American Jobs Act Includes Wireless Initiative, Public Safety Network

Coming Soon to the FCC: Plenty of Incentive Auction Proceedings

On September 12, the Obama Administration released the American Jobs Act of 2011 legislative proposal, which the President hopes will help rebuild the American economy in the wake of the economic crisis. Earlier this year, Obama revealed a wireless broadband plan which included utilizing incentive auctions to 1) remove spectrum from the hands of inefficient users; 2) put said spectrum to better use by covering 98% of Americans with wireless broadband; and 3) help pay down the Federal deficit with surplus funds from the auctions. These ideas have come to fruition in the American Jobs Act, as well as proposals to carve out the 700 MHz D Block exclusively for a nationwide public safety wireless broadband network.

According to the President's statement, “The purpose of the American Jobs Act of 2011 is simple: put more people back to work and put more money in the pockets of working Americans. And it will do so without adding a dime to the deficit.” The Act outlines proposals ranging from small business tax cuts to refurbishing foreclosed homes to banning employers from discriminating against unemployed potential hires. The section entitled “National Wireless Initiative” appears to serve a combination of goals, including reducing the deficit, adding jobs as a result of wireless broadband innovation, and improving public safety communications.

Broadcasters and some Federal spectrum users have certainly had ample warning that the government intends to repurpose underutilized bands.  Wireless carriers are no doubt planning their auction strategies at this very moment, and hoping that soon-to-be-reallocated spectrum will help ease the growing “spectrum crisis” resulting from explosive mobile broadband demands. If this Act is passed, the FCC will initiate proceedings to help determine auction methodologies, payments for license holders who voluntarily relinquish spectrum assets, and spectrum bands that should (or should not) be auctioned. The American Jobs Act describes the FCC’s incentive auction authority:

“Notwithstanding any other provision of law, if the Commission determines that it is consistent with the public interest in utilization of the spectrum for a licensee to voluntarily relinquish some or all of its licensed spectrum usage rights in order to permit the assignment of new initial licenses through a competitive bidding process subject to new service rules, or the designation of spectrum for unlicensed use, the Commission may pay to such licensee a portion of any auction proceeds that the Commission determines, in its discretion, are attributable to the spectrum usage rights voluntarily relinquished by such licensee. If the Commission also determines that it is in the public interest to modify the spectrum usage rights of any incumbent licensee in order to facilitate the assignment of such new initial licenses subject to new service rules, or the designation of spectrum for unlicensed use, the Commission may pay to such licensee a portion of the auction proceeds for the purpose of relocating to any alternative frequency or location that the Commission may designate.”

After the former licensee is compensated from the auction proceeds and around $6.5b and $300m are put aside for the public safety network and public safety network research and development, respectively, then the remaining funds can be used to pay the Federal deficit. Commenters disagree on exactly how much money will be available for the deficit—clearly, since it cannot be determined with accuracy how profitable the auctions will actually be (one Radio Business Reports article notes that the Congressional Budget Office estimates the deficit reduction from incentive auction proceeds to be around $6b). On its website, the FCC describes the benefits of incentive auctions and explains that auctions may bring in close to $30b total, but the consumer benefits “would be 10 times higher than the value that spectrum generates at auction.” Additionally, the FCC writes, “According to the High Tech Spectrum Coalition, over the next five years, investments in 4G wireless technology will create 205,000 U.S. jobs,” which may be one big reason why this proposal is included in the American Jobs Act.

Both the Consumer Electronics Association (CEA) and CTIA have commented favorably on the American Jobs Act’s wireless initiatives. A CEA press release states: “By incentivizing broadcasters to return underutilized spectrum our nation can solve our wireless spectrum shortage, create jobs and raise billions of dollars to help address the ballooning deficit.” CTIA likewise supports incentive auctions, arguing that “Bringing additional spectrum to auction expeditiously is critical to efforts to address wireless consumers’ demand for mobile broadband services, just as it is key to spurring additional investment, innovation and job creation across the wireless ecosystem.”

Broadcasters may be fine with going along for the ride so long as they are compensated appropriately and the auctions are fully voluntary, but that begs the question “will the broadcasters really give up their precious spectrum assets?” A September 12 CNET article about the Act explains, “Broadcasters say they have already given enough wireless spectrum for auction… Recently broadcasters have also complained that wireless and broadband providers that already hold wireless licenses are hoarding spectrum. Broadcasters say even though the auctions are meant to be voluntary, they fear that some broadcasters will be forced to give up spectrum that they could use to develop other services, such as mobile TV.”

While looking at the American Jobs Act and the reactions from the industry, I couldn’t help but draw comparisons between the broadcasters’ situation and the wireline telecom industry in the USF proceeding. In both cases, the government is being challenged to ensure that broadband is deployed to all Americans, with a limited amount of funding and where sacrifices must be made by virtually all sectors of the industry. Policies also have to balance the interests of “old telecom”—the entrenched broadcasting and wireline networks, with “new telecom”—fiber and 4G; without intentionally being anticompetitive or not technologically neutral.  Both the American Jobs Act and USF reform must be able to facilitate deployment of broadband in rural areas, without undermining existing investments or creating barriers for future investments. If done properly, both proposals definitely have the potential to help revitalize rural economies and bring new jobs to rural areas.

Can RLECs benefit from the proposals in the American Jobs Act? That will probably depend on how the FCC structures the incentive auctions, if there is unused broadcaster spectrum available in RLEC territories, and how much companies like Verizon and AT&T are willing to pay to prevent smaller competitors from getting some of this spectrum. Basically, new spectrum auctions could be a competitive threat or a great business opportunity for small telecom providers—it just depends on individual market circumstances in areas where auctions are likely.

There may also be opportunities for RLECs to get involved with the 700 MHz public safety network. The Act proposes that the FCC grant the D Block license to the Public Safety Broadband Corporation, who can “take all actions necessary to ensure the building, deployment, and operation of a secure and resilient nationwide public safety interoperable broadband network…by… issuing open, transparent and competitive requests for proposals to private sector entities for the purposes of building, operating and maintaining the network.” 

It would certainly be great if small rural companies could get access to spectrum via these proposed incentive auctions, but that will all depend on if this Act is passed and the subsequent rulemaking proceedings at the FCC.

The full text of the American Jobs Act is available here; Subtitle H – National Wireless Initiative begins on page 62. 

Channel 51 Interference Potential Prompts RCA Comments to FCC

RCA Continues Campaign to Level the 700 MHz Playing Field

New comments filed by the Rural Cellular Association (RCA) were posted to the FCC’s web site today regarding the issue of interference of broadcast television channel 51 with lower 700 MHz A-block licenses. 

RCA submitted the reply comments in response to the Media Bureau’s request for comment on RCA’s previously filed Petition for Rulemaking and Request for Licensing Freezes, which was filed back in March.  In that submission, RCA and CTIA argued that the FCC should implement an immediate freeze “on the acceptance, processing or grant of applications for new or modified broadcast facilities seeking to operate on Channel 51.”  The advocacy groups also asked that the FCC prohibit future licensing of television stations on Channel 51 and that it accelerate clearance of the channel where incumbent broadcasters have agreed to relocate.  RCA says that its requests “recognize the impending change that may occur in the character, use and services of spectrum below 700 MHz as a result of the Commission’s pursuit of incentive auction authority.”  It added that the requests will increase the value of future spectrum that may be assigned to mobile broadband uses, by encouraging private sector solutions for Channel 51 interference issues as well as more data roaming arrangements for 4G technologies across the 700 MHz band.

Commenters argue that the very “intent for the 700 MHz band’s role in mobile broadband is at stake” and cite the National Broadband Plan’s recognition of the band’s importance as support:  “Even as Lower A Block licensees prepare aggressive buildout plans for those next-generation platforms, the looming uncertainty surrounding the spectrum ecosystem of the Lower A Block impedes their ability to act on those plans.” 

The filers also rebut arguments made on the topic by the National Association of Broadcasters (NAB) and the Association for Maximum Service Television (MSTV), which say that “the Commission fully anticipated, considered and correctly resolved all of the claims and concerns therein prior to the auction of the 700 MHz A-Block,” and which required Lower A licensees to “design systems that would accommodate potential interference from Channel 51 TV stations.”

RCA paraphrases:  “In essence, they [NAB/MSTV] insist that Lower A licensees knew what they were getting themselves into and therefore have no basis to seek interference protection,” and goes on to differentiate between “current” and “future” operators. Effectively, RCA believes that the uncertainty of the situation is the problem for A-block licensees and goes on to ask, “Will [the FCC act with an eye to maintaining the status quo, or to innovation and progress?”  RCA acknowledges the Commission’s recent ruling on automatic data ruling and concludes that resolving the Channel 51 interference issue along with band-interoperability are “the logical next steps.”  The group suggests that licensees risk a default on buildout requirements or even financial peril if the freeze on further Channel 51 applications does not go through. 

The RCA comments also dispute the NAB/MSTV’s claims that the real problem for A-block 700 MHz licensees is the lack of availability of devices for the band—it describes the two issues as separate but equally problematic.  And in response to broadcasters’ claims that free over-the-air television is a vital public service, RCA counters that “there is abundant spectrum available for over the air television use outside of Channel 51.”

The filing concludes, “RCA respectfully urges the Commission to foreclose future licensing of Channel 51 TV broadcasters, freeze further processing of any outstanding applications for new or modified Channel 51 broadcast facilities, clear Channel 51 incumbents by way of voluntary agreements, mandate interoperability across the 700 MHz band, and harmonize power levels in the Lower D and E Blocks. 

The RCA’s points are all valid, although I can’t say that the incumbent broadcasters' points are all wrong.  But what does seem clear is that the Channel 51 interference issue is being used by some carriers (think the big ones) as a defensive line to delay mandated equipment interoperability.  In other words, AT&T (just as an example) doesn’t support interoperability at this time, and it cites potential interference as the reason.  But in fact, neither Verizon nor AT&T have significant A-block license holdings (see chart).  The longer it takes for other A-block licensees to sort out 1) interference and incumbency issues, 2) acquire equipment that is interoperable with other blocks and then 3) finance and  build out the service, the more the big boys benefit in terms of market share power.  Sound familiar? 

Verizon Wireless Up to Seven LRA Partners

14 Affiliated ILECs Involved in the LTE in Rural America Program to Date

Earlier this month a seventh Verizon Wireless (NYSE:VZ) LTE in Rural America (LRA) partner was announced; this time the partner is Indiana-based S and R Communications, which is a joint venture between Swayzee Communications and Rochester Telephone Co.  S and R will lease 700 MHz spectrum from Verizon and build an LTE network covering five Indiana counties, including Carroll, Cass, Fulton, Miami and Wabash.

Several things struck me after reading the press release.  First, it’s been a few months since Verizon Wireless announced a new LRA partner—the last was Utah-based Strata Networks back in early February.  Prior to that, Michigan-based Thumb Cellular and Wisconsin-based Cellcom announced LRA agreements in January and back in December came the news of the first three to sign on:  Cross Telephone (Sprocket Wireless), Bluegrass Cellular and Pioneer Cellular.

The second thing I realized is that back in December/January, as Verizon announced the new partners, it also said that it was in talks with roughly a dozen more…but we’ve only had two new takers since then, which leads me to think that some of those negotiations may have since broken down.

The last thing that I noted in reading S and R’s press release was that the JV represented itself as the first ILEC partner in the program. Tim Miles, president of Swayzee Communications, said "We are excited and honored to be the first landline based companies to participate in Verizon's LTE in Rural America program.  We believe we will bring a skill set and rural market understanding that will bridge the gap between wireless and small independent landline companies in our area."

Technically that’s correct—all of the other partners are wireless companies.  But all of those wireless companies are in fact affiliated with ILECs.  I decided to take a looksee at the ILECs which have decided to catch a ride on the Verizon LRA train.

By my count there are now 14 ILECs indirectly involved in the LRA program, covering seven primarily midwestern states.  At the end of 2009, those companies served about 171k access lines. 

 

It seems rural LECs have mixed feelings about the Verizon LRA.  On the one hand, AT&T/T-Mobile deal notwithstanding, Verizon is THE wireless carrier to beat these days and now that it has the iPhone its momentum should accelerate this year and beyond.  It’s now covering about 120m POPs with LTE service and says it will cover its entire CDMA footprint by the end of 2013.  The opportunity to market that network is appealing, particularly for ILECs like Swayzee and Rochester, which didn’t have a wireless play.

On the other hand, there are other options out there, specifically Lightsquared and even Clearwire (Nasdaq:CLWR), and Verizon is known to be a tough negotiator.  The automatic data roaming rules adopted by the FCC last week could also give some companies a higher comfort level if they’re sitting on spectrum licenses but were heretofore wary of investing in the build.

At the end of the day, I believe Verizon’s LTE network will be, like its 3G network, the best nationwide, or at least the first, best network.  Longer-term I have no doubt that other competitors will encroach, but there’s just no discounting the market strength that Verizon has today.  Seems to me the wireless companies and affiliated ILECs who’ve decided to work with Verizon have made their decisions based on two important tenets:  “If you can’t beat ‘em, join ‘em” and “You get what you pay for.”

Verizon and Motorola Announce Public Safety “Solution”

Verizon Aims to Fill Bureaucratic Void

For more than two years now, the FCC and Congress have been unable to agree on what to do with the D-block 700 MHz spectrum license that went unsold in the 2008 auction.  The D-block, which includes one nationwide, 10 MHz license, was earmarked for a public-private buildout and for priority use by public safety agencies, but failed to garner the minimum $1.3b minimum bid established by the Commission.

Since then, Verizon Wireless (NYSE:VZ), which walked away from Auction 73 with the largest concentration of 700 MHz spectrum nationwide, has been maneuvering to see that the license doesn’t fall into the hands of its rivals.  Fellow “duopolist” AT&T Wireless (NYSE:T) has supported these efforts, by backing the Public Safety Alliance, which includes organizations like the National Sheriffs' Association and the Major Cities Chiefs Association.  The alliance has supported legislation drafted which would allow the D-block spectrum to be directly granted to public safety organizations rather than re-auctioned in a sale that had been tentatively scheduled for this year.

Sprint (NYSE:S) and T-Mobile—particularly T-Mobile—no doubt regret their inaction in 2008, which leaves the third and fourth ranked providers with no lower band spectrum licenses for next generation technology deployment.  Sprint, however, has its majority-owned Clearwire (Nasdaq:CLWR) spectrum assets and 4G network, and was struggling with a major operational turnaround and hefty debt in 2008. 

T-Mobile, on the other hand, simply took its eye off the ball, because while the D-block came with certain constraints, the #4 wireless provider had (has) a clear need for additional spectrum and also had the financial ability to buy the license. Today, T-Mobile is a clear laggard in the race to offer 4G—marketing efforts notwithstanding. (T-Mobile began promoting its HSPA+ system as “The Nation’s Largest 4G Network” last fall, but subscribers clearly didn’t buy it—the company lost 318,000 post-paid subs in the fourth quarter.)

But while Congress and the FCC bicker over whether or not to auction the license or if laws should be changed to allow it to be granted to public safety organizations, a vacuum has been created that Verizon and Motorola Solutions (NYSE:MSI) are now seeking to fill.  The move was smart, timely, and provides yet another example of how regulatory interference can not only impair progress in the communications world, but how it is presently allowing the strong to get stronger.

Motorola Solutions and Verizon Wireless announced February 23 a new alliance designed to allow public safety agencies to begin to deploy LTE-based solutions that will work on Verizon’s LTE network, solutions which will conveniently also work on the D-block license whenever the government gets around to assigning or selling the license.  

The deal will be attractive to public safety agencies which are facing squeezed budgets but also greater expectations in terms of their ability to respond to emergencies.  The alliance will allow for incremental investment on the part of the agencies, and testing of services without a major, front-loaded spend.

Later, should the D-block license be granted directly to public safety agencies, the transition will be seamless.  It’s a win-win-win for Verizon, Motorola and public safety: Verizon will earn incremental revenue on the public safety usage of its network, Motorola will gain an upper hand in winning the contracts for public safety systems and the agencies get to move forward without emptying their coffers.

But as for the “competition” that the FCC is charged with fostering among wireless providers…it ain’t happening!

Keep Those Spectrum Licenses!

Do You Really Want to Throw In the Towel and Sell Those Spectrum Licenses?

My ten year old son is studying taekwondo; twice weekly he attends a sparring class during which he engages in controlled fights refereed by the Master.  During these sessions, if one of his students is getting beat, the Master interrupts and provides the following words of advice, “If you are getting kicked, change tactics.” 

But, under no circumstance will he allow a student to quit. 

In my opinion, selling spectrum licenses, especially those in the 700 MHz frequency range, is the same as quitting the fight and admitting defeat.  And if 10-year-olds shouldn’t quit, neither should the rural wireless industry.  We’ve all heard time and again the dire predictions for the rural wireless sector.  That message seems to have taken hold in the psyche of some rural operators—but I’m afraid it could lead to a self-fulfilling end.

Below I’ve outlined a few responses to concerns rural wireless operators may have.  Some of these could help accelerate deployment of service on 700 MHz spectrum, including the A-Band, before the 2013 build deadline.

1. “I can’t get a reasonable data roaming agreement.”

• Build a fixed wireless network.  Building a fixed wireless network is dramatically less expensive than building a mobile wireless network.
• Fewer cell sites are required to operate a fixed wireless network.  Antennas and radios can be mounted at higher elevations and broadcast at higher power levels than is the norm for mobile cell sites.  In a fixed wireless context, issues related to network handoffs and timing are eliminated, allowing for greater cell site spacing and reduced need for overall network optimization.
• Don’t make an immediate investment in a new core network.  Estimates for the purchase of a data core for the support of an LTE network range between $2.0m and $5.0m.  An investment of this size has significant impact on the capital planning process.  The inherent flexibility incorporated into the LTE design standards makes the sharing of either, or both, of the radio access network and core elements easier than it has ever been in the wireless industry.  Today there are a number of core networks that have been deployed and have large amounts of available capacity.  Carriers should be taking advantage of this capacity through commercial sharing agreements rather than spending precious capital to increase the amount of unused capacity that already exists.

 2. “I have deployment constraints due to a lack of available network gear and CPE.”

• This issue is not as insurmountable as it appears at first glance.  Network gear capable of operating in each of the three major 700 MHz band classes (12, 14 and 17) is currently available. For example Ericsson has radio equipment capable of broadcasting on band class 12.
• It is true that the development of handsets capable of operating on band class 12 is moving at a snail’s pace.  However, there are a number of small, and in many cases American, manufacturers which have the ability to quickly develop wireless modems capable of using 700 MHz, including Lower A-Band, spectrum.  In most cases wireless modems have a unit cost that is less than $200.

3.  “I’m concerned about cannibalization of my existing wireline investment.”

• Deploy the bulk of the fixed wireless network in areas where the cost of deploying a wireline network is prohibitive.
• Be careful not to overinvest in unproven wireline assets.  In recent months both Verizon and AT&T have significantly cut back on new investments in their fiber to the home and fiber to the node programs.  The reason?  Demand shortfalls have meant that the expected return on investment has not been made.
• Keep in mind that competition in the telecommunication industry will continue to intensify for the foreseeable future.   If lunch has been served, someone is going to eat it.  It is always in your best interest to eat your own lunch rather than letting the competition eat it for you.

Not much in life is certain.  But, by selling wireless licenses, for whatever price you may receive today, you are quitting the fight and forfeiting the chance to provide any form of wireless service down the road.