The Scramble for Wireless Spectrum

Demand will soon outstrip supply, so telecom carriers are looking at how to get the most out of what they already have

These days, wireless service operators resemble homebuyers in a tight housing market. Verizon Wireless, AT&T Wireless, and Cingular are each seeking a roomy, four-bedroom home to accommodate their growing family of users. Sadly, all that's available are cramped one-bedrooms. Yet frantic buyers bid up the the already sky-high prices.

That's pretty much what happened on Oct. 26, when Verizon Wireless and partners of AT&T Wireless (AWE ) and Cingular agreed in a complex deal to pay $16 billion for patches of spectrum in such crowded markets as New York City. And a furious fight to pay top dollar for more spectrum is probably just beginning. More bidding is bound to ensue if, as expected, the Federal Communications Commission decides on Nov. 8 to increase the amount of spectrum a carrier can own in a given area by 22%, to 55 megahertz. And big operators undoubtedly will scramble to gobble up smaller rivals.


  The amount of spectrum available -- even if the FCC doles out new radio frequencies in a couple of years -- won't come close to satisfying needs, says Rudy Baca, global and wireless analyst for tech trends researcher Precursor Group. The number of U.S. wireless accounts, which stands at nearly 130 million today, could double within a decade. Among small businesses alone, the number of subscribers for wireless data services is projected to grow from 765,000 in 2000 to 7.3 million in 2005, according to tech consultancy Cahners In-Stat. Demand for Internet-based applications is expected to explode, too -- vastly increasing the amount of spectrum operators need.

With spectrum in short supply, carriers will have to find new ways to make more of what they already have. "There's clearly a need for not only more spectrum but also technologies to use it better," says Jerry Kaufman, founder of wireless consultancy Alexander Resources.

Wireless companies already use all sorts of techniques to squeeze more traffic through their existing spectrum. They strip Web pages of their graphics and photos before directing them to small cell-phone screens, for instance. Or they use "vocoders," which break calls and data into small pieces before they're transmitted.


  In the coming years, operators will have to find new ways of doing this. One new technology is software that helps carriers better utilize their spectrum. Engineers at startup company Schema collect data from operators' wireless equipment, analyze hills and other obstacles in the local landscapes, and plug the numbers into a program that figures out how to fine-tune the gear for maximum efficiency. Verizon Wireless increased its capacity by 10% using Schema's services.

Sprint PCS, the nation's fourth-largest wireless services provider, is investigating another technology, called smart antennas, says Tom Crook, the company's director of technology research. Smart antennas, such as the one developed by San Jose (Calif.)-based ArrayComm, essentially make a virtual one-to-one connection with every user instead of wasting energy by broadcasting signals in all directions. Carriers that use the antennas can fit five times as many users into their spectrum, says Martin Cooper, the company's chairman and CEO and the inventor of the cell phone.

Telecoms might also look into extensive equipment overhauls, like that offered by startup Flarion Technologies. The Bedminster (N.J.) company -- which on Oct. 29 raised $45 million from the likes of Cisco Systems, Charles River Venture, and other big investors -- builds networks that would exclusively handle data traffic. That could improve overall network efficiencies because the next-generation (3G) systems that many service providers are constructing could be too slow when loaded with massive volumes of data -- such as film clips -- says Rajiv Laroia, Flarion's founder and chief technology officer.


  The company's equipment sends data in small packets, allowing 3G networks to operate as much as three times more efficiently, he says. Flarion will conduct its first trial with a national U.S. carrier in November and another in early 2002.

The big question is: How long will it take for such new technology to be adopted? For now, "it's often cheaper for companies to buy spectrum than to upgrade their technology," explains Dan Pegg, senior vice-president for Leap Wireless (LWIN ), a small provider of wireless data services. ArrayComm's antennas, for instance, require a complete revamp of carriers' base stations, which capture and forward signals. The equipment could cost 30% to 45% more than that used in the current networks, says Cooper.

However, "carriers will buy those technologies when they realize they don't have other alternatives," says Baca. Some analysts don't expect that to happen until 2005 or 2006. No matter when, everyone knows that one day the crunch will come.

By Olga Kharif in Portland, Ore.

Edited by Thane Peterson

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