In 2019 the Federal Communications Commission adopted new rules governing the licensing of Educational Broadband Service (EBS) spectrum. The new rules, which took effect on April 27, 2020, eliminated the prior restrictions on eligibility to hold EBS licenses. Since the rules took effect, the number of transactions seeking FCC approval to sell EBS licenses or lease spectrum has increased, with 42 applications seeking approval to assign EBS licenses and 33 new applications seeking approval of EBS spectrum leases.

The 2019 Order affords EBS licensees substantial new flexibility regarding the sale or lease of their licenses and spectrum capacity in advance of an FCC auction of “overlay” EBS licenses. Specifically, the new rules:

• Eliminate eligibility restrictions that limited EBS licenses to only (1) accredited public and private educational institutions, (2) governmental organizations engaged in the formal education of enrolled students, and (3) nonprofit organizations with an educational purpose. An EBS licensee now may sell its license to any otherwise qualified entity, including commercial wireless service providers, and there are no restrictions on who may participate in the EBS overlay auction.

• Eliminate the requirement that an EBS spectrum lessee must be eligible to hold an EBS license.

• Eliminate the requirement that an EBS licensee must fulfill an educational mission.

• Eliminate the requirement that an EBS licensee that leases excess capacity must reserve at least 5% of its spectrum capacity for itself and use that capacity to provide 20 hours of educational usage per channel per week.

If you have any questions about how your existing license or lease may be impacted by the new rules, or about the FCC's upcoming auction of new EBS licenses, please let us know.

Impact of New Rules on Spectrum Capacity Leases

As the FCC has noted, only a few educational licensees have deployed their own networks or use their licenses in a way that requires dedicated spectrum. FCC rules have long permitted these licensees to lease their excess capacity to non-educational entities to use for non-educational purposes, and most EBS licensees entered into long-term leasing arrangements, relying on their lessees to operate broadband networks. When the FCC adopted the new EBS rules, there were 1,300 EBS licensees holding 2,193 EBS licenses, and 2,087 active leases. Most of these leases are now held by T-Mobile. The new rules apply to both incumbent and future EBS licensees.

While the new rules do not affect the validity of existing leases and other contractual arrangements, questions have arisen regarding certain provisions that appear to be common in a large number of leases. As the FCC emphasized, the decision about whether to lease or sell a license remains with the licensee, who “retains control of decisions about how the license is to be used, including decisions about whether, under what terms, and to whom to transfer or assign the license.” Similarly, if a lease provides that a licensee will receive services or equipment from a lessee, the new rules do not change or nullify such provisions.

In general, EBS spectrum leases do not preclude an EBS licensee from selling a license that is subject to a lease, and FCC rules require that leases specify that the lease itself does not constitute an assignment, sale, or transfer of the license. However, leases may contain various clauses that purport to limit a licensee's control over sale decisions. For example:

• A lease may require that a lessor obtain consent of the lessee prior to assigning the lease or certain rights under the lease.

• A lease may give a lessee a “Right of First Refusal” for a defined period with respect to third-party offers to acquire the license or to lease spectrum capacity. Such provisions do not preclude a licensee from selling its license to a third party, but typically require the licensee to give the lessee an opportunity to review and match the terms of the offer within the prescribed time period.

• A lease may give a lessee a “Right to Participate” in the event that a licensee decides to solicit or consider third-party offers to sell its “channels” (rather than the license itself), requiring the licensee to also allow its lessee to submit an offer.

• A lease may contain a provision granting the lessee exclusive use of the spectrum capacity authorized by the license (but not exclusive use of the license). Thus, a sale of a license to a third-party may require the buyer to continue leasing all or most of the capacity to the lessee for the remainder of the term of the lease.

Following the overlay auction of new EBS licenses, an overlay licensee may acquire incumbent licenses, but does not have the exclusive right to negotiate with the incumbent for its spectrum rights or to acquire an incumbent license in the geographic area in which it has the overlay rights.

Overlay Auction

The FCC has not accepted applications for new EBS licenses since 1995. Incumbent EBS licenses cover about one-half of the geographic area of the U.S. in any given channel, and 2.5 GHz spectrum (2496 to 2690 MHz) is largely unassigned in much of the rest of the country, especially in rural areas west of the Mississippi River. The 2019 Order determined that the FCC will auction new geographic licenses (counties) in markets where “white spaces” (spectrum not associated with an active EBS license) exist. Winning bidders will acquire rights to county licenses “overlaid” on top of incumbent licenses. New licensed operations may not interfere with incumbent operations within the incumbent's service (typically a circular Geographic Service Area (GSA) with a 35-mile radius, although many EBS licenses have smaller, irregular GSAs). If an incumbent license in a county cancels or terminates, the overlay licensee obtains the rights to operate in the GSA and on the channel of the cancelled license.

Within each county, the FCC will auction three overlay licenses:

• Channels A1-A3, B1-B3, C1-C3 (49.5 MHz total)
• Channels D1-D3, the J channels, and channels A4, B4, C4, D4, and G4 (50.5 MHz total)
• Channels G1-G3 and the relevant K channels (16.5 MHz total of contiguous spectrum and 1 MHz of the K channels associated with the G channel group)

The FCC has not yet announced the schedule for the EBS auction, which will take place after the Rural Tribal filing window process (see below).

Bidding Credits. An entity that qualifies as a “small business” will be eligible for a bidding credit of 15%, while an entity that qualifies as a “very small business” will be eligible for a bidding credit of 25%. In November 2019, the FCC sought comment on the definitions of “small business” and “very small business,” proposing that such entities be defined as an entity that, together with its affiliates, its controlling interests, and the affiliates of its controlling interests, has average gross revenues that are not more than $55 million (for a small business) or $20 million (for a very small business) for the preceding five years. Bidding credits also are available for rural service providers and qualifying tribal lands service providers.

Rural Tribal Priority Filing Window

The 2019 Order set a priority filing window for Tribal entities to obtain overlay geographic area licenses for unassigned EBS spectrum on Tribal lands in rural areas. This filing window will close on September 2, 2020. Applications must be filed in accordance with procedures established by the FCC. Eligibility is limited to federally recognized American Indian Tribes and Alaska Native Villages on rural Tribal lands, and to communications providers and other entities that provide communications and other services, provided they are owned and controlled by federally recognized Tribes or a consortium of such Tribes. All priority window applicants must demonstrate that they have a local presence in any Tribal land area for which they apply. Unlike other EBS licensees, Tribal licensees may not sell their licenses until they have met applicable buildout requirements.