Bits on Broadband : with Fred Campbell

The National Broadband Plan recommended that the FCC “accelerate terrestrial deployment in 90 MHz of Mobile Satellite Spectrum (MSS).” The FCC began implementing this recommendation this year when it granted LightSquared a waiver to use its MSS spectrum for a wholesale terrestrial LTE network intended to “enhance[e] competition among mobile wireless providers.” Until recently LightSquared appeared to be the FCC’s only near-term opportunity for a new nationwide, facilities-based mobile broadband competitor.

That changed a few weeks ago when Dish Network unveiled its own plans to build a terrestrial LTE network using MSS spectrum. Dish Network is buying both DBSD North America and TerreStar, who together hold 40 MHz of MSS spectrum in the 2 GHz band. In its recent application seeking approval for the Terrestar transaction and waivers to provide terrestrial service (available here), Dish Network says that, if its requests are granted, it will make “substantial terrestrial network deployment commitments intended to increase wireless broadband competition, including in rural areas.” (Application at 48.) These commitments include deploying an LTE Advanced network pursuant to a “reasonable, attainable buildout schedule keyed to commercial availability of the LTE Advanced Standard.” (Application at 48.)

Dish Network’s plan to build a new 4G broadband network offers the potential for significant competitive disruption in both the mobile broadband and MVPD markets, especially when combined with the retail and streaming video assets Dish Network acquired from Blockbuster earlier this year. Due to capacity and other limitations inherent in satellite broadband services, satellite TV providers don’t currently offer broadband services capable of competing in urban and suburban markets with the cable modem, DSL, and fiber offerings of other multichannel video programming distributors (MVPDs). The inability of satellite TV providers to offer competitive broadband services in urban and suburban markets is in part why cable operators have maintained approximately 70% market share while Dish Network has competed primarily on price. With its planned 4G deployment, Dish Network could compete on quality of experience by offering video, broadband, telephone, and mobile services on integrated service platforms through Blockbuster’s virtual and retail stores (imagine mobile devices that access a Blockbuster apps store with streaming content, a TV device that seamlessly combines Dish Networks satellite programming with streamed wireless services, etc.). For the first time, Dish Network would be able to compete across the entire value chain.

Dish Network is also well positioned to quickly become a formidable new competitor in the mobile broadband market. Unlike a typical new entrant, Dish Network already has significant brand awareness and customer relationships, existing retail networks, and an industry partnership with Frontier Communications. Dish Network could leverage its 14 million MVPD subscribers, 4 million Frontier Communications customers, and Blockbuster retail stores to quickly generate a nationwide presence in the mobile market and substantially lower its customer acquisition costs. Because Dish Network does not have an embedded base of devices that depend on earlier generations of wireless technology, it would be able to deploy and maintain a single, cost effective LTE Advanced network. Its spectrum would also enable the use of spectrally efficient 20 MHz channels – a channel size some incumbent mobile operators cannot deploy due to the limitations of their spectrum holdings. (For example, Verizon’s current generation LTE network is limited to 10 MHz channels based on its available spectrum.) Although Dish Network may eventually need more spectrum, as a new entrant with no legacy technology concerns, Dish Network wouldn’t face a capacity crunch anytime in the near term.

Given the potential for Dish Network to increase competition in both the MVPD and mobile markets, I expect the FCC to grant the application. It would be difficult for the FCC to deny Dish Network’s application after granting similar relief to LightSquared. Even if the FCC would have preferred to reassign the 2 GHz MSS spectrum using an incentive auction, Dish Network’s commitment to “creating a competitor against the mobile broadband incumbents” (Application at 22) is an offer the FCC is unlikely to refuse.