State's plan to reprogram huge spectrum asset faces challenges

In two weeks, South Carolina will find out if its educational wireless spectrum is a gold mine or an albatross.

On Jan. 2, a recently created state commission released a request for proposals, inviting bids on 67 Educational Broadband Service (EBS) licenses, originally issued decades ago for one-way, analog, education TV broadcasts, allowing a lecture to be watched in multiple classrooms, for example. There's enough of this 2.5-GHz spectrum not only to cover nearly every square inch of the state but also to shower 5.6 million residents with multichannel, wireless broadband voice, video and data services.

All that is possible because the FCC in 2004 and 2006 revamped the 2.5-GHz rules. One key change let EBS holders lease out up to 95% of their spectrum, which is rarely used for its original purpose since new modes of distance learning now are offered over IP-based broadband networks.

It's prime spectrum real estate, in part because Sprint and Clearwire have combined forces to buy or lease this spectrum to roll out their joint WiMAX 4G network. The early results, in Baltimore for example, are impressive: multi-gigabit uploads and downloads even when mobile. In mid-2008, the WiMAX Forum had begun certifying an array of Mobile WiMAX products to access networks in this band. 

Click to see: South Carolina wants to repurpose a chunk of 2.5GHz spectrum that FCC rules now permit to be leased to commercial enterprises. Shown are the overlapping and contiguous license areas in two of seven blocks of spectrum, color-coded. Statewide wireless networks potentially could serve large numbers of users.

But the state faces an array of challenges. The Sprint-Clearwire merger also ended a rivalry that might have led to a bidding war for the spectrum. And the nation's economic meltdown is likely to lower what companies are willing or able to pay for it.

Finally, the whole process could spark a bruising and time-consuming political battle over different visions of how government and industry should partner on a range of broadband policy issues, from contract details, to service-level agreements, to bridging what’s called the digital divide between well-heeled broadband users and the poor.

The state's wireless asset

The licenses are owned by the South Carolina Educational Television Network (ETV), a nonprofit that also runs 11 television stations and eight radio stations. After the FCC rules changes for this class of licenses, ETV began exploring a range of options to lease the excess capacity. The state legislature created its own exploration committee in 2007, eventually passing a bill to create in late May 2008 the Educational Broadband Service Commission, charged with developing a competitive process for leasing the spectrum assets. Six months later, the request for proposal was ready ( see PDF of the full RFP). 

The commission deliberately cast a wide net with the RFP, says its chairman, Gary Pennington, whose day job is managing partner of his own Columbia-based law firm. "We were very clear [that] we did not want to pigeonhole the particular use of the spectrum," Pennington says. "We've left that wide open."

The RFP is being promoted via SpecEx.com, which is billed as the first fully online, fully automated exchange for buying, selling and leasing spectrum licensed by the FCC. The site was launched last fall by start-up Spectrum Bridge, in Lake Mary, Fla.

SpecEx provides a variety of services, including the capacity to pinpoint license boundaries and the populations covered by each license, a critical element in calculating the "megahertz pop" used in setting a dollar value to the license. Megahertz pop is the total amount of spectrum for the license, multiplied by the population served by that license. "You can see very clearly what you're getting," says Rick Rotondo, chief marketing officer and co-founder of Spectrum Bridge.

By combining these licenses, putting the data online, and offering the RFP with services via Spectrum Bridge, South Carolina "lowers the transaction costs dramatically," Rotondo says. 

Changing the spectrum landscape

EBS licenses are held by entities such as universities, schools and churches. The concept stretches back to 1963, when microwave spectrum was set aside to send closed circuit TV broadcasts to multiple campuses or classrooms, says Charles Spann, wireless business analyst with Connected Nation, a Washington, D.C. nonprofit that facilitates public-private joint efforts to extend broadband reach and access.

There are now 20 education-held channels and another 13 related commercial channels in this spectrum, according to Spann. The commercial users, including companies like People's Choice Television, were Wall Street darlings during the 1980’s and 1990's offering wireless analog TV services, until digital signals and satellite TV services scuppered them.

Under the FCC rules changes, this entire spectrum is now available to be leased for any number of uses, and any type of wireless technology, including WiMAX or LTE.

The South Carolina EBS licenses constitute a "huge amount of spectrum," says Spann. "That allows nearly ubiquitous coverage over the state, and enough cumulative spectrum to build a business plan around." If Clearwire, for example, was only successful in buying or leasing the commercial 2.5-GHz channels, "it might not have enough to go into big markets and provide a WiMAX play that would satisfy the needs of a large population," says Spann. "But add 20 more [EBS] channels and you've gone from not having enough to having more than you need."

And under the current FCC rules, the leasers are given wide latitude in the kind of technology and services they can offer in that band.

What South Carolina is attempting has been done in Milwaukee, on a much smaller scale. There, Clearwire a year ago began offering WiMAX services, based on 12 broadcast channels it leased from University of Wisconsin-Milwaukee, Milwaukee Area Technical College, and Milwaukee Public Schools. The company paid each institution $4.17 million upfront and $55,000 per month. Each year, the monthly payment will increase by 3%. The lease is for 30 years, with renewal/cancellation option for Clearwire every 10 years.

A missed chance?

But Spann wonders if South Carolina has missed its best chance for an optimal deal. The economic meltdown, coupled with the Sprint-Clearwire WiMAX merger, the national average price-per-megahertz-pop on a national average has plummeted from a high of about 50 cents to fewer than 4 cents today. That drop slices hundreds of thousands, even millions from the lease deals.