The Federal Communications Commission (“FCC”) has released a tentative Report and Order, scheduled for a vote on July 10, which, if adopted, will lift many restrictions from the Educational Broadband Service (EBS), including allowing educational institutions to sell their licenses to commercial entities and eliminating the requirement that 5% of system capacity be reserved for educational use.

The FCC’s quest for more spectrum for wireless broadband, characterized as ongoing, endless, relentless, or frantic (depending on your point of view) has accomplished one objective by making high-bandwidth frequencies above 24 GHz available through auctions.  But these high-in-the-sky frequencies propagate over only short distances, which means that deployment will be economically realistic in only densely populated areas.  To facilitate bringing new service to areas where your next door neighbor lives more than a baseball pitch away from you, the FCC is now turning to “mid-band” frequencies, which do not require as dense packing of cell sites.  The EBS band – 2500-2690 MHz – is what many would call “prime real estate” in terms allowing the broadband march to escape urban enclaves.

EBS signals currently reach only about half the country.  License eligibility is limited to educational entities.  They are permitted to lease up to 95% of their spectrum capacity to commercial entities for up to 30 years.  Most licensees do just that, with Sprint and its Clearwire affiliate the largest lessee.

The new rules will not require termination or modification of any existing EBS spectrum leases; but for unleased systems, or leased systems where both parties agree, it will now be permissible for the educational licensee to sell its license to almost anyone it wishes.  The FCC tried to open up EBS eligibility many years ago but backed down in the face of strong opposition from educational entities.  Instead, the FCC permitted leasing, guessing correctly that many educational licensees would jump at the opportunity to generate cash income.

In the intervening years, technology has improved, and broadband use by consumers has exploded; so EBS spectrum is likely worth more now.  Moreover, the growth of the Internet has given educational entities an arguably better way to distribute their content than using EBS spectrum.  The FCC is betting that in today’s market, educational licensees will choose to take cash and sell or lease all of their EBS capacity to commercial operators.

The FCC looked at the possibility of getting EBS spectrum back through an “incentive” auction, like the one it used to buy back television broadcast channels, as well as at the possibility of opening a new application window for educational entities to apply for more licenses.  It decided against both of those approaches, partly because of the time they would take but also because of statutory restrictions on the use of auctions for noncommercial spectrum.

There will be two opportunities for filing applications for new licenses.  The first will be an opportunity for certain Native American tribal entities to apply for unused EBS spectrum in “rural” areas, defined by the U.S. Census Bureau as outside urbanized areas and urban clusters with a population of 50,000 or more persons.   If you think that this opportunity will be limited to areas where the buffalo roam, and the deer and the antelope play, think again.  There are areas even in the densely populated northeast that are not in any urbanized area or urban cluster.

After the tribal window, the FCC will accept applications from almost anyone for “overlay” licenses, to be sold at auction on a county-by-county basis.  An overlay license is a license to operate throughout a county, even if the county has existing EBS service.  The trick is that the overlay licensee may operate only where it does not cause interference to the existing system.  In other words, it is authorized to fill in gaps in existing service.  Whether or not overlay licenses will be economically viable will depend in part on how many EBS licensees have constructed systems with poor coverage within their licensed 35-mile radius service area.  It also seems that interference disputes may increase significantly, depending on the care with which existing systems and new overlay systems are engineered.  In some cases, an overlay licensee might enter into a business relationship an incumbent and coordinate operations for their mutual benefit.

EBS licensees will have a lot to think about in terms of the economics of selling vs. leasing and how to value their spectrum.  Prospective buyers of licenses can expect Clearwire to be at the front of the line, as its existing leases commonly include a right of first refusal to buy if the FCC’s rules change.  For Native American tribes, this may be the best chance, and the last one for a long time, to bring wireless broadband to places that now lack service.  And for those who think that they can make money shoehorning networks into gaps in service by existing licensees, it is time to make plans to file applications and to raise capital to buy overlay licenses at FCC auctions.

The opportunity to lobby the FCC for last-minute changes closes on July 3, a week before the FCC votes.  It looks to us like the FCC has made up its mind, but you never know what tweaks may be made before the new rules actually go into effect.