Everybody claims there is a "spectrum shortage," but as regular readers here know I think that's a lot of bunk.
Shares in Sprint (NYSE:S) have more than doubled in price since I asked in April whether the company could survive. Some commenters have openly stated that I should not be permitted to write at Seeking Alpha because I was so "wrong" about the company.
I wasn't. Sprint found a $20 billion lifeline in Masayoshi Son, who sees the company as part of a global wireless network that can compete head-to-head with Vodafone Group. Son has leveraged himself to the hilt for this, and Sprint now owns 51% of Clearwire (CLWR), giving it an enormous amount of spectrum with which to pursue his ambitions.
That doesn't mean there's a spectrum shortage. It may just mean there's a greater fool out there. Gains for Sprint shareholders are nearly being matched by losses for Son's Softbank. and managed to lose $70 billion in the dot-bomb crash. Everything here depends on execution, on gaining enormous amounts of market share.
But the size of that market will remain limited because of the nature of spectrum. Spectrum is an ocean, not land. Its value is artificially inflated by being made proprietary, as that means you have to build multiple, incompatible networks.
It's easy to use lower power antennae, data compression, and techniques of cellularization and sectorization to keep getting more bandwidth out of a given hertz of spectrum. By moving signals out of the wireless space as quickly as possible, moving them onto the wired Internet, I can now have a 100 Mbps connection inside my house and so can each of my neighbors.
That speed is going to go up, as the FCC has now authorized another 195 MHz of spectrum in the upper WiFi band and it plans to open up more. WiFi, in which spectrum is shared and defined by hardware, offers every home as much bandwidth as their wired Internet connection will allow.
Son may be able to build out a third major wireless company out of Sprint and Clearwire, through brute force and massive investment. But the impact of that will be negative for Verizon (NYSE:VZ) and AT&T (NYSE:T) - demand can't grow faster than it can grow, and improved technology continues soaking up most of that demand.
Dish Network's (NASDAQ:DISH) bid to take Clearwire from Sprint is utter nonsense, as Sprint already has a majority stake in Clearwire. It seems aimed more at drawing a bid for DISH, perhaps from News Corp. (NASDAQ:NWS) - or Fox Corp. as the larger piece will soon be named - than building anything new. Once the News-Fox split happens, Fox will be in the market for carriage, and its failed attempt to buy the rest of BSkyB will only whet its appetite for a big win.
Sprint is now valued based on pure speculation that Son will succeed in building out his global network, and gain share. It's not based on any intrinsic value for the spectrum. The company is unprofitable and will remain unprofitable for years, as it builds out its system. It will have to engage in a low-price strategy to compete. We're talking about a story that will take five years to play out, and whose outcome even then is uncertain.
If you want to be part of that, god bless you. Just admit you're a speculator, and don't pretend that the spectrum has any inherent value. Spectrum can only be valued based on its use.