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Based on developments in 2012 and continuing this year, it is clear that the major carriers will have the necessary spectrum to offer more robust wireless broadband services for years to come.  In addition to spectrum acquisitions, the FCC adopted decisions facilitating mobile broadband operations on spectrum originally allocated to the Mobile Satellite Service (“MSS”) and, in other cases, initially authorized for narrowband voice communications or largely undeveloped because of adjacent channel interference concerns.

The willingness of the carriers to expend billions of dollars for spectrum and FCC decisions “repurposing spectrum” constitute a significant “doubling-down” on the future of wireless broadband.  The downside is that an essential resource for prospective competitors is increasingly concentrated in the hands of the major wireless carriers.

Major Wireless Carriers Move Aggressively to Enhance Broadband Spectrum Holdings.   As AT&T was acknowledging that DoJ and the FCC would not allow it to acquire T -Mobile at the end of 2011, spectrum deal-making began in earnest.

  • Verizon Wireless announced its agreement with SpectrumCo and Cox Communications to acquire the cable companies’ substantial AWS spectrum holdings.  Even though final approval was not granted until August, this transaction triggered a series of significant spectrum deals.
  • On the heels of Verizon Wireless/SpectrumCo/Cox, AT&T initiated a series of transactions to acquire 700 MHz A and B Block licenses and, later in the year, entered into transactions to acquire multiple Wireless Communications Service (WCS) licenses in the 2.3 GHz band.
  • T-Mobile and MetroPCS sought FCC approval to their proposed transaction that will consolidate operations, customers and spectrum holdings and enable deployment of “a network capable of supporting at least 20 x 20 MHz LTE deployments in many areas.”
  • Relying on an anticipated cash infusion resulting from Softbank’s proposal to acquire control of Sprint, the nation’s 3rd largest wireless carrier offered to acquire all of Clearwire’s equity interests that it did not already possess in order to control Clearwire’s spectrum at 2.5 GHz.  Dish Network Corporation (“DISH”) countered with its own offer for the Clearwire’s stock and asked the FCC to “stop the clock” on the FCC’s consideration of the Softbank/Sprint/Clearwire transactions.

The pending transactions are subject to the FCC’s current “case-by-case analysis” for assessing spectrum holdings in transactions and auctions.  While the FCC has initiated a proceeding reassessing current policies for determining criteria for limiting spectrum holdings, this proceeding will not be resolved until the 2nd Quarter of 2013, at the earliest.  In view of the closed and pending transactions noted above, the impact of new spectrum holding policies likely will be limited to future spectrum auctions.

Repurposing Spectrum for Wireless Broadband.  In order to provide additional spectrum for wireless broadband, the FCC adopted three significant decisions in 2012 modifying its rules to permit the broadband operations in the currently licensed spectrum.

  • Sprint effectively secured an 800 MHz broadband allocation as the FCC granted Sprint’s request to aggregate its contiguous 25 kHz channels at 800 MHz to support LTE and CDMA operations.
  • The FCC resolved the longstanding uncertainty on the use of the WCS 2.3 GHz band for terrestrial operations, prohibiting the use of portables and mobiles in the C and D Blocks directly adjacent to the satellite radio allocation and making the 20 MHz in the paired A and B blocks available for terrestrial mobile broadband operations. This action assured the viability of AT&T’s acquisition of 2.3 GHz WCS licenses.
  • The FCC resolved its MSS/AWS-4 spectrum proceeding, authorizing standalone terrestrial broadband services in the 2 GHz MSS spectrum band (2000-2020 MHz and 2180-2200 MHz) and providing DISH with terrestrial authority for its licenses in this band, subject to low power and OOBE restrictions—which DISH had opposed—to protect adjacent channel operations in the upper band of the H-Block allocation (1915-1920 MHz  and 1995-2000 MHz) the licenses for which will be auctioned in the near future.

Assessment.  These spectrum transactions and repurposing decisions underscore the FCC’s commitment to broadband and services providers’ belief that customers will continue to pay premium rates for wireless broadband service. Google, Samsung, Apple, countless apps developers and other technology companies should benefit handsomely.  With the concentration in spectrum holdings, market entry challenges for new, facilities-based competitors may well be insurmountable, even if TV incentive auctions free spectrum for additional wireless broadband auctions.

Assuming the major carriers make the investments and utilize the spectrum, these carriers may be more inclined to enter into arrangements with MVNOs who, in turn, may develop targeted offerings for defined classes of customers.  One downside is that current FCC policy and LTE technology do not suggest that facilities-based carriers will offer differentiated wireless broadband service offerings to enterprise customers for the foreseeable future, with the possible exception of M2M services.

The risks and open questions for the FCC are what to do if the major wireless carriers don’t match spectrum acquisition expenditures with new network investments or don’t deploy broadband facilities in rural communities. In order to maximize spectrum utilization, the FCC could exercise its broad authority under Title III, as outlined in the D.C. Circuit’s recent decision affirming the Data Roaming Order, and adopt more aggressive buildout requirements for the wireless broadband  licenses held by the major carriers, thereby incenting them to enter into mutually beneficial long-term (1) spectrum leases, or (2) spectrum and infrastructure sharing arrangements with rural-based services providers—who would make the infrastructure investments—to deliver wireless broadband to rural communities.

These buildout requirements could very well enhance spectrum utilization and promote best available technologies for enterprise, SMB and residential customers located in rural areas. Rural-based services providers could benefit more fully from the wireless ecosystem in which device manufacturers and wireless infrastructure technology companies will be gearing development efforts and production to meet the major carriers’ respective multi-band frequency and transmission technology profiles.