Crucial Decision on 3rd-Generation Wireless Service Expected
 
July 31, 2001
 
Peter M. Connolly- Washington
George Wheeler - Washington

Perhaps the most important decision that the FCC will make this year involves which frequencies it will allocate to so- called "third generation" (3G) wireless service.

At present, cellular and Personal Communications Services (PCS) largely involve voice applications, with wireless data services beginning to be offered. First-generation wireless is the name given to analog cellular service. Second-generation wireless refers to digital cellular and PCS service, which have greatly increased wireless system capacity, but have not essentially altered the content of most wireless transmissions.

Third-generation wireless describes advanced wireless services such as higher-quality voice service, high-speed wireless data, including advanced Internet services and other multimedia applications, geographic positioning, and full motion video.

In order for present wireless carriers to implement 3G services, it will be necessary for them to receive additional radio spectrum from that presently allocated to other services.

About 160-180 MHz of additional spectrum will be needed for 3G to be allocated by auction among existing wireless licensees and new applicants. The FCC has not resolved how much 3G spectrum will be granted to individual licensees or whether 3G licenses will be national in scope or broken out by markets, or how such markets will be defined.

The battle over which and how much additional spectrum to allocate for 3G service has touched off a political and legal battle of great intensity and complexity.

Background

Last October, the Clinton White House released a memorandum, urging the FCC to license 3G systems according to an ambitious timetable. The President's memorandum stated that the FCC had to identify the frequencies to be used by 3G systems by July 2001, and hold 3G licensing auctions by September 2002.

In November of 2000, and March 2001, the National Telecommunications Information Administration (NTIA), a part of the Commerce Department, and the FCC issued interim and final reports on the 2500-2690 MHz and 1710-1850 MHz bands, which discussed their potential for accommodating 3G systems.

Also in January of 2001, the FCC released a 3G Notice of Proposed Rulemaking and Order (NPRM), which considered the use of those bands and other bands for 3G purposes but reached no conclusions about which band or bands would be appropriate for 3G allocation or whether any of those bands could be shared among their existing occupants and possible new 3G licensees. Comments were then filed on the NPRM by interested parties but no consensus was reached about which frequencies would be best for 3G.

The FCC's Dilemma

The main difficulty is that both the 1710-1850 MHz and 2500-2690 MHz frequency bands are heavily used in the U.S.

The 1710-1850 MHz frequencies are occupied by government, largely military, uses, including satellite telemetry, air combat training, microwave communications and other functions requiring wireless communications. The March 30, 2001, NTIA final report on the feasibility of allocating frequencies from the 1710-1850 MHz band to 3G systems found that band sharing was not feasible because interference to both 3G and incumbent governmental systems would preclude compatible operation by 3G and government uses over large geographic areas of the country.

The report also found that the Department of Defense would be unable to vacate large parts of the band for some years, even if its frequencies were reallocated, partly because of the useful lives of satellites which cannot change frequencies. Thus, segmenting the band may be very difficult.

The 2500-2690 MHz band is used by the Multichannel Multipoint Distribution Service (MMDS) and Instructional Television Fixed Service (ITFS). MMDS licensees have historically provided wireless cable video services, usually unsuccessfully. ITFS licensees are usually churches, universities and school systems, and their fixed wireless systems are used for educational video purposes.

In recent years, MMDS licensees have shifted their operations to the provision of wireless data for businesses, and have achieved a greater measure of economic success in doing so.

Worldcom and Sprint have invested billions of dollars in such operations and are the leaders in this nascent industry. Also, under complicated rules, an ITFS licensee may lease its excess capacity to an MMDS licensee and increasingly MMDS licensees are leasing such capacity in order to send data to customers. ITFS licensees have come to regard such leasing as a major source of income.

The FCC's report on possible 3G use of the 2500-2690 MHz band demonstrates the difficulties of spectrum sharing and segmentation concludes that neither is feasible. Also, the FCC concluded there is no readily identifiable alternate frequency band that could accommodate a substantial relocation of the incumbent MMDS/ITFS licensees now operating in the 2500-2690 MHz band.

We consider it unlikely that the current ITFS and MMDS allocations will be disturbed.

Conclusion

So, where do these pessimistic reports leave President Clinton's ambitious plan to allocate frequencies for 3G by July 2001, and conduct auctions for 3G frequencies by September 2002?

Currently, there is no answer to this question. A political war is raging. The Defense Department and ITFS and MMDS licensees are attempting to defend their current frequency allocations. The wireless industry, through its trade associations, is seeking an allocation from one or both of those frequency bands, perhaps in addition to an allocation from the 2110-2150 and 2160-2165 MHz bands. Recently, there have been reports that the FCC may consider other spectrum for 3G, including the 1850-1990 MHz now allocated to future systems, which will provide communications between satellites and wireless handsets.

The FCC, which will have to make this decision, is in transition. Four FCC Commissioners: the Republican Chairman Michael Powell, Republican Commissioner Harold Furchtgott-Roth, and Democratic Commissioners Susan Ness and Gloria Tristani will be leaving or have already left . President Bush has nominated Kevin Martin and Kathleen Abernathy, Republicans, and Michael Copps, Democrat, to the FCC. Thus, an FCC that may include three or four new Commissioners will have to decide which frequencies will be allocated to 3G.

The likeliest short-term outcome is a delay of the July 2001, date for designating 3G frequencies.

No matter how the current dispute is resolved, it is likely that some additional frequencies eventually will be allocated to 3G use. The FCC and Congress believe that such an allocation is necessary for the United States to maintain its competitive position in the world economy and continue to be a leader in the development of advanced wireless technology.

It is also probable that, when the FCC does decide which frequencies are to be allocated, it will also schedule auctions. A decision to enter such auctions would not be a step to be taken lightly by those not now engaged in the wireless industry. But it would be a possibility that Holland & Knight clients not now engaged in wireless may want to consider. We will keep you apprised of developments in the 3G proceeding as it goes forward.