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Spectrum Banking: How the FCC Creates Scarcity
[March 09, 2006]

Spectrum Banking: How the FCC Creates Scarcity

ionary Consulting
 
One of the common excuses for permitting the Bells to kick off their wholesale customers (ISPs and CLECs) is that it encourages them to construct alternative facilities, such as wireless systems.  And a fair number of ISPs have “cut the cord”, or at least begun to roll out wireless. 
 
But current spectrum management policies make this needlessly difficult.  The FCC (News - Alert)’s priority seems to be to maximize its auction revenues, while protecting the largest cellular telephone providers and wireline incumbents from more than token competition.

 
A wireless ISP can make use of licensed or unlicensed spectrum.  Licensing is typically justified on grounds of scarcity: There is only so much spectrum to go around, so licensing policy is supposed to prevent interference between users. So you’d think that if you were in a rural area, where there were few existing users of the radio spectrum, that it would be easy to get a license. 
 
Alas, it doesn’t work that way. The problem is that few, if any, usable licenses are available based on local conditions.  Instead, licenses are allocated for large geographic areas, optimized for the mobile phone business.  Fixed wireless licensing is essentially frozen. 
 
The local wireless ISP can hardly compete with the national mobile phone providers in the big license auctions.  Those are the companies who can pay the most at auction, and they’ve got a cozy relationship with the FCC’s Wireless Telecommunications Bureau.
 
What licensed frequencies might be useful for a WISP or CLEC seeking to provide fixed broadband data services?  ISPs are being kicked off of telephone company local loops, which the FCC claims is supposed to promote “facilities-based competition,” such as wireless.  But they’re hardly throwing out more than a token lifeline.
 
The existing mobilility spectrum (PCS and cellular) is rarely available to newcomers; it’s extremely unusual for any of them to sublease spectrum to a local provider.  What about lesser-known bands, then?  There’s an auction coming along in June, for the new “Advanced Wireless Service” spectrum at 1.7 and 2.1 GHz.  It’s “beachfront property”, and six licenses per market.  But the rules are designed to help big national players to buy multiple licenses en bloc, mostly covering huge geographic areas.
 
Then there’s the 2.5 GHz band.  This is divided into “educational” and commercial licenses.  Originally intended for specialized television services, such as classroom broadcasts and “wireless cable,” it is theoretically available for telecom use.  Or it would be, if anyone could get at it. 
 
The commercial licenses, some raffled and some auctioned off as the Multichannel Multipoint Distribution Service (MMDS), were largely bought up during the late 1990s boom by then-wealthy Worldcom and Sprint (News - Alert), with BellSouth (News - Alert) holding a decent batch of its own. Worldcom’s were later bought by Nextel, which was then bought by Sprint. 
 
So now Sprint-Nextel holds the lions’ share of those licenses, and the FCC’s merger conditions basically allow them to bank the spectrum. They don’t have to use it, lease it, or do anything else with it; they will just have to offer some kind of token service in a few NFL markets a few years from now.  This, of course, protects their PCS investment from new competition. It’s worth more to them idle than occupied.
 
The educational part of that band (originally named ITFS, Instructional Television Fixed Service, now EBS, Educational Broadband Service) was allocated to numerous schools, universities, and church groups.  Most licenses are for 24 MHz (four TV channels) and the FCC allows them to lease 75 percent to commercial operators, including two-way fixed or mobile services.
 
Clearwire has snapped up quite a lot of these deals.  Licensees are catching on and privately seeking out the highest bidders for their spectrum.  Some channels are already leased to the MMDS providers who are for the most part banking them.
 
The FCC froze ITFS licensing a few years ago.  Existing licenses are preserved, though they will have to shuffle around their frequencies soon, as part of a new band plan.  New licenses, though, will be auctioned off on a broad geographic area basis. These will be for the “Swiss Cheese” areas surrounding existing licenses. 
 
So again, no license for a rural community without getting a distant city’s as well, or at least one that picks up all of the now-unlicensed areas for miles around.  An existing licensee will probably win that bidding, on behalf of its commercial lessee.  And that will be costly, whenever the FCC gets around to that auction.
 
The 2.3 GHz “Wireless Communications Service” band was auctioned off in the 1990s fairly cheaply, but it is right next to satellite radio; XM has bought up a lot of these licenses to give it additional spectrum for its terrestrial transmitters.  Most other licenses are now held by speculators, such as NextWave, who want top dollar for a sublease.
 
The new 3.65 GHz band is theoretically available in some parts of the country, though not most coastal regions, on a non-exclusive licensed basis.  However, that allocation is being challenged by the licensed-spectrum holders, who don’t like competition, and in any case the current rules do not permit any existing equipment to get type-approved to work there.  WiMAX does not meet its requirements.
 
The 700 MHz band is now occupied by TV channels that will go dark once the digital TV transition is complete in 2009.  Three channels were auctioned off a few years ago.  Qualcomm (News - Alert) bought one, nationwide, for its planned cell-phone broadcast service.  The other two channels, are usable today in a few places, but TV broadcasts are entitled to very broad protections. 
 
The FCC is dividing the rest of the band between public safety (a valid need) and large-area auctions – again, likely to be snapped up by the same old players.
 
Several senators have proposed a new law authorizing local use of the “white space” in the TV spectrum—empty channels whose use would not interfere with other stations.  Current FCC rules prohibit this, giving extremely broad protection to broadcasters. 
 
This could, if done right, create new opportunities, especially in rural areas.  But the devil’s in the details, and even if the bill should pass—hardly assured at this point, given broadcaster opposition—the final enabling rules could turn out to be a disappointment.
 
There just aren’t many good licensed options available to potential WISPs, even if they’re willing to put up reasonable money.  So that leaves the unlicensed spectrum.
 
While that’s a viable option in some places, it’s hardly going to put the ILECs out of business.  With little over 1 percent of Internet access being wireless, it’s already crowded. The 2.4 GHz WiFi band is shared with cordless phones, Bluetooth, baby monitors, microwave ovens, and many other devices.  It’s a miracle when it works at all. 
 
The 5.8 GHz band is quieter but even more prone to blocking by trees (“foliage fade”) and walls. The 900 MHz band has better penetration but is quite noisy; radio systems there also tend to operate at lower bit rates.  Power limits on all of these bands severely limit range. 
 
In the desert, with no obstructions, a point-to-multipoint system might be able to go a few miles, but in a city, it’s more like a couple of blocks, on a good day.  So an urban WISP needs many sites, and still has to be concerned with interference. Figure a couple of dozen nodes per square mile.
 
With the spectrum so tightly regulated, the competitive service provider has to evaluate every opportunity carefully.  An available ITFS channel lease could be a great place to put a WiMAX system; commercial equipment for that standard should be on the market this year. (Right now there’s “pre-WiMAX” gear, but it’s not compatible between vendors.) There might even be an MMDS license or two in a few places that’s not held by one of the big national players, and which might be leased.
 
But most WISPs will have to make do with the unlicensed bands.  Ordinary WiFi gear is very cheap, but it’s rarely a good choice for commercial services, since WiFi was designed for short-range indoor use. Several vendors make mesh radios, which allow a number of short-range access points to interconnect wirelessly amongst themselves. 
 
That’s a tricky technology to get right.  Metricom’s Ricochet mesh failed under several owners.  Newer, better-performing mesh systems use separate frequencies for their subscriber access and their backhaul mesh.
 
Getting enough sites to support such a network is a feat in itself.  Commercial tower or even rooftop sites tend to rent for over a thousand dollars a month apiece, often much more. A small WISP can’t afford that. Some, instead, trade Internet service in exchange for rooftop rights. Others work with municipalities or local electric utilities.
 
Unlike the big cellular companies, who can roll out a cookie-cutter network on a nationwide basis, small competitive providers have to sweat every detail on a local basis. The FCC’s policies are no help. Unless spectrum management policy is changed so that competition, rather than just high auction revenues, is viewed as a goal, local wireless systems will never be a threat to wireline networks.
 
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Fred Goldstein is principal of Ionary Consulting. He advises companies on technical, regulatory and business issues related to the telecommunications and Internet industries, especially in areas where they overlap.

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