This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Feds Profit Too Much to End Wireless Spectrum Shortage

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

WASHINGTON (TheStreet) -- It's practically a rite of spring.

The mobile carriers scream about a coming shortage of spectrum. The government replies with plans to auction more.

It happens so often we take it for granted. But is it really true? Could the solution to the "spectrum crisis" lie in the government buying rather than selling the people's airwaves?

I think so.

Despite having begun as digital systems, mobile networks are not the Internet. They were digitized to squeeze more voice calls onto narrow wires. The whole system is pre-Internet, geared to voice rather than data.

All the major wireless networks own spectrum, bought in auction from the government. The largest holders are AT&T (T - Get Report) and Verizon (VZ - Get Report) (VZ). Sprint (S) and T-Mobile, a unit of Deutsche Telekom, also own large chunks of spectrum to handle wireless calls. But the business is consolidating -- the FCC recently rejected AT&T's purchase of T-Mobile, and Verizon is seeking approval to buy spectrum from a consortium of cable companies,

The Internet isn't like that. On the Internet, one set of compatible infrastructure is shared by all carriers. Peering agreements assure that everyone gets their investment back. The only non-duplicated bits are the "last mile" on either end. You pay at your driveway to use the highway, and your money goes back to the highway builders based on negotiated formulas.

On a wireless call, spectrum is the wire, radios the infrastructure. Why are all wires considered property and most of the radios incompatible with each other?

Traffic is increasing, as the carriers say. It costs money to add radios to a network. But each generation of carrier radios is better than what came before, so much so that all the carriers now have a negative return on invested capital.

It's Moore's Law in action. Your PC loses its value quickly because new, cheaper technology becomes available. The same is true here.

This negative return is driving out competition. Clearwire (CLWR) is now worth barely over $2 billion, and Sprint $7.6 billion, because they can't get enough traffic to pay capital before it becomes worthless. We will soon be left with only two viable carriers, and maybe they will have the market control needed to earn monopoly rents. Compare your wireless bill to a friend's in Europe or Asia and you might say they already have that power.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
CLWR $0.00 0.00%
S $5.27 0.00%
T $34.01 0.00%
VZ $50.03 0.00%
AAPL $130.28 0.00%


DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs