New Street: Spectrum Frontiers airwaves unlikely to devalue mid-band spectrum

The FCC will likely free up nearly 11 GHZ in new spectrum, as the chairman has proposed, when it votes on the Spectrum Frontiers initiative tomorrow, New Street Research predicts. But the analysts say the increase in supply probably won't slow demand for existing airwaves.

FCC Chairman Tom Wheeler has asked the commission to approve new rules "that will identify and open up vast amounts of spectrum for 5G applications." New Street analysts expect the commission to free up two main swaths during tomorrow's vote: 3.85 GHz of licensed, high-band airwaves; and 7 GHz of unlicensed spectrum.  

High-band spectrum is widely viewed as crucial for carriers because it offers increased capacity, enabling service providers to densify their networks and deliver more mobile data. Wells Fargo Securities analysts noted several weeks ago that the value of high-band spectrum has risen recently as data consumption continues to ramp up, and the value of those airwaves will almost surely continue to rise as carriers transition to 5G technologies.

But low- and mid-band spectrum still offers superior propagation characteristics, New Street analysts said, and will remain crucial to reach mobile users.

"Despite the large amount of spectrum supply coming to market, our view of traditional 'mid-band' spectrum value remains largely unchanged," the analysts wrote. "We believe the physical properties of millimeter wave frequencies will render the spectrum more akin to Wi-Fi than traditional, sub-3 GHz licensed spectrum. Sub-3 GHz spectrum will still have a vital role in the 5G world and operators will continue to compete for the limited supplies."

That might be very good news for Dish Network, which continues to sit on its mid-band spectrum as it lurks on the wireless sidelines. Some analysts have begun to question the value of those airwaves, particularly in light of the upcoming auction of 600 MHz spectrum. But New Street opined that the supply of low- and mid-band spectrum remains low relative to demand.

"We have long held the believe that, amidst a backdrop of data demand doubling every 2.5 years, investors should own one of the few sources of data supply: spectrum. We believed there were very sparse sources of additional spectrum available, and with supply increasing at a far slower rate than demand, spectrum values would rise," New Street analysts wrote. "Millimeter wave frequencies have been available for decades yet their physical properties make them very difficult for real-world deployment. While new technologies, specifically beam forming and 'higher order' MIMO, will improve our ability to harness these frequencies, millimeter waves will still require line of sight, thereby restricting these bands to specific roles in the network.

"We believe this restriction will render the utility of millimeter wave spectrum more akin to Wi-Fi," the analysts continued, "which already carries (roughly) 70% of network traffic and hasn't prevented licensed spectrum values from rising significantly over the last five years. We therefore do not believe the availability of millimeter wave spectrum will reduce the utility or value of traditional licensed spectrum, and continue to recommend owning sources of spectrum supply, namely Dish Network."

Related articles:
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FCC needs to tackle a bunch of thorny issues on mmWave spectrum before unleashing it
Wheeler: U.S. will allocate 5G spectrum 'faster than any nation on the planet'
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