EXPERTS: FCC SECONDARY MARKETS RULES ARE PROMISING, BUT QUESTIONS REMAIN

The FCC adopted rules last year to bolster spectrum leasing through secondary markets by taking away hurdles that stemmed from a 40-year-old case called Intermountain Microwave. That case had been interpreted to mean licensees must keep tight control of leased licenses. The new rules outlined 2 scenarios for spectrum leasing and took away the Intermountain Microwave test to determine who controlled the spectrum: (1) Spectrum manager leasing, in which parties entered leasing agreements without prior FCC approval as long as the licensee retained both de jure (legal) control of the license and de facto (working) control of the leased spectrum. Parties still have to notify the FCC of the lease, but don’t need prior Commission approval. (2) De facto transfer leasing, which has been termed more of an absentee landlord approach. Licensees keep de jure control of the license while the de facto control is given to the lessee for the term of the lease. That option carries a streamlined application and approval process.

David Furth, assoc. chief of the FCC Wireless Bureau, said that besides the new rules, the Commission adopted a further notice asking about ways to extend the leasing model, in part by questioning whether public safety should be among additional bands for which leasing would be allowed. Furth, who was on the Commission’s Spectrum Policy Task Force, said the rules didn’t completely address the vision of the task force on what secondary markets could accomplish. He said: “The question here is how to create rules that unleash the potential for new technologies to take advantage of spectrum that is licensed but is not being used by the licensee.”

The secondary markets rules are based on the expectation of individually negotiated leases, Furth said, calling it an important goal for the FCC to encourage. “But what the Spectrum Policy Task Force report talks about is devices that aren’t going to operate on that basis. They aren’t going to be dedicated to a particular band. They are going to be able to access spectrum dynamically in different dimensions,” he said. If someone has negotiated secondary access to spectrum but is using it for “minutes” or less, Furth said, “you don’t want to be held up by a regulatory process that’s still defined in terms of weeks or days.” The further notice is designed to explore how secondary markets rules can respond to newer technologies, he said. On notification requirements for spectrum manager leasing, Furth said the point was to provide information to the FCC but also to the public about the identity of spectrum lessees.

First Avenue Networks, which had been Advanced Radio Telecom before it filed for bankruptcy in 2001, sees its target markets for spectrum leasing as including mobile backhaul operators, wireless ISPs and business customers, Vp- Business Development Evans Mullan said. He said the company had commitments for its Express Link service for point-to- point leasing and its Express Net service for area-based leases. For Express Link, the company said it had seen interest primarily from businesses and WISPs slowly moving from license-exempt spectrum to licensed bands.

Among questions the FCC still has to answer on how the secondary markets rules will work are concerns about how designated entities (DEs) will be treated, Washington attorney Lawrence Movshin said. DE treatment was among the issues raised in petitions for reconsideration of the order this month (CD Jan 6 p1). Cingular asked the FCC to spell out that its secondary markets policies were available to DEs, arguing they should have full access to spectrum manager leasing arrangements with non-DE carriers without jeopardizing their status as designated entities. While the FCC still has to clear that up, Movshin said, the leasing may prove particularly useful for making more DE spectrum capacity available for wireless broadband and other uses. He said secondary market transactions were likely to move beyond traditional leasing models. He gave the example of a wireless transaction in which the sale of the licenses might not be closed for 9 months after an agreement was signed. Through a lease arrangement, a buyer could assert some managerial control when a deal was pending, “partly to protect his investment and in some cases simply to meet build out requirements,” Movshin said. Another possibility would be for a carrier that was shifting from a TDMA network to a GSM upgrade to use a leasing arrangement to have access to additional spectrum while that network overlay was under way, he said. Movshin also said operators of telematics systems might be interested in leasing analog spectrum.

Wireless carriers have eyed with angst policy changes under consideration at the FCC that could allow unlicensed users to operate as an underlay to existing spectrum, Movshin said: “Perhaps the leasing arrangement will provide a market-based solution for carriers who truly believe they can work with those carriers who want to provide lower power alternatives to lease the spectrum to them instead of being forced by some public policy debate that could go on for years.”

Darrin Mylet, vp-wireless services for Cantor Fitzgerald Telecom Services outlined a trading “engine” that Cantor Fitzgerald used to match prospective lessees with available spectrum, with consideration of factors such as who owned which licenses in a basic trading area. “One of the challenges is where you go today to get spectrum,” he said, saying that issue would lessen in importance as trading exchanges such as Cantor Fitzgerald’s grew. “The other challenge is this multidimension of frequency time and space. That makes trading a little more difficult,” he said.

While rural carriers initially had viewed more liberalized spectrum leasing rules as providing a potential boon to their build-out plans, they have been less interested since the industry downturn, Bennet & Bennet attorney Donald Herman said. Herman said one particular concern was the extent to which the rules didn’t build protections into leasing arrangements in the event of a licensee’s bankruptcy or subsequent FCC license cancellation. “The lack of bankruptcy protection is still something that’s sitting out there as a major issue,” he said. Rural carriers also still face the challenge of drawing the attention of nationwide providers in leasing arrangements.