Analyst Commentary

• The FCC has written to Verizon requesting more clarification on the sale of its 700-MHz holdings.
• With Leap ssying it won't need new spectrum until 2015, there is a dichotomy between carriers arguing that a spectrum crunch is imminent and the level of currently unused frequencies.

Today we focus on three developments:

• Spectrum/LTE: There have been several spectrum developments in the United States, with the FCC seeking an explanation of Verizon's sale of its holdings in the 700-MHz band, while the regulator continues its investigation into the deal between the wireless carrier and cable operators. The FCC will also have to decide whether to approve the spectrum deals in which Cox Communications will sell some of its 700-MHz frequencies to AT&T and US Cellular. Meanwhile, Leap Wireless plans to cover 65 million Americans with its LTE network by 2014 as is hopes to release sub-USD150 smartphones by the end of the year. The carrier has said it won't need any new spectrum over the new next three years as it hopes to re-farm some of its CDMA frequencies in the AWS and PCS bands for its LTE network.

• Mobile Payments: A day after the Canadian Banking Association announced mobile payments guidelines, Rogers and the Canadian Imperial Bank of Commerce (CIBC) have introduced a new mobile wallet solution using near-field communications (NFC) as the main technology. The new CIBC mobile payments capability will be available on select BlackBerry smartphones on the Rogers wireless network when the solution launches later this year, with additional device choices for clients available following launch, and will be available on multiple credit cards, such as Visa and MasterCard. In the US, the Isis joint-venture has announced its first merchant partners in the cities of Austin and Salt Lake City, which include retailers such as Aeropostale, the Coca-Cola Company, Champs, Dillard's, Foot Locker, Jamba Juice and Macy's.

• LightSquared: Despite having filed for bankruptcy earlier this week, LightSquared has agreed a new LTE wholesale deal with InterGlobe Communications. In its Chapter 11 filing, LightSquared said it is committed to finding a solution to its regulatory issues and that it will continue to offer services to its customers. However, the signing of a new client is still surprising as it seems unlikely that the FCC will reverse its decision. It is more likely that the announcement is more of a ploy to show regulators that many third parties depend on its services as it looks to gain damages should it be forbidden to launch its network.

Our Take

During the CTIA conference last week, spectrum and regulation were two of the main issues discussed, and the discussion is likely to continue well beyond 2012. Spectrum has become the key resource for mobile carriers as their revenues are driven by mobile data and broadband, and they often raise the spectre of a spectrum crunch if more frequencies aren't released. The FCC itself has recognised the need for more spectrum to be released, but it has struggled with its lofty goals from the 2010 National Broadband Plan, which had an objective of an extra 500 MHz by 2020, of which 300 MHz would be available by 2015.

However, with Verizon and Leap, we have two carriers seeming to suggest the crunch is not imminent as Verizon readies itself to sell its 700-MHz holdings and the A and B bands with the condition that it gains approval for its AWS acquisition, and Leap saying it has enough frequencies through its current holdings and re-farming. The FCC is right to ask why Verizon would relinquish frequencies while it claims to need more spectrum and the regulator will also ask what Verizon's plans were for the bands as its licence obligations required it to start building a network by mid-2013 at the latest. While it is true that the AWS spectrum will be more compatible with Verizon's nationwide 700-MHz licence in the C block, it raises the question of efficiency and the use of the available resources as a lot of the AWS frequencies haven't been developed by licence winners since the auction in 2006.

The National Association of Broadcasters (NAS) has recently called for the FCC to release an inventory of spectrum in the US and while it follows its own members' interests following the congressional approval of incentive auctions, it is also clear that more clarity is needed in who owns what and what has been done with the licences that have already been issued. Spectrum is a valuable but finite resource, and only through greater efficiency will it be used at its best, with the other option being consolidation and less competition in the market.