Putting The State Of The U.S. Wireless Industry In Perspective

Includes: DISH, TMUS
by: Armand Musey, CFA

It's easy to complain about the state of the US Wireless industry. I recently took a transatlantic flight and the Internet access on Turkish Airways over the Atlantic Ocean was better than the Internet access in the International Terminal at JFK Airport! Indeed, much has been said and written about the U.S. spectrum crunch and the inadequate regulatory responses as well as the obscene international roaming charges U.S. subscribers often pay and the hassle of locked phones. But the state of the U.S. wireless industry is really not so bad. Here are some facts:

  1. The U.S. has 608 MHz of spectrum allocated for licensed wireless broadband - up from 170 MHz in 2006. This is more than almost any other country except Germany with 615 MHz. Most European countries have hundreds of MHz less.
  2. Highly touted Asian competitors including Japan and China also behind on spectrum - 500 MHz and 227 MHz respectively.
  3. The U.S. is also ahead of the curve on unlicensed spectrum with approximately 500 MHz of new unlicensed spectrum in the NPRM stage. It's the only country with rules for white space devices.
  4. The United States has seen wireless Capital Expenditures increase by about 75% since 2007 according to Goldman Sachs. Multiple sources show that Europe has seen a significant decline in Capital Expenditures over the past several years.
  5. The U.S. currently has 70% of the world's LTE subscribers. While this number is sure to decline as countries with large populations add service, this shows the U.S. market is massively ahead of what other countries have achieved. I recently tested my broadband speed my 4G iPhone in Manhattan on a Saturday night - the most crowded market in the country - during a crowded time. I had 14 Mbps download and over 1 Mbps upload. On a Sunday afternoon, I had 24.4 Mbps download and 5.3Mbps upload!
  6. In addition to terrestrial wireless, the U.S. is also a leader in advanced satellite broadband with ViaSat's Exede and Hughes Network Systems' Jupiter offerings. These satellite offerings, although lagging Cable and DSL, are becoming increasingly competitive. Additionally, the U.S. has the world's only mobile satellite radio system - SiriusXM Satellite Radio.
  7. Despite enjoying these technical advances, according to the CTIA, U.S. consumers also benefit from the lowest pricing and highest wireless usage rates in the developed world.

The U.S., as with other countries, also has plans to add several hundred MHz of licensed spectrum over the next several years. While these plans are behind schedule, so are those of most other countries. Currently, wireless carriers have build out perhaps 250 MHz of the 414 MHz available below 2.5 GHz and perhaps 1/3 of the 194 MHz of spectrum in the 2.5 GHz band. They have still significant amounts of spectrum to build out before they need more - not to mention that other countries, such as Japan, have much denser cell sites.

I am don't mean to be an apologist for FCC delays or to suggest "we're fine since everyone else is even worse-off." I am all for having a healthy does of dissatisfaction to avoid complacency. And given the economic and social benefits of increased broadband, the U.S. wireless industry is right to aggressively goad regulators to deliver as much as possible. But let's not lose sight of the big picture: the U.S. wireless industry is working reasonably well.

Industry players have taken note of the attractive qualities of the US wireless market. Germany's Deutsche Telecom increased its investment in the US wireless market by raising its stake in T-Mobile (NASDAQ:TMUS) and Japan's Softbank is bidding for Sprint. Clearly they are seeing something more attractive in the US wireless industry than in their home counties. Dish Network (NASDAQ:DISH) is also seeking a way to enter the wireless market as well. International investment is likely to drive increased pressure on regulators for more spectrum harmonization with other countries. This, in turn, is likely to allow for less expensive hardware (both network hardware and consumer devices) due to improved economies of scale. The FCC is moving rapidly to increase Wi-Fi and shared spectrum which should allow wireless companies to increase their capacity at lower costs. So, as good as it have been for the wireless industry, the best may still be ahead of us.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.