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To respond to the spectrum shortage, carriers can implement options such as tiered-pricing plans, while regulators should consider accelerating the auction process.

The shortage of wireless spectrum capacity will get worse in many countries in the near term, especially in dense urban areas, Deloitte predicts. This will happen despite efforts by regulators in many global markets to improve spectrum availability and efficiency. Users affected by the spectrum shortage will experience dropped connections and slower download speeds and may even be unable to access networks.

“It’s all about demand and supply,” says Duncan Stewart, director of research for technology, media, and telecommunications for Deloitte Canada. Demand for wireless bandwidth continues to grow by leaps and bounds, but supply is relatively constrained. By 2014, the U.S. alone may suffer a “spectrum deficit” of 275 MHz. “That represents 50 percent of the currently allocated capacity of 574 MHz,” says Stewart. The implication is clear: For at least the next several years, demand for wireless bandwidth will likely outstrip efforts to improve supply.

While neither carriers nor governments can create more spectrum capacity, they can take steps to alleviate the worst impacts of the shortage. Carriers and other users of the spectrum, such as broadcasters, should also be prepared to bid competitively when governments auction more frequency bands. Depending on how effectively these various actors cope with spectrum scarcity, CIOs may need to plan for a wireless world where reliability is lower, speeds are slower, and prices for spectrum-intensive services like data are higher than today. The mobile workforce could be a lot less mobile if they can’t connect at the speeds and prices they need.

Soaring Demand vs. Finite Supply

A spectrum shortage is like a congested highway, says Stewart. Users can expect wireless “rush hours” to be characterized by two to three times as many failed attempts to connect, and three to four times as many instances of dropped calls or frozen Web browsing. Both 3G and 4G speeds will be 50 to 90 percent lower than expected. In the worst situations, video streaming will be impossible.

The spectrum itself is analogous to land—no more can be made, it’s difficult to share, and spectrum bands vary in their utility. Cellular devices operate in the portion of the electromagnetic spectrum ranging from 600 MHz to 3600 MHz. These bands are strictly regulated by national governments and allocated for specific purposes.

The demand for additional spectrum arises from the seemingly insatiable consumption of wireless broadband communications. Wireless traffic has more than doubled each year since 2009, and the increasing penetration of smartphones and tablets only serves to exacerbate the problem.¹ Today, the average smartphone is responsible for 35 times more traffic than a typical cellphone. It’s expected that by 2017, wireless traffic will have increased eight-fold over levels in 2012.

There are ways to improve spectrum availability and efficiency, but they are either inadequate to the challenge of keeping up with demand or won’t come to fruition in the near term.

Governments can allocate or reallocate frequency bands to operators. For the last decade, the auction approach has become the preferred model for assigning spectrum, both as a source of government revenue and a relatively transparent method of allocating scarce and valuable resources. Although auctions make additional capacity available, such as by repurposing analog TV bands, they haven’t occurred rapidly enough to meet surging demand.

The limited spectrum can also be used more efficiently. 4G technologies such as LTE have substantially improved spectral efficiency. LTE is almost 16 times better than 3G at moving a bit of data over a hertz of spectrum. However, in the seven years it has taken to develop and widely deploy this new technology, wireless traffic increased 30-fold. Telecommunication equipment vendors simply can’t invent new technologies fast enough to meet growing demand.

In another approach, called cognitive radio, a device detects all parts of the wireless spectrum and dynamically alters its transmission or reception parameters according to which bands are available. This allows much more data to be sent over a given spectrum band at a given time.² Also known as dynamic spectrum management, this approach works in labs today, but adoption isn’t likely for many years.

Responding to the Shortage

Despite these obstacles, carriers and governments can consider several steps to respond to the spectrum shortage.

“One way to allocate a scarce resource is through pricing,” Stewart points out. To keep spectrum demand under control, carriers may want to establish tiered pricing for data plans, charging higher prices for higher speeds at peak times in urban areas. Some customers will accept the higher prices and more complex data plans in exchange for guaranteed service levels. “It’s similar to toll roads,” says Stewart. “Some people are willing to pay for speed.”

Carriers may also want to provide more coverage options using Wi-Fi and small cellular base stations (picocells and femtocells). For example, instead of charging consumers for the small cells, carriers can respond to complaints of poor coverage by paying for the small cells themselves—regarding it as an investment in customer retention.

Deploying smart antenna technology with variable gain can correct for certain inefficiencies by directing signals toward devices generating or consuming traffic. In effect, this shrinks the cell site so that it only occupies the spectrum in the direct line of sight between the tower and device. As other devices consume traffic, they can share the same spectrum by also taking advantage of the directionally-focused antenna.³

Regulators may wish to accelerate and streamline their spectrum allocation process, which currently can take years or even decades. Further, they can look at allocating larger spectrum blocks. “Blocks have tended to be quite fragmented, which makes it tougher for the carriers to provide high-speed services,” says Stewart. Regulators can also consider encouraging solutions that promote spectrum sharing, particularly at the higher frequency bands.

Streamlining the cell site approval process—while continuing to allow for citizen input, of course—could help reduce some of the impact of spectrum scarcity. In some cities, macro-cell sizes are as small as they can usefully be, because rooftop antennas and towers cannot be spaced any more closely. But that’s not the case everywhere—sometimes the local resistance to new antennas is so intense that it can take years to erect a new tower.4