Citizens Broadband Radio Service (CBRS) is a bellwether for new regulation Close

December 2016: Citizens Broadband Radio Service (CBRS) is a bellwether for new regulation




Bottom Line: CBRS is a bellwether for regulatory innovation, and heralds shared spectrum access as the way of the future. Success of this shared access depends on mobile and unlicensed operators to find a middle ground where both their business models can successfully operate. This will depend on number of factors including broad industry support for neutral host architectures and widespread deployments of CBRS technology.


Executive Summary

In April 2015, the Federal Communications Commission (FCC) in the United States established its regulatory framework for the Citizens Broadband Radio Service (CBRS) in the 3.5GHz spectrum band. This framework incorporates an innovative tiered spectrum sharing arrangement to protect incumbent uses for the Department of Defense (DoD) and fixed satellite services (FSS) from interference. It also allows for Priority Access Licensees (PAL) to have preferential access relative to General Authorized Access (GAA) users, (see Exhibit 1).

CBRS introduces a dynamic and tiered spectrum sharing scheme that can be positioned as an extension to unlicensed (e.g Wi-Fi) or mobile cellular systems, or a combination of both.

CBRS is a bellwether for the innovative radio spectrum licensing schemes being pursued by regulators like the FCC. If successful, CBRS will herald additional spectrum sharing schemes in the future. Furthermore, as innovative licensing schemes are introduced and capitalize on radio technology advancements, we expect that the value and utility of radio spectrum licenses will change. Mobile operators must anticipate this change with innovations of their own, possibly including strategies to shepherd favorable regulations

The positioning and value proposition for CBRS differs depending on whether it is anchored to unlicensed or cellular systems, or somewhere in between. However this is not without its challenges. CBRS intends to extend the capabilities of unlicensed systems with new spectrum resources, but it is unclear whether the implementation complexity is worth it. The CBRS value proposition for mobile operators is to provide additional spectrum resources to defer network infrastructure investments, but the value proposition is hindered with CBRS being positioned primarily as a small-cell technology. In spite of these challenges, CBRS brings potential benefits by enabling neutral host capabilities, which are inherent to Wi-Fi, but not necessarily in mobile systems.

The CBRS framework is a bold move for the FCC and is being closely followed by regulators in other markets. It is clear that the mobile industry has reached a level of maturity where regulatory change is necessary. Industry players must respond to these changes with optimistic and opportunistic expectations, moderated by the recognition of the practicalities and challenges in enabling regulatory innovation.

This creates potential opportunities for non-mobile operator entities to integrate their private networks with mobile operator led CBRS deployments. However adequate mobile operator support is needed.

Since CBRS uses TD-LTE radio technology standards, telecom equipment vendors can leverage their existing TD-LTE platforms for its deployment. However as they do this, they must pay careful attention to the dynamics necessary for the CBRS market to scale, and the deployment scenarios and business models that are likely to prevail. This will impact the pace of product development, the manner in which the products are adapted to align with market demands, and channel strategies for operator and non-operator entities.

Exhibit 1: CBRS has a three tiered spectrum sharing regime
Source: Tolaga Research 2016

FCC brings spectrum sharing with CBRS in the 3.5GHz band

In the United States, the 3550-3700MHz spectrum (3.5GHz) band is currently used by the Department of Defense (DoD) and fixed satellite service providers (FSS). Since the 3.5GHz band is lightly loaded and is valuable for wireless and mobile services, the Federal Communications Commission (FCC) proposed in December 2012 the creation of the Citizens Broadband Radio Service (CBRS). With CBRS, the FCC introduced the notion of spectrum sharing to use the 3.5GHz band for wireless and mobile services, while accommodating the needs of incumbent users.

After a series of workshops and consultations, the FCC established its CBRS regulatory framework in April 2015, with a spectrum sharing structure to accommodate three tiers of users, namely; incumbent users, priority access licensees (PAL) and general authorized access (GAA) users. With this structure, the PALs are availed with priority access and both PAL and GAA users dynamically share the available spectrum resources. PAL and GAA users are required to operate on a non- interference basis with incumbent uses, and GAA users are also required to operate on a non-interference basis with respect to PALs, see Exhibit 1.

To support CBRS spectrum sharing, a system architecture consisting of Spectrum Access Systems (SAS) and Environmental Sensing Capabilities (ESC) has been created. The SASs used to administer the allocation of spectrum resources amongst PAL and GAA users, based on resource availability. ESCs consist of sensors to detect signals generated by incumbent uses and coordinate with SASs to ensure that PAL and GAA spectrum allocations conform with the required non-interference conditions. The SASs require administrators and the ESCs operators. The FCC has received applications from companies interested in providing these servcies, which include Amdocs, Comsearch, CTIA, Federated Wireless, Google, Keybridge, and Sony.

The proposed CBRS band-plan is illustrated in Exhibit 2. Spectrum within the 3550-3650MHz range can be allocated for incumbent uses, and PAL or GAA users, with the remaining spectrum being available for either incumbent uses or GAA users. Incumbent uses have first dibs on the spectrum, and are supported by exclusion zones to ensure sufficient isolation from PAL and GAA users. PAL allocations in the 3550-3650MHz range can consist of up to seven 10MHz blocks in each licensed region. PAL rights will be allocated for a period of three years, renewable, and divided into regions consisting of the US census tracts, with average populations in the order of 4000 persons. The PAL licenses will be allocated dynamically as 10MHz blocks within the 3550-3650MHz range, depending on availability. Once the PAL spectrum demands have been met, the remaining spectrum is allocated for GAA users. A single operator will be allowed to aggregate up to four licenses in each region. CBRS based radio networks intend to use the TD-LTE standard. SAS and ESC systems and the overall CBRS architecture is being developed under the stewardship of the CBRS Alliance.

Exhibit 2: Proposed CBRS Band Plan
Source: Tolaga Research 2016

The two faces of CBRS

CBRS is relevant to Wi-Fi and cellular systems and a combination of both. This is punctuated by the cross section of members in the CBRS Alliance, which includes Google (Alphabet), WiFi and cellular technology vendors, including Cisco, Ericsson, Huawei, Nokia, and Ruckus, outsourced infrastructure providers like American Tower and Extenet, and Tier 1 US mobile operators.

The positioning and value proposition for CBRS differs, depending on whether it is anchored to Wi-Fi or cellular business models, or somewhere in between. Furthermore, we believe that there are several factors that impact the value proposition for CBRS for practical operating environments. In particular:

  • From the perspective of Wi-Fi, CBRS/GAA is essentially equivalent, except that it requires ESC and SAS functionality. CBRS/PAL obviously comes with the added benefit of providing greater certainty in terms of resource availability. In principle, Wi-Fi access-point providers could integrate CBRS capabilities in their equipment with location based technology and other monitoring and management capabilities needed for SAS integration. However, as a standalone solution, we believe that it is not clear that the CBRS functionality is sufficiently differentiated relative to Wi-Fi to justify its added implementation complexities.
  • When evaluating new spectrum assets, mobile operators consider a variety of factors, including its impact on market competition, network capacity demands, and the tradeoff between expanding existing cell sites with new spectrum versus building new cell sites. The CBRS spectrum is unique in the sense that it is targeted primarily towards small-cells, and its impact on market competition is reduced with the availability of GAA licenses. Since networks in the US are supported primarily with macro as opposed to small-cells, CBRS will not necessarily defer network infrastructure investments, which is normally the case with new spectrum assets. Furthermore, as is discussed in Tolaga’s June 2016 research report entitled: Operationalizing Mass-Market Small-Cell and DAS Adoption, operators in the US have struggled to scale their small-cell networks, largely as a consequence of site acquisition challenges. Until these challenges are resolved, we believe that they will hinder CBRS adoption.

In spite of its challenges for CBRS in Wi-Fi and cellular environments, CBRS benefits from being at the intersection between them to enable neutral host capabilities, which are inherent to WiFi, but not necessarily cellular technologies. In particular, like Wi-Fi, CBRS has a dynamic rather than static radio spectrum allocation scheme for both PAL and GAA users. This contrasts conventional cellular systems, where the spectrum allocations are static and associated with specific mobile operators. As a result, CBRS radio equipment is agnostic to the operators and enterprises that use it, which enables the potential for neutral host capabilities, depending on how user authentication and authorization is handled.

With neutral host capabilities, enterprises, platform providers, building owners and other players that lack cellular spectrum assets can deploy CBRS radio equipment that is compatible with any and all CBRS devices. With these capabilities, the objective is for CBRS neutral hosts to combine with others to enable wide area coverage and capacity, and create a bridge between enterprise and mobile operator led CBRS networks. We believe that, while this capability is compelling, it tends to be overplayed by CBRS advocates, who tend to underestimate the important role that mobile operators will play in enabling these neutral host networks to scale.

Traditionally mobile operators in the United States and many other markets have resisted neutral host deployments for fear that by sharing radio resources, overall system performance will be compromised. Our research shows that while operator resistance towards network infrastructure sharing has diminished over the years, their continued resistance towards neutral host networks runs deep. Operators are willing to use neutral hosts for DAS implementations because they have direct control over the radio equipment,. Operators have yet to adopt cellular platforms that share active radio equipment, such as base band and power amplifier technologies.

CBRS likely to set a precedent for spectrum sharing

If the CBRS framework proposed by the FCC is successful, we believe that it will set a precedent for spectrum sharing in the future. This is particularly the case for under-utilized spectrum licenses. Globally regulators are closely observing the CBRS licensing strategy that is being pursued by the FCC, with a mind towards introducing spectrum sharing within their respective markets. For example in Europe, regulators like Ofcom are considering similar license sharing schemes for upcoming auctions. This will be welcomed by some and shunned by others. For example, companies like Google have aggressively promoted the notion of spectrum sharing as being valuable for the consumer, by creating an avenue for increased innovation and competition. Mobile operators have expressed a different view, believing that spectrum sharing is sub-optimum since it creates uncertainty in terms of spectrum resource availability and network economics. In particular, operators argue that if they are not certain that the spectrum in a new band will be available when it is needed, then there is less incentive to upgrade network infrastructure and devices to operate in the new band. In response to this concern, the FCC has introduced the PAL option for the CBRS licenses, however it is not yet clear whether this will be enough for CBRS to gain adequate support from mobile operators. It is also unclear how mobile operators will value the PAL licenses, and whether PAL licenses might be acquired by non-mobile-operator entities, such as Google and Comcast, enterprises, tower companies and venue owners.

There is a strong theoretical case for regulators to accelerate spectrum sharing licensing schemes irrespective of the mobile operator concerns. However we believe that while spectrum sharing is compelling, approaches that disregard mobile operator concerns are generally flawed when applied to spectrum assets that are intended for mobile services. In particular:

  • Since mobile networks are already relatively mature with over six million macro-cellular base stations having been deployed globally. New spectrum bands are most economically implemented in existing base stations. Even though the small-cell deployments are still nascent, they also rely on system continuity with macro-cells and therefore are essentially bound by similar economics. This creates a tremendous barrier for new market entrants, particularly when they plan to use spectrum that is incompatible with incumbent mobile operators, and in mature markets like the United States.
  • Device and radio subsystem manufacturers must prioritize between the many radio spectrum bands that have been allocated for mobile services. These priorities generally depend on the market scale that can be achieved from the spectrum bands in question and normally requires adequate demand from Tier 1 mobile operators. While there are manufacturers that will develop solutions to operate in spectrum bands that are not supported by Tier 1 operators, these solutions tend to be more expensive and have less form-factor variety than mass market solutions, because they lack economies of scale.

While there is a clear historical precedent that points to the important role mobile operators play in driving the ecosystem development and expansion of wireless services into new spectrum bands, there are also some precedents that have succeeded without the need for mobile operator support. Perhaps the best example of this is the standardization and market expansion of Wi-Fi in unlicensed spectrum under the stewardship of a variety of players including Intel, with its Centrino initiative. It is conceivable that a large technology vendor like Intel or Qualcomm, or a platform company like Google could pursue a Centrino-like strategy for CBRS spectrum. However we do not believe that a Centrino-Like strategy would be successful since the CBRS spectrum and associated services will not be sufficiently differentiated relative to competitive alternatives.

Spectrum valuations will change with regulatory and technical innovations

The FCC’s framework for the CBRS spectrum is a bellwether of a broader trend that is heralding innovate licensing schemes, with the aim of increasing the availability, versatility and usage of radio spectrum resources. This comes at a time when unlicensed spectrum resources and technologies like Wi-Fi and LTE-Unlicensed are growing in importance. In addition innovative antenna designs and signal processing capabilities are enabling spectrum bands above 6GHz for 5G mobile services. In aggregate we expect that these market developments will drive down radio spectrum asset valuations and the fees that can be expected from future spectrum auctions. This perhaps justifies the under-whelming valuations emerging for the 600MHz spectrum licenses that are currently being auctioned in the United States.

Even though it has always been challenging to accurately anticipate the value of radio spectrum licenses, the valuations have been predicated on several relatively well understood principles, which don’t necessarily apply in the future. In particular:

  • Competition amongst mobile network operators have always played an important role in determining license valuations. Traditionally competition has been narrowly focused amongst the incumbent and new entrant (facilities based) mobile operators. It is not uncommon for an operator to pay a premium for licenses with the intention of blocking their competitors. However the competitive landscape changes with new licensing regimes such as CBRS. In particular, CBRS/GAA users have access to comparable licenses, albeit with reduced availability.
  • Licensed spectrum has always carried a premium over unlicensed spectrum. However as networks are densified, advanced technologies like LTE-Unlicensed are deployed, and dynamic spectrum allocation and sharing schemes are introduced, the gap is closing.
  • Changing trade-offs. In the past, operators would balance spectrum costs relative to the cost of building additional network infrastructure to achieve the equivalent capacity. However as new and innovative licensing schemes are introduced, the trade-offs might be different. The initial trade-off is to determine whether to participate at all. The the trade-off is between the value of having PAL and GAA resources, versus GAA resources alone. This will vary depending on a variety of factors, including network traffic demands, GAA resource occupany, industry support for CBRS, and the density of existing small-cell deployments.

It is crucial for operators and the mobile industry as a whole to have as best understanding as possible of the economic underpinnings of the changes to radio spectrum regulation, and emerging technologies. We also believe that operators must be proactive in capitalizing on the changing technical and regulatory landscape. This is particularly the case while many of the innovations being pursued by regulators are still nascent. For example, if an operator has idle spectrum it might propose sharing arrangements through its regulator as a concession for access to other licenses that are of more useful.

Conclusion

With CBRS, the FCC has introduced an innovative approach to enable tiered spectrum sharing, that protects incumbent systems and enables both priority and general access services. We believe that CBRS is a bellwether for regulatory innovation and if successful will drive spectrum sharing initiatives for other bands. However the success of CBRS is by no means a certainty. It requires adequate support from mobile operators, who must be convinced of the value that CBRS brings to their existing cellular operations. Others including enterprises, venue owners and other non-operator entities must be convinced of the value that CBRS brings relative to Wi-Fi. Much of this value is expected to come from the neutral host capabilities that CBRS enables, with dynamic radio channel allocations and equipment that is compatible with operator-deployed CBRS systems.

As regulators like the FCC introduce innovative licensing schemes, such as CBRS, and radio technology advancements, such as LTE Unlicensed are developed, we expect that the the value of existing and future spectrum licenses will decline and their utility increase. As this occurs, mobile operators must change their strategies towards spectrum licenses and take more proactive and innovative in their approaches, with the aim of directing regulations to their advantage.

Enterprises, venue owners, and other non-mobile operator entities are well positioned to benefit from the neutral host capabilities enabled with CBRS. However these benefits are dependent upon broad market support for CBRS (particularly from mobile operators) to drive network deployment activity and sufficient economies of scale.

Since CBRS technologies use TD-LTE radio technology standards, telecom equipment vendors can leverage their existing TD-LTE platforms for its deployment. However as they do this, they must pay careful attention to the dynamics necessary for the CBRS market to scale, and the deployment scenarios and business models that are likely to prevail. This will impact the pace of product development, the manner in which the products are adapted to align with market demands, and channel strategies for operator and non-operator entities.

The CBRS framework is a bold move for the FCC and is being closely followed by regulators in other markets. It is clear that the mobile industry has reached a level of maturity where regulatory change is necessary. Industry players must respond to these changes with optimistic and opportunistic expectations, moderated by the recognition of the practicalities and challenges in enabling regulatory innovation.

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