[1st-mile-nm] EBS 802.16 hidden money for schools

[peter]

Just a neat twist in the licensing for Wi-Max 802.16

60% of the Wimax bandwidth is reserved for schools and non profits under 
the EBS or Educational Broadband System transition

Most schools do no have clue that they own the rights to these licenses 
and of course Qwest / Sprint / Clearwire are making a big push to take 
them from the districts at no cost

One non profit on the east coast has accumulated some $250m of these 
from unsuspecting school districts at very little cost

see below


*The Broadband Radio Service (BRS)*, formerly known as the Multipoint 
Distribution Service (MDS)/Multichannel Multipoint Distribution Service 
(MMDS), is a commercial service. In the past, it was generally used for 
the transmission of data and video programming to subscribers using 
high-powered systems, also known as wireless cable. However, over the 
years, the uses have evolved to include digital two-way systems capable 
of providing high-speed, high-capacity broadband service, including 
two-way Internet service via cellularized communication systems. Such 
services provide consumers integrated access to voice, high-speed data, 
video-on-demand, and interactive delivery services from a wireless device.
*The Educational Broadband Service (EBS)*, formerly known as the 
Instructional Television Fixed Service (ITFS), is an educational service 
that has generally been used for the transmission of instructional 
material to accredited educational institutions and non-educational 
institutions such as hospitals, nursing homes, training centers, and 
rehabilitation centers using high-powered systems. Our recent revamping 
of the EBS spectrum will now make it possible for EBS users to continue 
their instructional services utilizing low-power broadband systems while 
also providing students with high-speed internet access.

-----------------------------------------

Sprint is placing a risky bet on the largely unproven technology to 
revive a wireless business that has lost ground to those of rivals 
Verizon and AT&T, analysts say. Upstart Clearwire, meanwhile, hopes 
WiMax can one day help the company become a major telecom player.
But laying the groundwork for WiMax has involved a messy endeavor to 
gather up access to necessary airwaves. Much of the spectrum is owned by 
non-profits and schools, such as those in Burke County, Ga. Many have 
held it for years, without assigning much value to it. Wrangling over 
rights to this spectrum has pitted Sprint against a number of the 
schools and non-profits, while underlining a rift with Clearwire, an 
important partner in dispatching WiMax in its early stages.
Decades ago, the Federal Communications Commission allocated to schools 
and non-profits much of the 2.5 gigahertz spectrum ideal for WiMax. 
Classified as "EBS," it can't be owned directly by businesses. The North 
American Catholic Educational Programming Foundation, for example, can 
use it to broadcast programming such as "Prayer Talk" and "Gift and 
Mystery."
Others, like the Burke County schools near Augusta, Ga., didn't even 
realize they had it until Sprint came calling.
General counsel for Burke County Public Schools, James Hyder, said 
Sprint made an unexpected offer early last year to lease one of the 
schools' two spectrum licenses.
"We woke up one day and saw we had these," Hyder said. After a call to a 
former superintendent to clear up what it was exactly Sprint was after, 
the schools agreed, Hyder said.
Seeing dollar signs
The relationship took an odd turn late last year, however, when the 
Burke County schools applied to the FCC to renew a second, expired 
spectrum license. Around 40 other organizations, ranging from Heartland 
Community College to Connecticut Public Broadcasting, had also applied 
for the renewal of expired EBS licenses which, thanks largely to WiMax, 
have dramatically increased in value.
The FCC granted those requests in January, inviting a flood of hundreds 
of subsequent late renewal requests. Sprint has called the development a 
mushrooming threat to its network plans. It filed a petition for the 
commission to reconsider the late renewals in February.
"These former licensees seek to hijack ... valuable spectrum," Sprint 
said in its petition, adding that the FCC "should not be mislead into 
granting new authorizations."
Clearwire, meanwhile, has sided with the schools and non-profits. The 
FCC hasn't yet issued a decision on the matter.
The EBS spectrum in question was long seen as having little value beyond 
broadcasting TV signals in one direction. That's changed as companies 
like Sprint and Clearwire have announced plans to use it for beaming 
data and voice communication among computers and phones on WiMax 
networks, and as the FCC has issued rules making it easier to lease for 
commercial purposes.
"These educational groups who didn't really care ... whether they had 
these [licenses] or not are now seeing dollar signs," said Tim Sanders, 
an analyst with research firm Maravedis Inc.
Indeed, some groups have seen handsome windfalls, thanks to the 
spectrum's increased value. But the grab for airwaves has also resulted 
in a series of lawsuits and a surplus of acrimony.
Pandora's box
WiMax can blast radio signals far more broadly than WiFi, thus requiring 
less network equipment to cover large areas, and some believe it also 
has certain technical advantages over cellular phone technology.
But the FCC's decision to grant renewals of expired EBS licenses could 
mar Sprint's WiMax rollout by cutting holes in carefully-planned network 
coverage areas, the company says. Sprint would either have to negotiate 
new deals for the reinstated licenses, or see them fall to competitors.
A number of educational groups with EBS licenses have also joined Sprint 
in complaining about the renewals, which they say threaten to impinge on 
existing coverage areas.
"You think you have a three-bedroom house, and then all of a sudden 
someone comes and says, 'hey, half the house is mine'," said Sprint 
spokesman Scott Sloat. "This has opened a whole Pandora's box."
So far, at least 188 expired EBS license renewal applications have now 
been filed with the FCC, Sloat said.
In a filing with the FCC posted Friday, Sprint, Clearwire and a number 
of license holders put forth a proposed settlement, under which 
late-renewed licenses would have slightly altered coverage areas.
The impetus for the schools' and non-profits' late renewals, Maravedis' 
Sanders said, is often "someone approaching them and saying, 'we'll 
lease your spectrum if you can get your license back'."
"I can't speak to their motivation other than to say spectrum is a 
valuable asset, and people aware of that may see that as an opportunity 
for a land grab," Sloat said.
Hyder, the Burke County schools' general counsel, said the decision to 
renew their second spectrum license and seek a suitor was an easy one. 
"It's the difference between getting nothing today, and something 
tomorrow," Hyder said, adding that whatever the schools are offered to 
lease the spectrum "doesn't have to be too significant" for a deal to 
make sense.
Sprint isn't solely dependent on EBS spectrum, as there are other 
varieties of 2.5 gigahertz airwaves that companies can own directly. So 
the flood of EBS license renewal applications doesn't pose a terminal 
threat, Sloat said.
"This isn't something we feel is going to threaten our rollout of what 
we announced as far as a WiMax network," he said, "but it can slow you 
down in spots."
Michael Thelander, an analyst with Signals Research Group in Oakland, 
Calif., said that EBS spectrum could be crucial to Sprint for filling in 
large coverage areas. "For what Sprint's trying to do, it's extremely 
important," he said.
Clearwire, however, is more dependent on EBS leases than Sprint, as 
Sprint owns more spectrum directly. That, analysts say, may be why 
Clearwire has sided against Sprint in the dispute over late renewals 
before the FCC, arguing that the schools and non-profits have the right 
to renew their expired licenses.
Gerard Salemme, an executive vice president at Clearwire, said the 
company only wants to uphold the rules. "We're a little nonplussed 
Sprint raised this issue," Salemme said. "This was us just reading the 
rules the way the FCC wrote them."
The more expired licenses are renewed, the more spectrum can be utilized 
quickly, Salemme argued. About two-thirds of Clearwire's 2.5 gigahertz 
spectrum is now leased through schools and non-profits, he said.
The split underlines the fact that while Sprint and Clearwire have 
agreed to partner on network rollout, they are still rivals, Thelander 
said.
"If you believe in what you're doing, you'd want to control the 
spectrum, and not your partner," he said.
Of the entire 2.5 gigahertz band, roughly two-thirds is EBS and must be 
leased through schools and non-profits, said Todd Gray, an attorney with 
law firm Dow Lohnes PLLC.
Such leasing arrangements thus underpin a technology carrying high 
expectations not only for Sprint and Clearwire, but other tech giants as 
well. Google Inc. (GOOG <http://www.marketwatch.com/quotes/goog>:
google inc cl
for example, has signed a deal whereby it will divvy up revenue with 
Sprint derived from mobile-phone advertising served over a WiMax network.

Cashing in
While it has sided with schools and non-profits before the FCC, 
Clearwire has had its own confrontations with the groups over spectrum 
rights.
Last year, Clearwire filed suit to prevent an Oakland, Calif.-based 
community college from wriggling out of a spectrum lease agreement and 
offering rights to a rival company. In court filings, Clearwire claimed 
the spectrum held by Peralta Community College District was the only 
batch of suitable airwaves available to it in the San Francisco Bay Area.
Peralta, meanwhile, complained it was not being properly compensated.
Earlier this year, following months of litigation, Peralta secured a 
more favorable agreement with Clearwire for the spectrum rights, 
according to a person familiar with the matter.
"I don't know the details on that," Salemme said of the settlement, 
adding that conflicts with schools and non-profits through which 
Clearwire leases spectrum are "more the anomaly."
While Clearwire hasn't yet offered service in San Francisco, it has 
begun advertising San Francisco-based jobs for network deployment 
managers on its Web site. Salemme declined to discuss the company's 
future rollout plans.
Clearwire's EBS spectrum holdings are a major plus in the eyes of Wall 
Street analysts. McAdams Wright Ragen initiated coverage of the company 
in August with a buy rating, noting that its "spectrum position" gives 
it a "significant advantage over its competitors."
The spectrum's importance can in turn benefit the schools and 
non-profits holding the rights to it, said Gray, of Dow Lohnes. "For 
folks who know what they're doing and are being well advised, they're 
doing well," Gray said.
For example, Clearwire has signed spectrum agreements with organizations 
such as the North American Catholic Educational Programming Foundation, 
or NACEPF, that involve payments in company stock.
Though terms of Clearwire's spectrum deals with NACEPF haven't been 
disclosed, NACEPF held $10.5 million worth of Clearwire stock as of 
September 2006, before the company's March IPO greatly increased the 
stock's value, according NACEPF's tax filings. NACEPF had total assets 
of $30.2 million as of September, according to tax filings.
In another example, the Hispanic Information and Telecommunications 
Network, a Brooklyn, N.Y.-based organization that has also leased 
spectrum to Clearwire, held over 11 million company shares after the 
IPO, according to a Securities and Exchange Commission filings. That 
stake would be worth roughly $268 million today.
That's quite a payoff, at least on paper, for the obscure non-profit. 
According to tax filings, the organization had just $25.7 million in 
total assets at the end of 2005.
Some of Hispanic Information and Telecommunications Network's most 
valuable spectrum has been the subject of a legal dispute involving 
Sprint and Clearwire. In February, a Sprint subsidiary sued the 
non-profit for breach of contract, after it opted to lease spectrum in 
Washington, D.C. formerly in the subsidiary's possession to Clearwire 
instead. A judge found in the non-profit's favor last month.
"You gain experience over the years in negotiations with these 
operators," said Hispanic Information and Telecommunications Network 
Chairman Jose Luis Rodriguez. "There were a lot of people that really 
didn't pay much attention to this, but we always saw it as real estate." 
End of Story
/John Letzing is a MarketWatch reporter based in San Francisco./

-- 

Peter Baston

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