The Federal Communications Commission (“FCC” or the “Commission”) has released a draft Order which is likely to be adopted at the Commission‘s May 13 meeting. The order would bring to an end a long process spearheaded by Anterix (formerly PDV) to gather up and reshuffle the now untidily interleaved narrowband and Specialized Mobile Radio (SMR) channel groups in the 896-901/935-940 MHz bands into neatly separated broadband and narrowband licenses.  A 3 x 3 MHz broadband license would reside in the middle of the 10 MHz band, with numerous 12.5 kHz narrowband allocations on either side.

The potential transformation of the band from the dross of bits and pieces of unused SMR and outdated two-way communications channels into the gold of a 6 MHz broadband channel followed the trusty Nextel playbook.  Old-timers will recall that a company headed by Morgan O’Brien acquired numerous disparate SMR licenses in many markets.  Once it had a critical mass, the company (which became Nextel) petitioned the Commission to allow the consolidation of the licenses into larger licenses with operational service rules similar to those of the then rapidly growing cellular service. The FCC agreed, and Nextel’s owners benefitted quite handsomely upon the inevitable sale to a larger carrier.

The latest iteration of the consolidate-and-conquer strategy, again masterminded by the indefatigable Mr. O’Brien, appears to have been similarly successful.  Anterix acquired a nationwide portfolio of 900 MHz SMR licenses which Sprint dumped at bargain sale prices a few years ago and since then has quietly bought up or bought out numerous other SMR and narrowband licenses in the band.  It then petitioned the Commission to facilitate the creation of a true broadband channel by allowing the central portion of the band to be cleared so that a clean 3 x 3 broadband channel could be made available to whoever already had very large license holdings in the band.  One guess as to who that someone might be. Indeed, under the FCC’s initial Notice of Proposed Rulemaking (NPRM) last year, Anterix would have been the only company eligible for the broadband license in the vast majority of major cities in the U.S.

While the FCC is now making it theoretically possible for other companies to be eligible for the broadband license, Anterix has the strong edge in most markets because it is best positioned to buy up or buy out the quantum of smaller players necessary to be eligible for the broadband license. The new rule will require the broadband license applicant to have the rights to at least 50% of the spectrum rights in the broadband segment with the rights to relocate or otherwise clear a total of 90% of the broadband segment spectrum.  The FCC will contribute spectrum from its unused inventory to fill out the needed 6 MHz for the broadband channel.

Here the FCC is relying on the market to drive the consolidation process since the incumbent licensees, for the most part, must voluntarily agree to be relocated or bought out in order for the band to be cleared. To deal with any incumbent hold-outs, the FCC will permit mandatory relocations if the broadband licensee gets access to at least 90% of the needed spectrum by voluntary agreements.  This, of course, leaves open the possibility that no one will be able to amass the necessary spectrum in some larger markets to make the broadband channel viable, but Anterix has already made significant progress towards that goal in the confident expectation that the FCC would do what it now proposes to do in a few weeks.  In several larger markets, utilities have significant 900 MHz holdings and these could be an obstacle to Anterix’s plans.

As a byproduct of the reshuffling of the band, the FCC has agreed to modify the nationwide communications network of the Association of American Railroads (AAR) whose 900 MHz holdings will be relocated to a different 900 MHz band.  This was necessary if the broadband channel was to be feasible.  AAR will get a uniform, more usefully configured, nationwide spectrum license – while bearing the cost itself of upgrading and retuning its radio facilities.  Only a small spectrum contribution was required by the FCC since most of the needed spectrum was ceded by Anterix from its holdings for this purpose.

All that remains to be seen is whether this relatively small 6 MHz broadband channel will be of interest down the road to the three major wireless carriers who generally prefer at least 10 MHz swathes these days, if not more.  Will spectrum lightning strike again?