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The Cloud Over the Wireless Spectrum Auction

There’s a spending spree under way among the country’s wireless juggernauts for valuable spectrum.

But can the bidders—the biggest of which are thought to be AT&T and Verizon—grow revenues enough to justify these investments? The total value of winning bids has reached $44.3 billion, according to the Federal Communications Commission, far higher than initially expected.

Reinforcing that question right now is a price war sparked by two smaller national firms, T-Mobile USA and Sprint, that is squeezing wireless carrier margins. While Verizon and AT&T haven’t been as aggressive as their two rivals, each has been forced to cut the effective price it charges for wireless data. Verizon, for instance, recently raised the amount of data it offers for $80 a month to 10 gigabytes from six.

The price cuts are a meaningful development for anyone whose business is connected with the mobile industry, making it easier for consumers to use mobile services.

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Those promotions, which are aimed at attracting more customers, have the potential to backfire by creating more congestion on the network, argues Dennis Saputo, an analyst with Moody’s Investors Service. That means “the user experience is going to deteriorate, and customers will start to flee. And they will go to the industry providers that have the best networks, AT&T and Verizon.”

Sutha Kamal commented on this article.
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To get even a modest return on the spectrum costs, the four carriers would need to generate “an incremental $1.40 per month of wireless revenue for every man, woman and child in America."