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16 January 2020

CBRS auctions will be a stopgap while MNOs wait for C-band spectrum

US operators, with the exception of Sprint, are desperate for the midband spectrum which is providing their counterparts round the world with high 5G capacity, without the expense and engineering challenges of moving up to millimeter wave bands. The really desirable airwaves are in the C-band (3.7-4.2 GHz), but these have been the subject of years of rows between the satellite providers which occupy them now, and the mobile industry. The FCC has plans to auction C-band spectrum this year, but final agreements with the satellite sector are still required. In the meantime, the next best thing is the licensed portion of the CBRS band in 3.5 GHz, with auctions due to start in June.

The FCC’s innovative approach to CBRS involved three tiers of access. Incumbents (mainly naval radar users) get priority access, but in most non-coastal areas, their usage is very limited. The second priority goes to companies which buy Priority Access Licences (PAL) in this year’s auction – though these will be smaller in geography and duration than most mobile franchises, to encourage localized and industrial services and smaller service providers. Third priority is general access (GAA), though some spectrum is earmarked entirely for this usage – for now, that will have to be based on LTE, as standards for 5G in shared spectrum will not be finalized until early next year.

The FCC has talked about adapting the spectrum access system used to allocate channels and decide on access priorities for C-band coexistence, though the challenges are bigger because the satellite operators are heavier users than the federal radar entities (though the MNOs make the argument that satellite does not use anything like the full capacity available in the band).

Clearly the PAL allocations are less desirable for MNOs than C-band – there is the complexity of the shared spectrum and the fact that they are unlikely to be able to get nationwide coverage, and that the licences only last for three years. However, analysts are predicting relatively high totals because of the shortage of any midband airwaves for 5G. Wall Street researchers Cowen are forecasting total proceeds of about $4.4bn or $0.20 per MHz/POP, while Mobile Experts has a more cautious prediction of over $2.2bn, with values ranging from $0.30 per MHz/POP in dense urban areas to just $0.003 in rural regions. The latter would be higher than in many conventional 3.5 GHz spectrum auctions around the world, though well below Italy’s $0.41 per MHz/POP or Taiwan’s $0.51 (and still counting).

There are over 22,000 licences to be sold, based on county sizes, which are smaller than the usual market sizes for US spectrum, though larger than some advocates had wanted. Some had argued that even smaller and shorter term licences were needed to make sure small service providers, or vertical industries, could invest. With so many units, it is expected that the MNOs and cable operators will pay high sums to snap up spectrum in the most desirable areas for their broadband models – especially city centers – while rural tranches are likely to go to wireless ISPs (which occupied part of this band in an early plan). But neutral hosts, enterprise providers, IoT specialists, municipalities and others are also interested and could acquire a lot of the regional and suburban spectrum.

But while this diversity will be welcome to shake up the service models in the US market, the MNOs will really be waiting for the C-band. In CBRS PAL, there is only 70 MHz on offer and no bidder can buy more than 40 MHz in a given area. It could be supplemented by also making use of the GAA portion, which is larger, but with some operators claiming 100 MHz is the minimum required to make the 5G experience significantly different from 4G, it is not enough on its own. By contrast, the C-band auction, once it is green-lighted, will offer as much as 280 MHz of spectrum in total and could fetch up to $50bn.

While the MNOs want larger swathes of midband spectrum, and will be prepared to pay for them, for some of their challengers, CBRS licences might be a good way to put a toe in the water of network ownership. In particular, cable operators like Charter and Comcast are interested in supplementing their WiFi and MVNO services by deploying small cells, backhauled by their own indoor and outdoor cables, to support high value user groups or industrial sub-nets, or to densify areas of high traffic.

The Cowen analysts wrote in an investor note: “We believe CBRS could be a ‘gift’ to Cable as they look to acquire spectrum to build out their own wireless networks, utilizing dual-SIM technology to offload traffic onto their own networks and offset the roaming costs they pay their MVNO partners, noting that Charter says that about 80% of its mobile traffic occurs in just 15% of its cable footprint. “While CBRS may lack the capacity needs for a large wireless carrier, we believe a 2×20 MHz swath of CBRS would provide more than enough capacity for a Cable player’s wireless business.”

Cowen predicts that Comcast and Charter together will spend $1.5bn in the CBRS auction, which would help offset the $700m they are expected to pay in 2023 for wholesale access to Verizon’s network. Both Comcast’s Xfinity Mobile and Charter’s Spectrum Mobile use a Verizon MVNO deal, and the two cablecos have agreed a far-reaching alliance for joint development, marketing and operation of mobile services including 5G.

The analysts also speculate that Amazon might bid for licences to support Industrial IoT and enterprise applications, having worked on private CBRS networks with Federated Wireless, and trialled a variety of use cases that would give the webscaler greater control over connectivity when serving high value clients.

Amazon AWS has been running tests in the spectrum close to the California headquarters of its R&D arm Lab126, as well as its group HQ near Seattle and in Arlington, Virginia. The tests may be part of a plan to harness shared spectrum to offer cloud-native, private mobile networks to developers, private or telecom operators, and enterprises, for “quick deployment of Industrial IoT applications, such as real time surveillance, smart meters and worker safety monitoring”, as AWS put it.  The private network service is being developed with localised packet core provider Athonet, CommScope’s Ruckus and Federated Wireless.

In September, final FCC approval was given for CBRS service launches in the GAA portion. According to Federated Wireless – the most prominent of the five companies which have licenses to administer spectrum access systems (SAS) for CBRS – it had over 20 customers lined up to turn on services across 36 states.

Iyad Tarazi, CEO of Federated, said in a statement: “Customers from all areas of business across the nation will begin to reap the benefits of the higher throughput, improved availability and low barrier-to-entry for high performance CBRS services made available through shared spectrum in the 3.5 GHz range … CBRS will be a huge boon to innovation and help to accelerate new business models.”

The other SAS administrators which can now start commercial operations are Amdocs, CommScope, Google and Sony, though they have been less forthcoming than Federated about their detailed plans to support the introduction of the new CBRS services, branded ‘OnGo’ by the CBRS Alliance.

Fixed wireless access has been the traditional application of midband spectrum in the USA, mainly in the 3.65 GHz band which sits above the federal holdings. That will be included in the CBRS scheme and existing wireless ISPs can resubmit for their licenses. Many expect FWA, despite all the excitement about IoT and mobility, to be the mainstay application of CBRS, and Claude Aiken, CEO of the Wireless ISPs’ Association (WISPA), said of the FCC approval last autumn: “We can’t create new spectrum, but we can invent new ways to use it more efficiently. Today, after years of hard work and development, initial commercial deployment (ICD) of CBRS shared spectrum is a reality …  equipment makers, services and Internet providers will spring into action, helping more Americans – including those in unserved and underserved areas – obtain high speed services through robust dynamic sharing of the 3.5 GHz band.”

The C-Band auction creeps closer:

The FCC is close to a final plan for the C-Band spectrum, which would give the country’s MNOs access to much-needed midband airwaves. But it seems likely to disappoint the satellite operators which occupy the band, and chairman Ajit Pai has not even made it clear whether they will receive any money from the auction, now planned for late 2020.

The plan is to auction 280 MHz of C-Band spectrum in 3.7-4.2 GHz by the end of this year. Pai tweeted in late 2019: “After much deliberation and a thorough review of the extensive record, I’ve concluded that the best way to advance these principles is through a public auction of 280 MHz of the C-band conducted by the @FCC’s excellent staff.”

Intelsat, SES and Telesat are the three European satellite companies that have led the C-Band Alliance (CBA), which was set up to lobby the FCC to let them conduct an auction of C-Band spectrum. But the regulator said the CBA’s proposal was inadequate, and that it would be unfair to have private entities conduct a private auction.

In response to the FCC’s announcement late last year, the CBA said the association would continue to work with the FCC on the matter. But it also warned that its members “will be required” to be involved in the proceeding.

“The announcement does not address the critical involvement of the incumbent satellite operators in executing the complex task of reconfiguring and transitioning their networks,” the CBA said in a statement. “Nor does the announcement address the fundamental modification of the rights afforded by the existing FCC licenses held by the CBA members which would be required under a public auction approach. The full cooperation of the satellite operators will be required to ensure the successful clearing of the C-band while protecting the incumbent broadcast services enjoyed by millions of US households.”

The spectrum was valued at $8.8bn in September by financial services firm Jefferies, and that figure is likely to have ballooned since then.

Verizon is set to prosper most from a public auction given its weaker arsenal of midband spectrum compared to its rivals. Meanwhile, pay-TV operators like Altice USA, Dish Network and Charter Communications have said the opportunity to bid in a public auction would allow them to challenge the big four. This suggests a silver lining from a public auction could be increased competition in 5G services and therefore reduced prices.