DataEconomics2

What Are We Really Paying For When We Pay for Data on Our Phones?

Essentially, you’re buying the ability to hitch your information onto a particle whizzing through the air — all of which is managed by the government

How exactly do data rates work? Like, is there an actual cost to texting videos and playing games on your phone, or are the phone companies just screwing us all? Can they just make more? What even is bandwidth — and anyway, doesn’t the military hog a lot of it? Alongside Laurence Milstein, a distinguished professor of electrical engineering at the University of California, San Diego who studies terrestrial communication theory, we’ve created some bandwidth to figure out what it is you’re actually paying for, and why.

So, about all this technology. Start at square one for me.

Okay, cell phones communicate and send data over radio waves. These are part of the electromagnetic spectrum, which comprises all the types of electromagnetic radiation in the universe, measured by their wavelengths: Though they all move at the speed of light, radio waves are on the low-frequency end (meaning longer wavelengths), and gamma rays, which are zooming through the universe, passing through our bodies and imbuing us with radiation as we speak, are on the high end. Microwaves, infrared light, all the visible light we can see, ultraviolet light and X-rays are all within this spectrum, or utilize certain wave frequencies within the spectrum. We can’t see radio waves, but they’re all around us, and we utilize them by attaching signals to them (like your voice, or a photo you send to your friends, or all the data you’re receiving from your modem via your Wi-Fi router). 

The reason radio waves are great for carrying signals has to do with their characteristics, or propagation properties: Generally speaking, they can pass through the atmosphere, through plants, through buildings and around objects.

Each of these frequencies — for transmitting FM or AM radio, for television, for cell phones, for Wi-Fi, for GPS, for satellite TV — are measured in Hertz (more precisely, megahertz or gigahertz), and each has its own range of frequency.

How do they not interfere with each other?

That’s where the Federal Communications Commission comes in. They designate different frequency ranges for these different uses, which is called “block allocation.” Say it’s FM radio — if you want to start a station, you need to apply for and purchase a license from the FCC. The same applies to cellular data. Since 1994, the FCC has held auctions for these licenses in the electromagnetic spectrum, and it’s raised more than $60 billion for the U.S. Treasury. The telecom companies — AT&T, Verizon, etc. — each bid on a certain small slice of their spectrum, and once it’s theirs, they build their infrastructure to operate on their particular frequency.

As you can imagine, since radio signals don’t travel very far, the FCC can license the same frequency (105.1 FM, for example) to many different radio stations throughout the country. But when it comes to cellular frequencies, the big carriers obviously want to build nationwide networks, and so they’ll purchase the whole damn frequency nationwide (which is what happened in a 2008 auction, when the FCC auctioned off the 700-MHz spectrum after television stations were forced to transition to digital broadcasting). And it’s because radio signals don’t travel that far that we need those goddamn cell towers all over the place.

Is there a finite amount of bandwidth, then?

Yes and no. Here’s the thing: Different frequency bands have different properties and characteristics. The 700 MHz spectrum was sought after because the signals can travel long distances, and through many solid objects. But others, not so much. 

“There are certain frequency bands where there’s much more known about them in terms of their implementation, and they have certain properties that are very desirable, and therefore they’re extremely crowded,” Milstein says. He explains that millimeter waves don’t penetrate walls as well, for example. And yet, 5G will be utilizing these millimeter waves. What does that mean? It means you need more transceivers closer together, which means more infrastructure, which means a larger capital investment for broadband companies, which means — yes! — they’ll be passing on that higher cost to you, me and all of us.

So that’s why data costs money?

Yep. The cost we pay for data is basically the networks amortizing all their infrastructure, as well as their purchase agreement with the FCC for their specific frequencies, plus the labor to service all of the infrastructure and its customers (and bullshit administrative fees). Since we’re dealing with a finite resource, the laws of supply and demand naturally come into play as well. That 2008 auction raised $19.6 billion — of which just AT&T and Verizon paid $16.3 billion of the total. That’s big money! Which they’re passing on to us. 

Have we tapped out all the different spectrums, or what?

No — not by a long shot. But each time the FCC opens one up, it costs a whole ton of money to buy frequencies and then put in your infrastructure. And the cost of that infrastructure depends, as the professor explained a moment ago, on how expensive it is to build out the appropriate components for that particular frequency, based on its physical characteristics. 

Are we running out of frequencies?

We’re always kind of running out, at least until the FCC opens up more. Networks only have so much capacity, and as technology changes — from voice, to photo, to video, to interactive gaming — our appetite for more and more and more and more bandwidth increases. 

So that’s kinda what 5G is about?

Yep. But don’t count on it to solve the shortage problem. “The question is, if you have the bandwidth available, will that now motivate new applications that will eat up the bandwidth?” Milstein says. “I’m not that kind of prophet, I can’t tell you, but it’s certainly a plausible possibility.” In other words, it’s quite likely that people will just invent more data-demanding technology that’ll hog all that new radio-wave real estate.

Doesn’t the military use up a lot of bandwidth, too?

Yes they do. But they don’t always have their own exclusive frequencies, and theirs isn’t administered by the FCC — it’s handled by the National Telecommunications and Information Administration, which manages all federal use of the spectrum (whereas the FCC manages private and commercial use). The military and government has so much need that oftentimes they share frequencies with the commercial side — so it’s not as if the government is hogging it all. Milstein says it’s a funding issue, as the military simply can’t afford not to share with commercial frequencies. Here’s a chart breaking down all the frequency allocations (exclusive federal use is in red; public-private sharing is in black).

That chart is crazy.

Yeah, it’s intense. Thankfully, some presumably very intelligent people at the federal government manage the spectrum for everyone’s benefit. (Imagine what a mess it’d be if it were a free-for-all!) Think of the spectrum as a national resource that generates big money, and, with ever improving technology, lets everyone take advantage of it — though when it comes to your cell phone, that access always comes at a price.