Recently proposed net neutrality rules from the FCC are likely to be most disruptive, and most interesting, at the wireless level. Opening up wireless spectrum use, and limiting a carrier’s ability to block traffic or, in other words, control the way in which its bandwidth is populated, could have tremendous ripple effects on an already dynamic segment. Here is one possible direction in causality:
- Net neutrality causes high-bandwidth applications to increase, which causes wireless bandwidth to become more constrained.
- As a result, consumers experience a slowdown and even disruption in wireless service.
- As a result, carriers are forced to expand spectrum holdings to improve customer service.
- As a result, spectrum value rises (i.e., supply and demand) and new spectrum purchases become more expensive.
- In the meantime, supply and demand at the consumer level limits carriers’ ability to offload these economics to their customer base.
- As a result, wireless profits begin to get squeezed, even as the value of certain assets (spectrum) increases.
- Depending on whether a carrier is a buyer, holder, or seller of spectrum, this is bad, less bad, or good news, respectively.
In recent press comments upon the new FCC proposals, it is fascinating to see the variety of reactions from the wireless community. Let’s look at the variety of responses, in light of the train of thought delineated above:
- Clearwire seemed comfortable with the concept: read, seller, and this makes sense in light of the huge capital expenditure ahead to build out its network and roll out service.
- AT&T was livid: read, buyer, and for good reason, given the horrible network quality and commitment to an iPhone that will only push consumer bandwidth demand further.
- Verizon was sort of upset, but not too badly, and mainly going along for the ride: read, holder, and this too makes sense for a carrier that prides itself on being at the forefront of network quality.
There will be other consequences to wireless net neutrality, to be sure, many of which less immediate. Here are a couple:
- New technologies that enhance bandwidth efficiency should start to go at a premium: look to the venture capital community to jump on this bandwagon soon enough.
- Even longer term, however, there may be an impact in unlikelier places: take Radio, for example. With sector revenues on a never ending downward spiral, with financial leverage coming out of its ears, could this industry that is a massive holder of spectrum in bulk, be an eventual seller in this changing landscape? It will be interesting to see if and how the NAB responds to the proposed FCC legislation.