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By Lydia Beyoud
March 9 — Wireless broadband deployment and infrastructure investment in rural areas could fall by the wayside due to Title II regulation of broadband services, though urban areas are likely to remain competitive, a panel of telecom analysts said March 9.
Wireless carriers are facing a two-pronged prospect of tighter regulations combined with the potential for significant outlays to acquire spectrum in the upcoming incentive auctions. Any network infrastructure investments in the near and mid-term “are now going to be subject to a much finer grain-level of scrutiny in terms of prioritization,” said Charles Golvin, of Abelian Research.
Though wireless operators “can never have too much spectrum,” they are less likely to continue pursuing wireless technologies as a home broadband solution in markets that are unserved or underserved by wireline broadband providers, Golvin said during the panel, which convened via a conference call hosted by Recon Analytics.
Urban markets and the infrastructure required to support services in them are likely to continue to receive investment because the return on capital will be more assured in those areas, Golvin said.
Wireless carriers invested more than $33 billion in their networks in 2013, according to CTIA-The Wireless Association.
The legal and regulatory uncertainty over the FCC's net neutrality rules under Title II of the Communications Act of 1934 aren't only likely to dampen interest in keeping investment on par with current speeds, but may also affect carriers' ability to raise money from Wall Street to participate in the incentive auctions slated for 2016, said Roger Entner, of Recon Analytics.
Though the details of the Federal Communications Commission's final report and order (GN Docket No. 14-28) aren't yet available because the text hasn't been publicly released, the rules would broadly reclassify wireline and wireless broadband service providers as common carriers under Title II, though many sections of the law won't be applied.
Speaking March 3 at the Mobile World Congress in Barcelona, FCC Chairman Tom Wheeler said the rules should result in no change in investment.
However, if Wall Street views mobile carriers as utilities with limited financial upsides and chooses to value them as such, the carriers may not be able to obtain sufficient capital to participate in the FCC's auction of an expected 100 MHz of broadcasters' 600 MHz block spectrum, Entner said .
Spectrum in the 600 MHz broadcast TV band is desirable for mobile for one simple reason: Signals travel far distances and penetrate walls and windows well, meaning wide-area indoor and outdoor coverage with fewer cell sites.
The question is whether Title II's impact and the ensuing market uncertainties created by a likely lawsuit over the rules in federal court will impact the success of the incentive auction.
“We will undergo a period of uncertainty in terms of wireless infrastructure and spectrum if we have a delay in the incentive auction” overlapping with Title II possibly having a dampening effect on receipts, Entner said.
One area that could see growth ahead of the incentive auction is interest in establishing more local peering points, said Jim Patterson of Patterson Advisory Services and former president of wholesale services at Sprint Corp.
There hasn't been as much investment in local peering points to keep up with the growth in mobile video, he said. However, that could change as carriers seek to ensure their ability to keep up with consumer demand by making sure that the servers that house video content sit as close to towers, main end offices, or wherever local exchange carriers are, he said.
As for providers who must now walk a fine line on the Open Internet's condition of reasonable network management practices, companies that provide compression algorithms, particularly for video data, could also become big winners, Patterson said.
“One of the areas where I see a lot of investment is getting more out of each packet of data,” he said. Facebook Inc. acquired QuickFire Networks in January, while Apple Inc. bought AlgoTrim in 2013, underscoring both companies' focus on better network delivery of video content.
A possible foot fault for providers under a Title II regime may lie in the “damned-if-you-do network management, and damned-if-you-don't,” said Entner.
Now that every bit of traffic is to be treated the same way, edge providers like Facebook or Google Inc. won't have an incentive to coordinate with providers on how their services deliver content, he said.
“The way apps are structured have a huge impact on how networks are performing,” Entner said, noting the advances in online video delivery over the past several years.
If carriers try to respond to applications overloading their systems, “they're almost inviting an oversight procedure by the FCC,” he said.
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