Clearing Mid-range Spectrum

The FCC is in the process of trying to free up mid-range spectrum for 5G. They just opened a Notice of Proposed Rulemaking looking at 2.5 GHz spectrum, located in the contiguous block between 2495 and 2690 MHz. Overall this is the largest contiguous block of mid-range spectrum. Over half of the spectrum sits idle today, particularly in rural America. The history of this spectrum demonstrates the complications involved in trying to reposition spectrum for broadband and cellular use.

The frequency was first assigned by the FCC in 1963 when it was made available to school systems to transmit educational TV between multiple schools. The spectrum band was called Instructional Television Fixed Service (ITFS). The band was divided into twenty channels and could transmit a TV signal up to about 35 miles. I grew up in a school system that used the technology and from elementary school onward we had a number of classes taught on the TV. Implementing the technology was expensive and much of the spectrum was never claimed.

In 1972 the FCC recognized the underuse of the spectrum and allowed commercial operators to use the bands of 2150 to 2162 MHz on an unlicensed basis for pay-TV transmissions to rooftop antennas. The spectrum could only carry a few TV channels and in the 1970s was used in many markets to transmit the early version of HBO and Nickelodeon. This spectrum band was known as Multipoint Distribution Service (MDS) and also was good for about 35 miles.

Reacting to pressure from cellular companies, the FCC reallocated eight additional channels of the spectrum for commercial use. Added to the MDS spectrum this became known as Multichannel Multipoint Distribution Service (MMDS). At the time this displaced a few school systems and anybody using the spectrum had to pay to move a school system to another workable channel. This spectrum was granted upon request to operators for specific markets.

In 1991 the FCC changed the rules for MMDS and allowed the channels to be used to transmit commercial TV signals. In 1995 any unused MMDS spectrum was sold under one of the first FCC auctions, which was the first to divide service areas into the geographic areas known as Basic Trading Areas (or BTAs) that are still used today. Before this auction, the spectrum was awarded in 35-mile circles called Geographic Service Areas (GSAs). The existing GSAs were left in place and the spectrum sold at auction had to work around existing GSAs.

The FCC started getting pressure from wireless companies to allow for the two-way transmission of data in the frequency (up to now it had been all one-way delivery to a customer site). In 2005 the FCC changed the rules and renamed the block of spectrum as Broadband Radio Service (BRS). This added significant value to licenses since the spectrum could now be repositioned for cellular usage.

At this point, Clearwire entered the picture and saw the value of the spectrum. They offered to buy or lease the spectrum from school systems at prices far lower than market value and were able to amass the right to use a huge amount of the spectrum nationwide. Clearwire never activated much of the spectrum and was in danger of losing the rights to use it. In 2013 Sprint purchased Clearwire, and Sprint is the only cellular company using the spectrum band today.

Today the spectrum band has all sorts of users. There are still school districts using the spectrum to transmit cable TV. There are still license holders who never stopped using the 35-mile GSA areas. There are still MMDS license holders who found a commercial use for the spectrum. And Sprint holds much of the spectrum not held by these other parties.

The FCC is wrestling in the NPRM with how to undo the history of the spectrum to make it more valuable to the industry. Education advocates are still hoping to play in the space since much of the spectrum sits idle in rural America (as is true with a lot of cellular and other mid-range spectrum). The other cellular carriers would like to see chunks of the spectrum sold at auction. Other existing license holders are fighting to extract the biggest value out of any change of control of the spectrum.

The challenge for repositioning this spectrum is complicated because the deployment of the spectrum differs widely today by market. The FCC is struggling to find an easy set of rules to put the genie back in the bottle and start over again. In terms of value for 5G, this spectrum sits in a sweet spot in terms of coverage characteristics. Using the spectrum for cellular data is probably the best use of the spectrum, but the FCC has to step carefully to do this in such a way as to not end up in court cases for years disputing any order. Reallocating spectrum is probably the most difficult thing the FCC does and it’s not hard to see why when you look at the history of this particular block of spectrum and realize that every block of spectrum has a similar messy past.

It’s Hard Being Number 3

Cell-TowerSprint might be the most interesting carrier in the market today in either the mobile or landline industry. They have done one of the biggest turnarounds ever in the telecom world. In 2008 Sprint was by far the least popular wireless carrier. They got really low marks in customer satisfaction surveys, far below the other three carriers. This was partly due to poor customer service, but also do to their launch of WiMax in 2008 that never worked as well as the LTE being launched by the other carriers.

But Sprint has turned it around. They had hired Dan Hesse as CEO in 2007 and Sprint now ranks equal to AT&T and Verizon in terms of customer satisfaction. This goes to show you that a big company can change their customer experience if they decide that it is a priority. I just wrote last week how Comcast has been at the bottom of customer service rankings for years and how they don’t seem to be concerned about it. But Sprint decided that poor customer service was holding them back and they fixed their many problems.

Sprint has also undertaken steps to leapfrog the other carriers in terms of data performance. Sprint spent a lot of money to buy Clearwire, mostly to get their spectrum. They plan to combine the 2.5 GHz spectrum they got from Clearwire with the 1.9 GHz LTE spectrum they bought in auctions to create significant data pipes. This will give them two separate 60 MHz blocks of spectrum that will perform well both close to a cell site and some distance away. They are shooting to have this all deployed by the second quarter of 2015, which will give them the ability to offer LTE speeds up to 150 Mbps download

Sprint also has been doing other interesting things. For instance, they had a promotion for most of 2013 that would give free service to any student who brought their own handset. This free service came with unlimited voice and texting and 1 GB of data. For only $10 a month a student could get unlimited data. One looks at that sort of plan and wonders how it could possibly benefit them to have a lot of customers that are not paying for service. But I think it’s a brilliant long-term strategy, and we don’t see a whole lot of long-term thinking in the carrier world that is measured by the earnings in the latest quarter. But think back a few decades when Apple was putting free, or nearly free computers in schools across the country. In doing so they raised whole generations of kids to like the Apple brand and this is part of the reason why they have exploded in popularity in recent years. Sprint is building the same brand name identity and loyalty of a whole new generation of cellular customers.

Sprint has also seriously been aggressively pursuing a merger with T-Mobile. They were told late last year by the feds that such a merger was probably going to be opposed. However, the current thinking in the industry is that if the government let’s Comcast buy Time Warner that it’s then going to be very hard to say no to a Sprint – T-Mobile merger. I think such a merged company could be powerful. Sprint has a vision that cellular data needs to be unlimited, or with very high caps in order to be relevant a decade from now. When you look at combining the spectrum and customer bases of the two companies, along with Sprint’s new focus on customer service you could have a true third competitor to AT&T and Verizon. Today neither Sprint nor T-Mobile can be considered as real rivals. T-Mobile has been buying customers at the bottom of the market using low-cost specials, and as good as Sprint is, they are just not in the same stratosphere as the big two.

Spectrum Winners and Losers









