The FCC is finalizing a plan to implement a new framework for electromagnetic radio spectrum use in the 3.5 GHz band called the Citizens Broadband Radio Service (CBRS). The goal of this plan is to promote (i) more efficient spectrum use through dynamic spectrum sharing and (ii) innovation by offering opportunistic unlicensed spectrum use. The FCC currently is deliberating over the extensive record of public comments to determine final rules that strike the appropriate balance between the interests of stakeholders and outside concerns, such as global harmonization of a band that is rapidly being adopted for 5G by other countries.
Spectrum bands used by telecoms to carry wireless signals typically have followed a specific licensing model: a segment of bandwidth is divided into blocks, and firms pay for the exclusive right to use specific frequency blocks on a geographic basis for terms of 10 years or longer. The CBRS framework, however, proposes to mix licensed use with unlicensed use for the first time. The FCC has proposed to offer 70 MHz of Priority Access Licenses (PALs), with the remainder of the (up to) 150 MHz of spectrum to be offered on an unlicensed basis called General Authorized Access (GAA). PALs that are not used by the licensee also will be available for GAA operations. The GAA assignment process will be handled by administrators called Spectrum Access Systems (SASs).
Two of the major economic issues in the design of the CBRS framework are the geographic license areas and license terms. First, the FCC is considering whether PALs should be offered on the geographic level of census tract, county, or Partial Economic Area (PEA). Mobile carriers prefer licenses that cover large geographic areas, such as PEAs. Each band requires the mobile carrier to invest in specific infrastructure and hardware costs. Thus, when a mobile carrier deploys a network over a large area, it can achieve cost efficiencies. If the geographic areas are small, like census tracts, mobile carriers can face what is called exposure risk. That is, they might try to cobble together licenses in multiple small areas to cover a larger area. If they are unsuccessful in getting all the small areas – for example, they are outbid for some areas in an auction – they will have efficiency-reducing holes in their footprint. When that happens, a mobile carrier might overpay for an inferior subset of areas. Small geographic areas also create more complex borders, raising the costs of managing interference. Whether mobile carriers can use the GAA licenses to mitigate some of these problems remains uncertain, as the full details of how GAA spectrum will be provisioned by SASs are not yet public.
On the other hand, small providers – for example, wireless internet service providers (WISPs) – prefer smaller geographic areas and fear that PEA licensing could result in large providers dominating the band, which could lead to underuse. The 3.5 GHz band has physical properties that make it more suitable for boosting capacity than expanding service over a large area. In addition, the FCC’s rules require low-power transmissions. Together, these factors would require a small-cell infrastructure, which is costlier for covering large areas. Specifically, small providers are concerned that large providers will buy entire PEAs but only deploy 3.5 GHz networks in population centers. However, the FCC’s proposed rules allow for PALs in unused areas to be offered through GAA. This would effectively increase the quantity of GAA spectrum outside population centers, and small providers would have access to this increased GAA spectrum.
A possible solution is to give PAL licensees the right to partition and disaggregate PEA licenses on the county and census tract levels. Performance and construction requirements, as used in other bands, could encourage secondary market offerings by the PAL licensees. Another possible solution is to allow bidding for packages of county or census tract licenses. However, the FCC has avoided package bidding in past auctions due to concerns about complexity, even when there were as few as 179 geographic areas. As there are over 73,000 census tracts, package bidding may need to be significantly constrained in order to be viable. A hybrid of census tract and PEA licensing also has been proposed, but this would significantly increase the complexity of the auction and constrain the supply of contiguous spectrum.
Second, the FCC proposal to restrict the PAL license term to three years deviates from established spectrum licensing models, which set the license term at 10 years or longer. This shorter term was intended to encourage “evolution of the band and an ever-changing mix of GAA and Priority Access bandwidth over time” by (i) incentivizing market entry, particularly by small providers, and (ii) giving those same small providers a better chance of acquiring PALs when competing with larger providers. However, a shorter term can discourage investment by raising the risk that investments will be stranded if a licensee fails to win back its license after the term expires. A 10-year term with an expectation of renewal could encourage more robust investment in the band. On the other hand, WISPs have invested in the 3.5 GHz band since 2015 based on an expectation of three-year terms, suggesting that longer terms may not be necessary to encourage certain types of investment. The effect of license term on investment largely depends on whether GAAs are seen as substitutes for PALs and whether the band will be used for 5G or current technologies.
The FCC has billed 3.5 GHz as the “innovation band,” with the idea that “regulatory adaptability 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 licensed or unlicensed rules.” Whether the FCC can align the goals of access by a wide range of stakeholders and allocative efficiency will depend on the specifics of the rules concerning geographic license areas and license terms.