700 MHz monopoly?
If anyone could be called an evangelist for spectrum leasing, it would be Mark E. Crosby.
As president of Access Spectrum, Bethesda, Md., Crosby spreads the word about opportunities for a variety of radio communications system operators to lease the company’s spectrum for voice and data radio channels. And Crosby is a gambler.
Where Access has found opportunity, many other band managers said that they have been deterred by uncertainty.
They’re unsure when incumbent TV broadcasters will vacate the 700 MHz guard band and adjacent spectrum.
They’re unsure when the FCC will decide what kind of wireless communications users will occupy adjacent 700 MHz spectrum, a decision that they expect to affect equipment manufacturers’ product offers.
They’re unsure whether one of their number, Nextel, will exchange its guard band spectrum in a swap that would see public safety users-with somewhat different equipment requirements compared to many incipient business, industrial and entrepreneurial guard band users-constructing new systems on frequencies that then would no longer be licensed as guard band spectrum.
And the band managers have different takes on current equipment availability.
Access, with 21 licenses; Pegasus, with 34 licenses; and Nextel 700 Guard Band, Reston, Va., with 39 licenses; form the “Big Three” band managers.
Of the Big Three, not only is Access the only one to have executed a lease with a customer, it is the only one with a published band plan and a mechanism in place for customers to request leases. Access identified its first and only customer as a radio dealer in Minneapolis, Minn., that has leased 10 12.5-kHz channel pairs “to deploy a Motorola-designed, two-way voice and automated vehicle location network.”
Crosby once headed the Industrial Telecommunications Association, a membership organization in Arlington, Va., that represents business and industrial radio communications users.
ITA recognized that, since Congress gave the FCC authority to auction spectrum and started counting on auction greenbacks for the national budget, the federal regulatory agency:
was unlikely to devote any new spectrum to the site-specific licenses that for decades had characterized radio communications systems and
might facilitate the leasing of spectrum by radio communications users so they wouldn’t have to buy spectrum in bulk for geographic areas at auction if
the new spectrum could be auctioned to a company that would take responsibility for the leasing and resolution of interference complaints, relieving the agency of an administrative burden.
The timing was just right, and so was the taxonomy: namely, the use of the phrase, “guard band.”
Public safety radio users were in the process of winning the right to use 24 MHz of spectrum in the 700 MHz band, but they wanted protection from likely interference by future adjacent cellular systems.
ITA proposed that the FCC allocate a “guard band” of frequencies to buffer public safety and cellular systems and auction the guard band spectrum to “band managers” who would populate it with spectrum lease customers using systems designed with non-interference to public safety communications in mind.
The FCC liked the idea.
Meanwhile, ITA decided against becoming a band manager. Instead, ITA formed Access Spectrum, a band manager company. With venture capital funding from the Quadrangle Group and a minority investment from Motorola, Access Spectrum bid $78 million to win 21 guard band licenses in FCC Auctions Nos. 33 and 38. Crosby left ITA in February 2001.
Access Spectrum, one of the “Big Three” band managers, didn’t win the most licenses (see related story on page 26), but it engaged Motorola to develop guard band radio equipment and marketed its spectrum while other auction-winning band managers stood mostly idle.
Meanwhile, Access Spectrum added to its spectrum inventory by acquiring a combination of 220 MHz licenses from New York-based Aerwav, a company that also had contracted Motorola to make suitable two-way radio equipment. Upon Access Spectrum’s request, the FCC waived certain rules to give the company the flexibility to lease its 220 MHz spectrum as a band manager.
What’s next? Finding customers.
First come the “low-hanging fruit,” including the current and would-be radio system operators in urban areas where frequencies have been in short supply, users who lost their licenses through inattention to expiration dates, users displaced by Nextel analog-to-digital system conversions, and entrepreneurs who want to build airtime systems to offer communications service to end-users.
“Demand is coming from a lot of places-some private wireless, some subscriber-based, some regional, some national, not only voice, but data. The challenge is to identify and target the demand that can be readily solved with a spectrum solution,” Crosby said.
Crosby said that aside from spectrum leasing, a user’s options might be limited.
“What is the likelihood of getting an 800 MHz system? Zero. What is the opportunity at 900 MHz? In some places, perhaps some, but in the top 200 markets, there probably isn’t any 900 MHz spectrum available,” he said.
Crosby recalled receiving a call while at ITA from a large hotel on the Las Vegas strip that had let its 900 MHz license lapse.
“Some people are just watching for licenses to expire, and some are paid to watch. I believe that, within a day, someone applied. The hotel wanted its license back. But when it’s gone, it’s gone,” Crosby said.
“So there’s nothing at 800 MHz, and slim pickings at 900 MHz. What about 450-512 MHz? Virtually every place has been raked and groomed to identify FB8 exclusive frequencies. What’s the chance of getting decent FB8s with coverage where there is spectrum demand? Very slim,” he said.
And Crosby said that some customers of 800 MHz airtime radio systems, whose previous owners no longer operate such systems, do not want to become users on a national commercial system. They want alternatives for communications.
“But where do you put those people? The former system operators advised me that they would like an alternative solution to get some of these customers back,” Crosby said.
Another source of demand Crosby identified includes companies and manufacturing facilities that need to upgrade existing radio communications systems.
Crosby broke down the demand for voice communications into three types: two from dealers and one from end-users.
“Dealers want to build subscriber-based trunking systems, and some also have customers who need their own 30-, 50- and 100-unit systems separate from a subscriber-based system. The third type comes directly to us from customers, such as petrochemical companies, utilities and transportation companies that don’t normally work through a dealer organization,” he said.
Crosby said that demand for data communications runs through all market areas, and the company initially providing products at 700 MHz and 220 MHz is Microwave Data Systems, Rochester, N.Y.
“I love them. They’ve stepped up to the plate and are aggressively producing fixed- data solutions. They can design solutions with bandwidths of 100 kHz, 200 kHz or even more, using our 700 MHz spectrum for specific data requirements,” Crosby said.
Whether a customer might choose 700 MHz or 220 MHz could depend on propagation, application or location. Signals at 220 MHz tend to travel further, yet antennas on portables are smaller for 700 MHz units, and the higher-frequency signals may penetrate buildings better. So whether a system is intended to serve vehicular or hand-held radios could make a difference.
“The other thing is that in a top-five city, 700 MHz frequencies may not be available because of incumbent TV stations, so 220 MHz is a great spectrum alternative,” Crosby said.
“Last year, the FCC — in its wisdom — decided to let 220 MHz licensees aggregate their frequencies for wider bandwidths. Guess what? Now you have equipment and solutions,” Crosby said.
When it came to projecting market size and sales, Crosby said that Access Spectrum has numerous customers “in the pipeline,” including companies with what he said were critical applications such as a petrochemical facility that might deploy 800 to 1,000 subscriber units within a two-mile radius.
But interested customers cannot reserve spectrum.
“You either lock it in now or it may not be available. It’s like leasing space in a building. If you lease one floor and think you may need another, you either take the additional floor or not,” Crosby said.
“We do not issue licenses. We issue spectrum-use agreements that define power levels and transmitter locations. We need this information to provide the customer with spectrum integrity and for spectrum management. It’s to Access Spectrum’s benefit to manage this spectrum extremely well to provide security and integrity to protect customer investments and to maximize the efficient use of the spectrum.”
Access Spectrum won’t be selling products. Crosby said that spectrum customers who ask about products would be referred to all of the available vendors.
“Virtually all of the private wireless-oriented manufacturers are interested. Would Access Spectrum like more manufacturers involved? Of course. And the likelihood is high. But the first to market has an advantage at 700,” he said.
The guard band manager has signed up an initial customer, a radio dealer in Minneapolis, for 10 12.5-kHz channels and a Motorola-designed trunked radio system. That step followed beta testing in Las Vegas with a multichannel, 30-unit system.
As for where Crosby expects other early adopters to activate systems, he said it could be anywhere in the company’s spectrum footprint.
“It’s possible in the near future that we would announce a multitude of deals, and you might be surprised where they are,” he said.
Crosby said that he has learned, during the year-and-a-half Access Spectrum has had its licenses, customers have a variety of strategic and tactical processes to consider before leasing spectrum. He said that their use of spectrum normally is only one part of a business plan that requires resolution of legal, financial, technical and performance issues.
“The sales cycle is longer than we had originally anticipated,” he said.
“When I was at ITA, a lot of that work was done before radio users would file their applications. Access Spectrum is involved at an earlier point in the process, and I’ll be the first to admit that we have been surprised by all the critical steps that are necessary to pursue before customers agree to deploy an exclusive-use system,” Crosby said.
He explained another factor that has changed.
“In the old days, the FCC adopted rules and mandated that certain frequency bands could be used for certain purposes at specific power levels within particular confines – and it was very clear. Not much decision-making was left to the user or equipment supplier,” he said.
“With a band manager, customers are provided the flexibility to design a coverage footprint, to aggregate spectrum, to use voice or data, and all that expands the decision process. Greater flexibility has also contributed to the slower pace of decision-making by customers. Eventually, customers will get the hang of it and actually welcome greater flexibility,” he said.
He said that he also is finding that Access Spectrum has to provide more spectrum, the company also must provide tactical guidance.
“For example, we might have a customer who wants 10 frequencies at one site. We know immediately, depending on where it is, that the potential loading may range from 500 to 900 units, depending on the kind of users that would be placed on the system. With a little more design work and a little more marketing planning, and if you use the benefits associated with LTR/PassPort trunking, a customer may construct more than one site. Depending on how the channels are configured, there may be a two-fold increase in system capacity.
“We routinely engage in such discussions with potential customers. We’re happy to do single-site, 10-channel systems, but with a little more work, customers can expand the operational possibilities of their systems,” Crosby said.
Access Spectrum handles its own frequency coordination for 700 MHz and 220 MHz using a channel plan that Crosby said is flexible, depending on market location.
“We can accommodate either data or voice, and we need to be careful; we need to know where the transmitters are located and whether customers are using digital or analog equipment,” Crosby said.
For system design, Crosby said customers normally rely on their equipment manufacturer’s engineering resources or on engineering firms with which they have had long-standing relationships.
Crosby identified the USMSS membership as a source for system design services.
“We have a close relationship with the USMSS community. They’re helping us with field measurements and verification. And there are other sources to secure qualified engineering support. System design is not our business. It’s a major piece of what will make 700 MHz a great solution, but it’s simply not our core competency,” he said.
Regarding mobile voice communications subscriber and infrastructure equipment, Crosby said that such products are available today from Motorola at both 220 MHz and 700 MHz, and that in the 220 MHz band, there are other suppliers, such as Tait. He said that Microwave Data Systems produces fixed data products for both bands.
As for wideband mobile data, Crosby noted that Motorola’s Greenhouse Project used 150 kHz-wide channel pairs in a Pinellas, Fla., test project, “This technology can be accommodated in our 700 MHz band, but I understand that it’s still a few years away.
How does Access Spectrum set its prices?
“The price is not only dictated by the geographic size of the system, but by spectrum capacity, spectrum availability and system location. To remove any confusion, our spectrum fees are not charge on a per-unit basis,” he said.
Crosby said that the belief that Access Spectrum’s 220 MHz and 700 MHz spectrum wouldn’t be affordable is simply “an excuse not to engage with us.”
He placed the opportunity for airtime systems between Nextel and 450 MHz shared systems.
“Nextel is an ideal communications solution for many consumers, particularly those with mobile fleets of 10-15 units. But there also are customers with fleets in excess of 15 units where a traditional SMR or a private system may be the optimal solution – especially for users with more than 70 units.
“A traditional private carrier system should be able to generate $20 to $30 or more per unit per month depending on the area and the competitive environment, using Access Spectrum’s exclusive spectrum capabilities. If a customer believes that they can only charge $12 per unit per month, it’s probably preferable that they accommodate that market demand through the use of a 450 MHz system.
“On our spectrum, with the exclusivity it offers, our customers are in a position to provide real value to that unserved marketplace,” Crosby said.
It remains to be seen if Crosby this evangelist’s gamble paysoff.
What they bid for spectrum
Here are the net high bids from the FCC 700 MHz Guard Band Auction No. 33:
|Nextel Spectrum Acquisition||$337,862,000|
|Pegasus Guard Band||$91,498,300|
|PTPMS II Communications||$6,279,000|
|Black Rock Partners||$2,547,750|
|Radiofone Nationwide PCS||$42,000|
Motorola reaches into 700 and 220 markets
For prospective users of the 700 MHz guard band and the 220 MHz band, Motorola offers radio communications equipment and, if desired, system-design service.
Ken Notter, vice president of business development for Motorola’s Commercial, Government and Industrial Systems Sector, said that the company manufactures the portable and mobile two-way radios and sells a repeater made by Spectra Engineering in Australia.
For trunked operation, the repeater can be staged for deployment with an LTR or PassPort trunking controller. Motorola doesn’t offer MPT 1327 trunking as a matter of “span and control,” Notter said, explaining that PassPort takes an enormous amount of effort and that the company doesn’t want to support multiple protocols.
Motorola wants to make sure it works. Notter said that a given customer’s first systems would be staged with Motorola’s assistance, and “if they don’t want to do that, we won’t sell it.”
Dealers under Motorola’s Professional Radio Dealer contract represent the bulk of the company’s two-way radio distribution channel. Notter said that these dealers have the capability to market two-way radio generally, and the guard band and 220 MHz products will add to their opportunities.
He said that Motorola is working with CES, Winter Park, Fla., to develop mobile data products for the portfolio for basic applications such as AVL, status messaging, data messaging and credit card invoicing.
“We’re working on the basics first. We have a successful mobile data public safety solution, but we’ve never focused it on the lower end of data solutions. We’re looking to fix that,” Notter said.
The company had a natural interest in the guard band spectrum because of the neighboring 700 MHz allocation for public safety radio communications.
“The guard band aspect was a new development. Access Spectrum was an aggressive player and successful in the auction. We work with them on product development to fulfill customer needs where they can provide that spectrum. Because we’re so focused on public safety, it made sense to be involved in the guard bands to understand how that is deployed,” Notter said.
Motorola owns an estimated 10 percent of Access Spectrum and owns a guard band license for an area that includes New Orleans and Baton Rouge, La. Access Spectrum contracted Motorola to develop FM equipment for 700 MHz.
Separately, New York-based Aerwav contracted Motorola to develop FM equipment for the 220 MHz band. Access Spectrum subsequently acquired the bulk of Aerwav’s 220 MHz licenses and a waiver of FCC rules that permits it to lease 220 MHz spectrum in a fashion similar to that of a guard band manager.
With the guard band, the FCC made available some spectrum for business and industrial use in locations where spectrum otherwise was depleted. Motorola would like to sell 700 MHz systems to large, vertical-market customers and sees some potential for what Notter called “private carriers.” Private carriers provide airtime service to end-users.
Large vertical-market customers, such as petrochemical companies and manufacturers, need clean, unencumbered spectrum to deploy with confidence in larger metropolitan areas and in multiple markets, Notter explained. He mentioned universities and airlines among possible customers, saying that in certain markets, there either have been no alternatives or no alternatives of consequence for building new radio systems.
“Challenges with TV station incumbency remain to be worked out. But eventually, the 700 MHz spectrum will be clear,” Notter said.
Motorola has other product initiatives that include dual-band 700/800 MHz products, but they represent a different type of product roll-out for public safety use, Notter indicated.
Motorola’s guard band product is designed for conventional (single-channel) and for LTR and PassPort trunked (multiple, automatic channel selection) analog FM operation. The dual-band 700/800MHz public safety product is made to the Project 25 digital radio standard.
Immediate 700 MHz guard band use may be limited by TV station incumbency and restrictions in Canadian and Mexican border regions, which might lead a customer to use 220 MHz instead.
Moreover, 220 MHz has greater range, so an equivalent area can be covered with fewer sites at 220 MHz compared to 700 MHz. Antennas on portable units are larger for 220 MHz, so systems that primarily use mobile units might find 220 MHz doubly advantageous.
Notter said that if a customer comes through Motorola direct sales, Motorola would design the system. If the customer comes through a reseller, Motorola still might design the system under the contract agreement.
“But the reseller could use his own capabilities and design the system. We make design services available for direct and indirect sales. If the sale is on Motorola paper, we’ll make sure it does the job, and we’ll design the system,” Notter said.
Notter demurred when it came to discussing sales projections or financial forecasts. But he said from a trend standpoint, sales would depend on spectrum availability.
“If a customer has a business problem that our equipment and system can solve, it’s a matter of matching those two up. Those opportunities fall in the market space. I would expect to see an increase of the smaller type of on-site deployment. There will be some renewed interest in utility marketplace, certainly in 220 MHz,” he said.
“And we hope we can open the door back up for what I would call private carrier, SMR-type services in the larger markets particularly where we’ve been void of a service offer since the middle 1990s. We would like to find a way to bring those services back to market,” Notter said.
With respect to pricing, Notter said the 700 MHz and 220 MHz equipment would be found in Motorola dealers’ professional series price book. He likened it to a mid-tier product from a reseller’s perspective.
Notter explained that even dealers who do not sell Motorola radios could build an airtime systems and find opportunity because the Motorola distribution channel could sell units for use on those systems, stimulating activity.
To begin with, Motorola wants to sell into the top markets and find a way to deploy “at least some level” of shared systems, Notter said, “We’re looking for a plan to make that happen, at least in the top 10 markets.”
Motorola has been testing a 220 MHz system with two sites and PassPort trunking in Chicago, and a counterpart 700 MHz system with LTR trunking in Las Vegas, which Notter described as a strong radio market.
“The testing has been very favorable. The audio quality has been good,” Notter said.
Although Access Spectrum is the most active band manager and is the only one with a discernable marketing plan, Notter said that Motorola has heard from other band managers that have expressed some interest in the Motorola product.
Notter said that the biggest challenge with the 220 MHz band is that it is small and limited, yet it offers opportunity when its 5 kHz channels can be aggregated – a factor he said was critical.
Motorola’s new 220 MHz product is the first FM radio the company developed for the band, but Notter said that if only the 220-222 MHz segment were involved, it might not have been enough of an opportunity.
“We wanted to concentrate on the first five megahertz [216-222 MHz] first, but the product is type-accepted for 216-225 MHz, so there’s an opportunity. Plus it fits global markets that operate on different frequencies,” Notter said.
Motorola has been working with 220 MHz license holders to identify markets, and Notter said that many utilities have licenses and no real opportunity to deploy systems.
“Even if they can only put out 12.5 kHz channels, that may be all they need. A quality FM radio that works is of interest to them. We did an analysis with that vertical market. We conducted workshops with them,” Notter said.
Motorola has documentation and has worked with consultants enough to know that the market exists for shared private carrier systems in key markets. But Notter said private carriers need an affordable product that’s more than dispatch-although dispatch would be predominant.
“We have a mission for a data product in conjunction with the two-way radio. We know AVL and status messaging would add value. We have plans for those. We also want to take advantage of other product portfolios for SCADA,” he said.
“The Professional Series product we picked is the easiest and most cost-effective, and has a wonderful portfolio of accessories and consoles. New products usually take years to get to that level, but we can leverage off that platform,” Notter said.
Although Notter said Motorola wouldn’t limit a customer’s vision as to how many sites to network, he said that he didn’t expect many markets would use a huge number of sites because of the return-on-investment model. He said that where a dealer could offer extended local, seamless coverage, there’s a market for it.