FCC adopts service rules for long-awaited 65 MHz of re-purposed spectrum.

At its March 31 meeting, the FCC made available an additional 65 MHz of spectrum for broadband operations – sort of. This much anticipated action fulfills part of the objective of the National Broadband Plan to deliver 500 MHz of new spectrum for broadband, while also meeting the requirement of the Middle Class Tax Relief and Job Creation Act of 2012 to find and license 55 MHz of spectrum within certain designated bands by February, 2015. This required taking some spectrum from notoriously possessive Federal government users and figuring out which spectrum bands could most quickly and easily be re-purposed. Amazingly, the Commission’s decision seems to have left most prospective licensees reasonably happy, while not accommodating everyone completely — usually the sign of a fair decision. The adoption of these service rules, with the February, 2015 statutory deadline looming, sets the stage for an auction of the new spectrum in the fall of this year.

 Before we get to the provisos and complications, here are the main specifics of the new spectrum plan:

The band plan first establishes two curiously unpaired licenses in the 1695 – 1710 MHz band, one 5 MHz in size and the other 10 MHz, both to be offered on an Economic Area (EA) basis. The FCC’s preference had been to pair this band with some other suitable spectrum, but despite suggestions from several parties, it could not locate a mate for this spectrum. The licenses are designated for mobile/uplink only, which means the buyer of this spectrum will have to have some other independent source for downlink.

Next the band plan establishes four licenses in the core 1755-1780/2155-2180 MHz bands, with the upper band designated for downlink and the lower for uplink. The trick here was to make some spectrum reasonably available to everyone. The FCC accomplished this by making one 10 MHz (2×5) license available on the CMA (Cellular Market Area) basis preferred by Tier III carriers who need to tailor spectrum purchases to the smaller geographic areas, and commensurately smaller wallets, they have to work with. The rest of these licenses are allotted on the EA basis preferred by the larger carriers. Of the three EA licenses in this category, two are configured on the same 10 MHz (2×5) pattern as the CMA license, while one, obviously designed with the big boys in mind, is 20 MHz (10×10).

The FCC adopted service rules which in most respects were consistent with the AWS-1 rules in terms of interference standards, out of band emissions, and comportment with the general rules applicable to all Part 27 licensees. Of particular note is the 12-year license term granted to AWS-3 licensees – a bit longer than the usual 10 year terms granted to Party 27 licensees – in view of the need to coordinate the clearing of the band with current Federal users. (More on that later). Licensees must cover 40% of their licensed population within six years and 75% of their licensed population within 12 years. Failure to meet the first benchmark results in two years being shaved off the final build-out deadline. The penalty for failure to meet the second benchmark is loss of license.

A subject of considerable interest and discussion had been the question of whether the FCC would limit the ability of large carriers to acquire spectrum in this band. The governing statute prohibited the Commission from freezing out classes of bidders from acquiring the spectrum per se, but it did give the FCC some wiggle room to place limits on how much a given entity could acquire. The FCC decided to punt on the latter issue since the question of spectrum caps based on concentration of spectrum ownership is being considered on an across-the-board basis in a separate Docket (WT No.12-269). The FCC promised that that Docket would be wrapped up well before this auction commences in the fall of 2014, so everyone will know by then whether any spectrum limits will apply to new spectrum acquisitions (whether by auction or in the secondary market).

A benefit of the AWS-3 band for smaller carriers is the FCC’s decision to mandate interoperability between and among the 1755-1780/2155-2180 MHz licenses (but not the 1695-1710 MHz licenses) and the AWS-1 licenses. This ruling is huge because it ensures that there will be a handset and roaming ecosystem across a good bit of the AWS band that all carriers will be able to take advantage of, unlike the 700 MHz band where interoperability was not initially required. The FCC did not mandate interoperability with DISH’s AWS-4 band (despite DISH’s request), but left the door open for such a mandate at a later date if interoperability problems develop.

While all of the above is rosy, there are, inevitably, complications that will cast a shadow over the spectrum for potential bidders. The way this spectrum came to be available is by the Department of Defense proposing a plan, later supported by NTIA, whereby it would relatively quickly clear defense-related operations from the 1755-1780 MHz band and relocate them to the 1780-1850 MHz band or the 2025-2110 MHz band. It has estimated that the cost of this relocation effort is $3.5 billion. While this $3.5 billion number is probably inflated, even a reduced figure creates a couple of problems. 

First, the auction must raise and allocate 110% of the cost of relocating Federal users to clear the band. Those funds would not be available to be paid toward the $7 billion needed to fund the First Net public safety operations. Several Commissioners and others have suggested that the combination of proceeds from the recently concluded H Block auction ($1.56 billion) and the AWS-3 auction would get the Commission pretty close to the figure it needs to fund First Net without relying on receipts from the broadcast Incentive Auction now planned for mid-2015. If the Commission were able to net $5.5 billion from this auction, that would make it more likely that the Incentive Auction will yield enough cash to pay off the broadcasters with enough left over to pay admin expenses and fill out the First Net funding. So the costs of relocation and the amount generated by this auction have wider implications than just this band.

The other problem is that that there remain numerous Federal users in the band that will have to be coordinated with either in the short term (while they transition to greener pastures) or permanently. Potential licensees in the 1695-1710 MHz band already know that they will have to coordinate with the Feds in 27 “Protection Zones” to avoid interference to meteorological satellite stations. In the 1755-1780 MHz band, auction winners who want immediate access to the spectrum they have purchased will have to coordinate with the existing Federal users while those users vacate the premises. In some cases, they will have to share the spectrum with Federal users permanently.

Because the extent, duration and degree to which the continuing use by the Federal government will encumber the bands is an important factor in assigning a dollar value to the licenses, NTIA is supposed to be posting transition plans for government users on its website no later than 120 days before the auction. We see this as a potential choke point in the process since it requires accurate and alacritous action by numerous Federal agencies in a short time frame. If there is any slippage, it could throw off the auction start date, which is itself tied to the February 15 deadline to complete the licensing process.

So the AWS-3 licensing process has many complex moving parts, but at least we now have the framework to try to determine how valuable the licenses may – or may not – be.