FCC Approves 3.5 GHz NPRM, Undermines Rules Designed to Promote Rural Deployment

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Today, the Federal Communications Commission voted to approve a Notice of Proposed Rulemaking (NPRM) that will undo years of the FCC’s work to improve wireless deployments in rural areas, close the digital divide, and promote spectrum use by a wide range of users with diverse and innovative business models in the 150 megahertz between 3550-3700 MHz (the 3.5 GHz Band or Band). Adopting the NPRM is the first step to undermining the FCC’s work in the 3.5 GHz Band, and represents a rare lose-lose-lose scenario in spectrum policy making.

The draft NPRM explores expanding the geographic size of 3.5 GHz Band Priority Access Licenses (PALs) from the size of census tracts to Partial Economic Areas (PEAs), extending the license term from three years to 10 years, and to making PALs renewable. Currently, it appears the Commission (thanks to Commissioner Mignon Clyburn) may have resisted its worst impulses and walked back its draft proposal to license all PALs by PEA. However, If eventually adopted as the licensing scheme for the 3.5 GHz Band, the NPRM’s proposals would make licenses unaffordable for rural broadband providers seeking to serve targeted, unserved communities, and other innovative wireless uses (e.g., an Internet of Things network on a corporate campus or distribution warehouse, or a wireless network to serve an airport, shopping center, arena, or stadium), and make it unlikely that the 3.5 GHz Band is actually put to use closing the digital divide in rural America.

2015 3.5 GHz Order

The NPRM proposes to overturn the licensing framework for the 3.5 GHz Band the FCC adopted in 2015. The 2015 Order incorporated recommendations from the President’s Council of Advisors on Science and Technology and viewpoints and data collected through three rounds of notice and comment. At the time, the FCC explained that it anticipated its rules for the Band created flexibility that “should make the 3.5 GHz Band hospitable to a wide variety of users, deployment models, and business cases, including some solutions to market needs not adequately served by our conventional licenses or unlicensed rules.”

The 3.5 GHz Band was envisioned as an “innovation band,” with frequencies well-suited to explore next generation of shared spectrum technologies and drive greater productivity and efficiency in use of spectrum. The Commission adopted three year license terms to provide flexibility to allow a wider variety of uses for the band, encourage efficient use of spectrum by a diverse range of users, and create low barriers to entry for investment and competition in the Band.

Further, the FCC adopted census tracts for the license size, as opposed to larger geographic areas, to allow for more targeted and flexible network deployments, promote intensive and efficient use of the spectrum throughout the license area, and allow for easy aggregation so carriers interested in building a larger network footprint could do so.

The largest wireless companies and their trade associations opposed small license sizes and short license terms during each stage of the FCC’s deliberation on the 3.5 GHz Band. However, the Commission found time and again that the benefits of making licenses more broadly accessible to small providers interested in serving targeted rural markets, as well as new users interested in IoT or smart manufacturing uses of the Band, outweighed designing the licensing rules to coincide with the business model of the four national wireless carriers. However, new leadership at the FCC appears to be more amenable to servicing the desires of the largest stakeholders first, with the public interest and innovative and efficient use of the spectrum far behind.

The NPRM’s Proposals Undermine Rural Deployment & Uses

License Area Size

Expanding the size of 3.5 GHz PALs from census tracts to PEAs, as proposed by the draft NPRM, would undermine the goal for the 3.5 GHz Band to provide opportunities for targeted rural deployment of high speed mobile broadband networks. If the Commission ultimately expands license sizes to PEAs, it would become unlikely that rural broadband providers and new entrants intent on serving communities that have been long overlooked and unserved could afford to invest in the Band.

A quick comparison of the size and population of PEAs compared to census tracts is helpful to understand the difference between the likely uses for PALs with the current versus the proposed license size. According to the Census Bureau, Census tracts cover between 1,200 to 8,000 people, and have an optimum population of 4,000. Meanwhile, PEAs cover vastly more people; 334 of 416 PEAs cover a population of more than 100,000, 117 PEAs cover a population of over 500,000, and 62 PEAs cover a population of more than 1 million. PEAs are also significantly larger that census tracts. For example, the PEA that includes Los Angeles stretches across all of California to the Nevada border. Nearly the entire state of Maine is a single PEA, and Montana has six PEAs, but 271 census tracts. Puerto Rico is included in a single PEA as well.

The consequence of expanding the size of the PAL licenses from census tracts to PEAs is that carriers that want to serve small, targeted, rural communities with low population density would almost assuredly be unable to afford the licenses, let alone actually provide service. For example, a rural wireless broadband provider that wanted to cover small towns between Los Angeles and Las Vegas would need to purchase a license that covered the desired markets, but also the entire city of Los Angeles.

As a result, changing the PAL size from census tracts to PEAs would practically ensure that the largest nationwide wireless carriers will be the only providers that can acquire licenses. Those carriers would then deploy in accordance with their current business plans -- building networks in densely populated and wealthier areas and neglecting smaller and poorer communities, and leaving them further behind.

License Length & Renewability

This foreclosure effect in rural America would be compounded by the NPRM’s plan to increase the length of the license term from three years to 10 years, along with automatic renewal of the licenses and limited or no build-out requirements.

Like larger license sizes, longer license terms will serve to increase the initial cost of the licenses, likely keeping rural serving, smaller, and new providers from investing altogether.

By combining proposals backed by the major wireless carriers to drastically expand the PAL license terms and size, the NPRM will effectively drive small providers, start-ups, new market entrants, innovators, small businesses, and local institutions (e.g., schools, libraries, public parks, airports, train stations, etc.) out of the PAL market entirely. As a result, new uses, efficiencies, and innovation that may be inconsistent with the business models of the the largest wireless carriers will go unrealized, and communities that are starved for mobile broadband service will continue to languish on the wrong side of the digital divide.

Conclusion

Residents of rural areas and mobile broadband providers would all be better served by maintaining the current census tract license size. Large national carriers could acquire the spectrum they need to densify their networks in targeted census tracts, and aggregate licenses across numerous connected census tracts to replicate the large PEA-size coverage areas they want. Small carriers could acquire PALs in smaller areas, at a price that is reasonable given their business model to serve less profitable and less densely populated areas that would likely go unserved by larger wireless carriers. All stakeholders would likewise be best served by keeping the existing PAL term of three years. It is very unlikely that large wireless providers would be outbid to renew their PALs, stranding prior investments, and the miniscule risk of stranded investment is far outweighed by the harms that longer license terms will have on reducing the likelihood of new rural wireless deployments and innovative new uses of the 3.5 GHz Band.

The Commission should resist the urge to snatch defeat from the jaws of victory in the 3.5 GHz Band.                                   

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