FCC Adopts 3.5 GHz CBRS Auction Framework In Anticipation of Auction in 2020

At its Open Meeting on September 26, the Federal Communications Commission (FCC or Commission) unanimously adopted a Public Notice (PN) seeking comment on procedures to auction new licenses in the 3.5 GHz band, referred to as the Citizens Broadband Radio Service (CBRS) band. The CBRS spectrum auction, scheduled for June 2020, will be designated as spectrum Auction 105.

Commissioner O’Rielly’s remarks at the meeting seem to reflect the collective interest and enthusiasm of many in the communications industry:

"Hallelujah! With every passing day CBRS is becoming more and more a reality, and now we have an auction date. Now the true fun begins. We get to see what America’s innovators, entrepreneurs, and creative minds will make of this band."

FCC Commissioner O’Rielly (FCC Open Meeting - 9/26/19)

This Commission action follows the Wireless Bureau’s recent decision to approve “initial commercial deployments” (ICDs) of five separate entities’ spectrum access systems (known as “SAS” providers). Collectively, these developments are the clearest signal yet that commercial operations using spectrum in the CBRS band will soon begin.

Background

Upon activation of the CBRS band, commercial operators will have access to 150 MHz of valuable mid-band spectrum. A broad cross-section of industry participants, including mobile wireless, cable, WISPs and DAS providers are all expected to use the spectrum to deploy a range of new commercial applications. This includes private LTE and fixed wireless networks, industrial IoT and indoor densification applications, and other arrangements that will expand network capacity and facilitate data offloads from existing networks.

Commercial operations utilizing CBRS spectrum on a general authorized access (GAA) basis are expected to begin by the end of the year. Of the 150 MHz of spectrum available in each market, a total of 80 MHz is reserved for GAA use in each market. Following initiation of services by those GAA operations, the Commission will then auction CBRS spectrum licenses, known as priority access licenses (PALs) next year. The Commission plans to auction the remaining spectrum–not set aside for GAA use—which will be as much as 70 MHz of spectrum in each market.

The hallmark of the CBRS band is the unique three-tiered sharing framework governing use in the band (as explained in our prior advisory). This novel spectrum access framework assigns user rights based upon whether the spectrum user is an incumbent operator, licensed operator, or general authorized (i.e., licensed by rule, or quasi-unlicensed) operator.

Mediating the spectrum access rights between all three classes of users are the SAS providers. The Commission recently approved five new SAS providers’ proposed commercial deployment plans in the CBRS band.

While the SAS providers are virtually certified, they haven’t completed the certification process (which concludes with submission and approval of the ICD/field test report). These SAS providers, and others that may be certified at a later date, will deploy sophisticated algorithmic-based databases and sensing systems to dynamically assign CBRS spectrum to authorized users in any of the three tiers.

SAS providers will also mediate use between the respective three tiers of users by dynamically reassigning spectrum as needed to accommodate higher priority users. Incumbent operators receive protection from both licensed and GAA-based operators, while licensed operators receive protection from GAA-based operators.

Key Attributes of CBRS Auction Framework

PAL License Structure and Limitations
Adoption of the new auction procedures PN will formally initiate the Commission’s work to auction this spectrum under the CBRS license framework established in 2015 (discussed in previous advisories). As explained above, the FCC will auction up to 70 MHz of the available 150 MHz CBRS spectrum as so-called PAL licenses per license area.

License areas will be county sized (although auction participants may be able to aggregate those counties into larger areas for auction bidding purposes). As a result, there will be more than 22,000 PAL licenses available nationwide during the auction next year.

The 70 MHz available in each county will be auctioned as seven 10 MHz channel blocks. However, unlike other traditional spectrum licenses, CBRS PAL licenses will not be assigned a specific channel block within a geographic area. Instead, each PAL license will provide the licensee the right to use a 10-megahertz unpaired channel block within the license area. As a result, the Commission will not use an assignment phase process prior to the auction.

The Commission has capped the aggregate amount of spectrum any licensee can hold in one license area at 40 MHz. As a result, no PAL license holder can hold more than four 10 MHz PAL licenses in any one county. PALs will be renewable licenses with 10-year terms.

License Area Aggregation May be Permitted During the Auction Bidding Process

Although the current auction framework provides that auction participants may bid on PAL licenses on a county-by-county basis, the Commission is requesting comment on the possibility of permitting auction participants to aggregate license areas in larger markets during the auction bidding process.

Specifically, a bidder could elect, prior to the start of the bidding, to bid at a Cellular Market Area (CMA) level for blocks in all of the counties comprising the 172 largest CMAs (map available here) that are also classified as Metropolitan Statistical Areas. The Commission adopted new language in the PN (which was not in the earlier circulated draft) on several aspects of auction mechanics, and also certain revisions to the rules surrounding the use of CMA-level bidding, including a proposal to require a bidder to make an irrevocable election to bid either at the CMA level or the county level. If this approach is adopted, potential auction participants should carefully consider their auction and bidding-level strategy to determine whether to bid on a CMA or county level. Once these procedures are finalized, the Commission will, as it has in the past, conduct tutorials for potential auction participants.

Bidding Credits Will be Available for Entities Qualifying as Small Businesses or Rural Providers

The FCC proposes to permit certain qualified small business or rural providers to utilize bidding credits in the auction. Specifically, an entity with average annual gross revenues for the preceding three years not exceeding $55 million will be eligible to qualify as a “small business” for a bidding credit of 15%, while an entity with average annual gross revenues for the preceding three years not exceeding $20 million will be eligible to qualify as a “very small business” for a bidding credit of 25%. Further, entities providing commercial communication services to a customer base of fewer than 250,000 combined wireless, wireline, broadband, and cable subscribers in primarily rural areas will be eligible for the 15% rural service provider bidding credit.

The total amount of available bidding credits will be capped. For small businesses, bidding credits will be capped at $25 million, and for rural service providers the bidding credit cap will be set at $10 million. In addition, a small markets cap of $10 million will apply in counties located within any Partial Economic Area with a population of 500,000 or less. The Commission seeks comment on each of these bidding credit caps.

Takeaways

1. PALs Differ from Traditional Licenses
   The FCC decision not to undertake a pre-auction “assignment phase” is another reminder of the unique nature of PAL licenses: they do not grant rights to a specific channel block in the license area. Because those channel blocks will be unpaired blocks that are dynamically assigned by the SAS providers, potential PAL auction participants should ensure that their planned operations in this band can fully utilize dynamically assigned unpaired channel blocks.


2. Aggregated Bidding Procedures Are Likely to Change Auction Dynamics
   In addition, potential auction participants should carefully consider the implications of the Commission’s decision to consider the possible aggregation of auction bids in the largest markets. As noted above, the FCC is asking for comment on a proposal to permit entities to “super -size” their bids in the largest markets by aggregating contiguous counties in those markets.
   
   This approach, if ultimately adopted, is likely to provide favorable circumstances for larger providers with greater resources to compete for CBRS PAL licenses in such areas. As a result, small and mid-sized providers should carefully consider their potential strategy for bidding in such areas.
   
   Notably, this decision may also lead to a robust secondary market following the auction because PAL license auction bidders that win multiple counties may later choose to partition or disaggregate those licenses in certain areas. Those carved out license areas may be available on the secondary market for entities interested in securing PAL licenses, or leases, in such areas.


3. CBRS Band Structure Will Preserve Opportunities for Smaller Providers
   Even those providers that choose not to participate in the auction or find themselves unable to compete in the larger markets will likely be able to use CBRS spectrum to enable new service arrangements. Because the band preserves 80 MHz of spectrum for GAA use, entities operating without PAL licenses will still have significant new spectrum available for operations.
   
   Further, because the band operates on a “use it or share it” principle, even for PAL license holders, providers can still avail themselves of up to 150 MHz of spectrum in those areas where PAL licenses are not issued, or where the licensee is not actively using the spectrum. As such, even those operators that do not acquire PAL licenses will have significant opportunities to leverage this valuable mid-band spectrum to support future deployments.