired network to service that tower? It can only be fiber. Now google search for cell tower backhaul fiber, and I think you will discover many cell towers are served by much, much slower DSL or other technologies, providing perhaps 10Mbits to the tower.

    A cell tower without fiber is not a spectrum limitation at all.

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