Sprint: Sprinting on Wall Street or Lagging In DC?

The Federal Communications Commission has an opportunity to look to the future when designing the upcoming incentive auctions under the new leadership of Chairman Tom Wheeler. The FCC has been considering screening or capping the amount of spectrum that carriers can win at the auction, and it appears that some of those suggesting methods of screening are stuck in the past on spectrum capabilities, rather than looking to the future. Chairman Wheeler has promised to stress competition over regulation going forward and the upcoming incentive auctions will truly benefit from this philosophy.

Unfortunately, some regulations or philosophies of regulation get caught in the past when they don’t need too. For example, even though cable companies, telephone companies and internet service providers offer many of the same services, they are regulated based on the technology they use to provide the service, not the service itself. This siloed approach is based on regulations from over 17 years ago, and has been problematic when industry wants to innovate in order to provide better services. The same thing could happen as the FCC considers the value of spectrum.

However, Chairman Wheeler has stated that he is "'an unabashed supporter of competition because competitive markets produce better outcomes than regulated or uncompetitive markets.' Yet we all know that competition does not always flourish by itself; it must be supported and protected if its benefits are to be enjoyed. This agency is a pro-competition agency." A philosophy of promoting competition and marketplace solutions will be well placed in the incentive auctions.

The spectrum bands in lower ranges, for a long time, have been referred to as beachfront spectrum. This is because its particular propagation characteristics were ripe for mobile communications from the get go; technical protocols were already developed for these bands, which were therefore easier to innovate from and provide service. However, as we move through each successive generation of mobile protocols, and the time span of each generation is shorter than the one before, the type of spectrum used isn’t what is important, it is the technology deployed and the protocols used that are important in creating a powerful network. Chairman Wheeler noted the excitement of moving quickly from network generation to network generation and the for the regulatory agency to "advance with speed."

…

"There is no doubt that today we are living history in the midst of the fourth great network revolution….

What makes our revolution different from its predecessors, however, is the speed with

which it has developed and the velocity with which it continues to evolve."

…

Sprint is a prime example of powerful innovation. Sprint has a remarkable amount of spectrum, much of it in the upper bands, 1.9 GHz and 2.5Ghz. Additionally, they have a considerable presence in the PCS spectrum (800MHz range). PCS has been cited by Wells Fargo analysts as the premium band for LTE innovation and Sprint has done just that.

During Sprints Quarterly report to investors, it cited a number of innovations that Sprint believes will make it one of the most competitive carriers in the market. On October 30^th, Sprint was able to demonstrate service running at 1Gbps via the introduction of Sprint Spark, an enhanced LTE service designed to switch seamlessly between Sprint’s 800Mhz, 1.9 GHz and 2.5 GHz cellular bands. Sprint has already launched 4G LTE in 130 markets across the US with plans to provide 200 million people with 4G LTE by the end of 2013. This will certainly increase competition in the cellular market space, not to mention that 1Gbps is a remarkable speed for wireless and would definitely go a long way to connect low-income individuals to high-speed broadband service. Sprints innovations in these areas of spectrum previously thought to be less successful at transmitting mobile data than other spectrum bands, shows that it is how the spectrum is used not the actual band that is important; innovation and ingenuity take precedence not regulatory market creation.

Unfortunately, Sprint has been telling two different stories: one to wall street and one to washington. The Wallstreet story is one of triumph in with wireless industry in terms of increases in speed, customers, capital and CapEx, while the Washington version portrays Sprint as having a weak market position and needing a leg up from DC regulators.

In Sprints call with investors the noted a much improved revenue standing that would only continue to improve in upcoming quarters as the Nextel infrastructure rip out and rebuild would be winding down and they will complete turning on the Clearwire and Sprint cell cites, with more than 90% of Sprint cell cites completed or under construction and completion of 5,000 Clearwire cell cites by the end of the year. Once these sites are running fully, Sprint will be able to offer higher speeds and expects to reduce churn and increases new subscribers. However, while Sprints portrays a rosy financial position to investors, they have turned to Washington and expressed fears of not being able to financially compete with AT&T and Verizon when it comes to bidding in the incentive auction.

The high band 2.5 Ghz spectrum acquired from the Clearwire transaction, will be used for enhanced speed with expectations to be on par with competitor Verizon by 2015. Sprints goal is to build out 120 Mhz of the 2.5 Ghz band across the nation; not just activate hotspots in major cities. With 4G LTE already available in 130 markets and a plan to have this capability available to 200 million people by the end of this year, Sprint's diversified spectrum holdings and increased speed capability may very well prove to be an enviable position. In fact, Wells Fargo analyst, Jennifer Fritzche, said “Spectrum could be Sprint’s secret sauce … In our view, the ‘new’ Sprint’s strategy will be all around network speed and throughput.” However, when talking to Washington, Sprint has claimed that high band spectrum is not competitive in an LTE environment and that if the FCC imposes a screen during the incentive auctions their high band spectrum should not be included in the count; however, AT&T and Verizon's spectrum should.

The FCC should see that Sprint's progress will continue and other carriers will innovate in similar ways on their own networks. It isn’t about the band it's about flexible licensing and allowing competition to take its course. Excluding any carrier from the spectrum auction based on what type of spectrum a particular competitor has seems to be an early 90s way of looking at innovation and competition.

As Chairman Wheeler has made clear that market competition should lead the way, it is important that if the FCC does decide to use a screen for certain markets it should be a tool applied equally to all types of spectrum and not weight one particular type of spectrum as more valuable than another. In this way regulators will not unduly influence the market based on priorities outside of Congressional direction, but support and protect competition.