The US/Europe Wireless Spectrum Paradox

This note examines the US 'spectrum shortage' campaign. We think that US 3G services will be forced to use existing spectrum, rather than move to greenfield frequencies. This is highly relevant to Europe because the lack of dedicated 3G spectrum in the US strongly favours CDMA2000 over Europe's preferred WCDMA. We see signs that several US operators will have CDMA2000 based 3G systems in place, with fully-functioning handsets, long before Europe. The onward march of GSM and its successors into the US may not be the foregone conclusion that some expect. Deutsche Telecom's bridgehead, VoiceStream, is not, for example, as well positioned as Sprint PCS. Furthermore, Vodafone's attempt to get Verizon Wireless to use WCDMA looks ill-conceived to us.

In our forthcoming report ‘BT Restructured Into Pieces’ we detail our views on BT's prospects as a separated entity, and consider the mooted spinning out of BT Wholesale in light of Oftel's current regulatory tone. In the report we argue that Oftel is likely to be favour the separation of Wholesale from Retail since Oftel has been disappointed with the rate at which effective competition has developed in the telecoms market, particularly in the residential market.  In no small part, one of the barriers to the development of effective competition has been the vertical integration of BT. There is no incentive for BT Wholesale to hasten the process of cutting access costs to the network, or to unbundle the local loop. Each of these activities would harm BT's retailing activities, and BT Retail generates extremely high returns on capital (184%pa).