The Handbook to explain the fundamental business, legal, and technical issues surrounding electromagnetic spectrum use today

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1 See Page VIII fr Imprtant Disclsures The Spectrum Handbk 2013 August 2013 The Handbk t explain the fundamental business, legal, and technical issues surrunding electrmagnetic spectrum use tday J. Armand Musey, CFA JD/MBA Summit Ridge Grup, LLC 535 Fifth Avenue, 4 th Flr, New Yrk, NY 10017

2 The Spectrum Handbk 2013 Spectrum valuatin framewrk Surces and timing f new mbile spectrum Break-ut f mbile wireless spectrum allcatins, demand and fundamental business dynamics Internatinal cmparative analysis f spectrum regulatin and allcatin Explanatin f Spectrum and wireless technlgy issues Overview f fundamental regulatry and licensing issues Explanatin f spectrum usage in all majr frequency bands Acknwledgements We wuld like t thank the fllwing peple wh generusly dnated their valuable time and expertise prviding input n varius drafts f this publicatin: Juan Deatn (Idah Natinal Labratry), Hward Del Mnte (frmerly with Ofcm), Barlw Keener (Keener Law Grup), Timthy Hran (Oppenheimer & C.), Bruce Jacbs (Pillsbury Winthrp), Jan Kruys (Spectrum Cnsult), Neal Mellen (Wireless Spectrum Management, LLC), Craig Schultz (Nrthwestern Univ. Law Schl), Peter Stanfrth (Spectrum Bridge, Inc.), Drew Svr (Sheppard Mullin, LLP), Brian Weimer (Sheppard Mullin, LLP) Any remaining errrs r missins remain mine. The Spectrum Handbk 2013

3 Praise fr The Spectrum Handbk 2013 The Spectrum Handbk 2013 is a great cmpendium f infrmatin. Easy t read and accessible t the layman, The Spectrum Handbk 2013 is a useful reference fr anyne lking at investments in wireless spectrum. Harld Furchtgtt-Rth, PhD Frmer cmmissiner, FCC Refrming the way we manage radi frequency spectrum is essentially a multi-disciplinary endeavr that requires the c-evlutin f technlgy, business mdels, and plicy. Armand Musey s handbk is a bn fr academics and practitiners seeking t engage the difficult issues f valuing, transacting, and planning wireless investments because it prvides a cmprehensive and hlistic verview f the technical, legal, and ecnmic challenges f spectrum management in a single and easily accessible vlume that still manages t g deep in addressing the challenges cnfrnting the experts tday. Brav, t Armand! William Lehr, PhD Research Scientist, Massachusetts Institute f Technlgy An extrardinary cmprehensive and well-rganized verview f the multi-faceted cmplexities f spectrum issues, including technical, ecnmic and regulatry cnsideratins. The Spectrum Handbk 2013 is an invaluable primer fr bth thse new t the field and a handy reference fr experienced practitiners. Andrew D. Lipman Legal Practice Grup Leader, Bingham McCutchen The Spectrum Handbk 2013 is a fantastic resurce fr all thse wh are interested in ne f the mst valuable assets in ur natin: wireless spectrum. Anyne wh has ever tried t figure ut even the mst basic issues abut spectrum allcatin and utilizatin knws that what shuld be a relatively straightfrward task can be very challenging in light f the cmplex FCC and ther rulings that gvern the vast wireless universe. Armand Musey has created an excellent desktp resurce fr everyne invlved in the wireless industry. Brian D. Weimer Cmmunicatins Practice Leader, Sheppard Mullin Spectrum and wireless data are the fundamental building blcks f clud cmputing and hence ur ecnmy, and Armand s fabulus bk describes these assets and technlgies better than anything else we have ever read. Timthy K. Hran Managing Directr, Head f Cmmunicatin and Clud Services Research, Oppenheimer & C., Inc Spectrum is the electrmagnetic lifebld f the digital ecnmy. This handbk prvides a thrugh analysis f the legal and ecnmic aspects f spectrum management, bth frm the US and internatinal perspective. It is a valuable reference fr wireless entrepreneurs lking fr new pprtunities t invest. Thmas Welter Chief Frequency Officer, SFR (France) The Spectrum Handbk 2013 is a wide-ranging survey f US spectrum regulatin and current ht tpics. It wuld serve well as either a cmprehensive primer fr smene entering the wireless business r as a quick reference fr thse well-versed in the field. Pierre de Vries, PhD C-Directr, Spectrum Plicy Initiative, Silicn Flatirns Center, University f Clrad, Blder The Spectrum Handbk 2013

4 Summit Ridge Grup, LLC Summit Ridge Grup is the premier prvider f business valuatin and financial advisry services in the satellite, media and telecm sectrs. Our services include business appraisal, intangible asset valuatin, strategic cnsulting, custm research and litigatin supprt. We prvide these services fr a range f client needs including transactinal supprt, financial reprting, financial analysis, market analysis, strategic analysis, regulatry supprt and litigatin supprt/expert witness testimny. Our deep industry fcus means that we can quickly grasp a client s issues and prvide rapid cmprehensive respnses and slutins. Visit us at: Web: Blg: J. Armand Musey, CFA, JD/MBA J. Armand Musey is a leading expert in the satellite, media and telecm sectrs as well as president and funder f Summit Ridge Grup. He is a frmer tp-ranked Wall Street research analyst and an investment banker. Armand has been invlved with a wide breadth f cmpanies in the cmmunicatins sectr ver the past 15 years. This gives him a deep understanding f the cmplex web f relatinships underlying the sectr s cmpetitive dynamics and the assciated financial and regulatry issues. Armand speaks at majr industry cnferences and is regularly quted in the press as an expert in media and telecm finance. Mr. Musey hlds an MBA frm Nrthwestern University s Kellgg Graduate Schl f Management and a JD (cum laude) frm Nrthwestern University Law Schl. He als has an MA frm Clumbia University and a BA (with hnrs) frm the University f Chicag. He is a member f the New Yrk Bar and Federal Cmmunicatins Bar Assciatin. Armand is als a Chartered Financial Analyst (CFA) and a member f the New Yrk Sciety f Securities Analysts where he chaired the Crprate Gvernance Cmmittee frm The Spectrum Handbk 2013

5 The Spectrum Handbk 2013 J. Armand Musey, CFA Funder/President Greta Glz Research Assciate Fr additinal cpies r inquiries please cntact: Summit Ridge Grup, LLC 535 Fifth Avenue, 4 th Flr New Yrk, NY Phne: Admin@SummitRidgeGrup.cm Cpyright 2013 by Summit Ridge Grup, LLC Summit Ridge Grup, LLC 535 Fifth Avenue, 4 th Flr New Yrk, NY Published in the United States f America in 2013 By Summit Ridge Grup, LLC All Rights Reserved. Paperback ISBN: EPUB ISBN: Mbipcket ISBN: Adbe PDF ISBN: The Spectrum Handbk 2013

6 The Spectrum Handbk 2013 IMPORTANT DISCLOSURES VIII CRITICAL DATES IN SPECTRUM HISTORY EXECUTIVE SUMMARY PART ONE: BACKGROUND ON SPECTRUM AND ITS REGULATION I. ELECTROMAGNETIC SPECTRUM AND RADIO WAVES A. Electrmagnetic Spectrum B. Radi Waves C. Bandwidth and Capacity II. DESCRIPTION OF MAJOR SPECTRUM BANDS A. Very Lw Frequency (VLF): Under 30 khz B. Lw Frequency (LF): 30 khz t 300 khz C. Medium Frequency (MF): 300 khz t 3000 khz D. High Frequency (HF): 3 MHz t 30 MHz E. Very High Frequency (VHF): 30 MHz t 300 MHz F. Ultra High Frequency (UHF): 300 MHz t 3 GHz G. Super High Frequency (SHF): 3 GHz t 30 GHz H. Extremely High Frequency (EHF): 30 GHz t 300 GHz III. OVERVIEW OF REGULATORY PROCESS FOR SPECTRUM ALLOCATION A. Backgrund B. The Rle f the Internatinal Telecmmunicatins Unin C. Other Internatinal Crdinatin Entities D. Natinal Spectrum Bdies E. The Rle f the Federal Cmmunicatins Cmmissin and the Natinal Telecmmunicatin and Infrmatin Administratin F. Regulatry Challenges are Significant PART TWO: ECONOMIC AND REGULATORY DYNAMICS IV. MAJOR COMMERCIAL AND POLICY SPECTRUM ISSUES A. General Spectrum Dynamics B. Mbile Wireless Industry Spectrum Dynamics C. Unlicensed Spectrum/Spectrum Sharing D. Bradcasters (Televisin and Radi) E. Satellite Cmmunicatins Spectrum Dynamics F. Gvernment/Military Spectrum Dynamics The Spectrum Handbk 2013

7 V. SOURCES AND TIMING OF NEW MOBILE SPECTRUM A. Natinal Bradband Plan and Televisin Incentive Auctin B. 65 MHz in Required Auctins per Spectrum Act C. Other Surces f Additinal Mbile Spectrum Capacity D. Gvernment Spectrum Sharing VI. SPECTRUM VALUATION ANALYSIS A. Incme Apprach B. Market Apprach - Cmparable Transactins C. Cst Apprach - Replacement Methd D. Ecnmetric Mdeling E. Other Cnsideratins F. Valuatin Challenges G. General Valuatin Observatins H. Valuatin Trends VII. GLOBAL PERSPECTIVES A. General Trends B. ITU Regin 1: Eurpe, Middle East and Africa C. ITU Regin 2: The Americas D. ITU Regin 3: India and Asia VIII. ECONOMIC AND REGULATORY CONCLUSIONS PART THREE: SPECTRUM BAND DESCRIPTIONS AND ANALYSIS IX. MOBILE WIRELESS SERVICE BAND DESCRIPTIONS A. Upper and Lwer 700 MHz bands B. Advanced Mbile Phne Systems (AMPS): 800 MHz C. Persnal Cmmunicatins Service (PCS): 1.8 GHz and 1.9 GHz D. L-Band (1.6 GHz) and S-Band (2.0 GHz) E. Advanced Wireless Spectrum (AWS): 1.7 GHz and 2.1 GHz F. Wireless Cmmunicatin Service (WCS): 2.3 GHz G. BRS/EBS (2.5 GHz) X. RADIO AND TELEVISION BROADCASTING BAND DESCRIPTIONS A. AM Radi: 540 khz t 1700 khz B. FM Radi: 92.1 t MHz C. VHF Televisin: 54 t 88 MHz and 174 t 216 MHz D. UHF Televisin: 470 t 698 MHz XI. SATELLITE FREQUENCY BAND DESCRIPTIONS A. L-Band: 1.4 GHz and 1.6 GHz B. S-band: 2.0 t 2.7 GHz The Spectrum Handbk 2013

8 C. C-band: 3.4 t GHz D. Ku-band: 10.7 t 18 GHz E. X-Band: 7 t 11.2 GHz F. Ka-band: 26.5 t 40.0 GHz G. V-band: 50 GHz t 75 GHz XII. GOVERNMENT/MILITARY FREQUENCY USE DESCRIPTIONS A. U.S. Federal Agencies Uses Large Amunts f Spectrum B. Defense Is Largest Gvernment User C. Gvernment Spectrum Trends XIII. VERY HIGH FREQUENCY (VHF) SERVICES A. Lwer Paging: 35, 43, 152 & 158/159 and 454 MHz B. Radi Cntrl Service: 72 t 73 MHz and 75.4 t 76 MHz C. VHF Public Cast: t MHz D. Basic Exchange Telephne Radi Service (BETRS) E. Autmated Marine Telecmmunicatin System (AMTS) F. Frmer Interactive Vide and Data Service: MHz XIV. ULTRA HIGH FREQUENCY (UHF) SERVICES A. Persnal Lcatr Beacns (PLBs): 406 MHz B. Family Radi Service (FRS)/General Mbile Radi Service (GMRS): MHz C. Specialized Mbile Radi: 800 MHz D. Air Grund Service: 800 MHz E. Narrwband Persnal Cmmunicatin Service (PCS) F. Lcatin and Mnitring Service (LMS)/Industrial Scientific and Medical (ISM): 902 t 928 MHz G. Multiple Address Systems: 928/959 MHz and 932/941 MHz H. Upper Paging Band: 929 and 931 MHz I. Mbile Wireless Services XV. SUPER HIGH FREQUENCY AND EXTREMELY HIGH FREQUENCY A. Super High Frequency (SHF): 3 GHz t 30 GHz B. Extremely High Frequencies (EHF): 30 GHz t 300 GHz APPENDICES APPENDIX I: ITU REGIONS APPENDIX II: RADIO SPECTRUM FREQUENCIES APPENDIX III: FCC GEOGRAPHICAL LICENSE AREAS APPENDIX IV: GLOSSARY The Spectrum Handbk 2013

9 IMPORTANT DISCLOSURES This dcument is nt a recmmendatin t buy r sell securities f any type. It is designed t facilitate an understanding f cmmunicatins industry tpics. Please cnsult an apprpriate prfessinal advisr befre making significant business r investment decisins This dcument expresses summary views and therefre des nt include all views f Summit Ridge Grup, LLC r its prfessinals General views expressed in this reprt may r may nt be applicable t a given situatin. Adjustments and/r changes may be needed t address the particular circumstances f that situatin Frward lking statements expressed in this reprt are nt guaranteed in any manner and may ultimately prve t be incrrect Data in this reprt, including but nt limited t financial infrmatin, cmpany and industry infrmatin was derived frm a number f surces that we believe t be accurate. Hwever, we have nt independently verified the data and therefre cannt assume respnsibility fr its accuracy. Please verify any data befre using it as the basis fr an imprtant decisin Cmments abut regulatry issues shuld nt be taken as legal cnclusins r advice. Cnsult an apprpriately qualified attrney befre making imprtant decisins requiring regulatry analysis Views expressed in this reprt are subject t change. Summit Ridge Grup, LLC des nt assume respnsibility fr updating its cntents. Please cntact us fr ur mst current views VIII The Spectrum Handbk 2013

10 Critical Dates in Spectrum Histry The histry f wireless cmmunicatins mirrrs that f many fields f science. The Ancient Greeks were the first knwn grup t study what has becme knwn tday as spectrum. After many centuries f little prgress, significant new technlgical develpments ccurred during the Enlightenment. Prgress has generally accelerated ever since, respnding t the increased needs f mdern ecnmies. 5 th Century B.C. Greek Pre-Scratic philspher Empedcles pines (crrectly) that light travels at a finite speed 1600s Isaac Newtn pines that light is made-up f particles (1672) Christiaan Huygens pstulates the wave thery f light (1678), adualistic understanding (waves and particles) that cntinues tday 1700s Early 1800s Lenard Euler (1740s) and Benjamin Franklin (late 1700s) supprt Huygens thery against scientific cmmunity which supprt Newtn s view Thmas Yung s slit experiment cnfirms Huygen s wave thery f light (1803) Mid 1800s James C. Maxwell frmulates classical electrmagnetic thery (1861) Internatinal Telegraph Unin (later t becme the Internatinal Telecmmunicatin Unin) funded in Paris (1865) Late 1800s Heinrich Rudlph Hertz prves electrmagnetic waves exist (1886) Guglielm Marcni transmits and receives the first wireless signal Early 1900s Reginald Fesseden makes first vice radi transmissin (1900) Guglielm Marcni transmits first transatlantic wireless signal frm Ireland t Canada (1901) 1910s Titanic tragedy emphasizes the imprtance f radi cmmunicatin (1912) During WW I, the U.S. Navy takes cntrl f all radi technlgy After WW I, the Radi Crpratin f America (RCA) established t take ver patent cntrl frm the gvernment 1920s First radi prgram transmitted n a daily basis (1920) Gulielm Marcni discvers shrt wave radi that can reflect against the insphere (1920) 1 The Spectrum Handbk 2013

11 1930s Frequency-mdulated (FM) radi invented by Edwin Armstrng (1933) The Federal Cmmunicatins Cmmissin (FCC) established (1934) 1940s Wartime military needs encurage deplyment f radi services 1950s Raditelephny cmmercialized First Sviet satellite, Sputnik 1, launched, fllwed by the first U.S. satellite, Explrer s Telstar I satellite relays transatlantic televisin signal (1962) Clr televisin begins (1963) 1970s 1980s LORAN becmes leading navigatin system The FCC allcates 40 MHz fr cellular service Cellular spectrum at 850 MHz given t lcal Bell perating cmpanies [B Blck] and allcated t thers via cmparative hearing, lttery and auctin [A Blck] Bell Breakup (1984) First cell phne services begin (1984) FCC allcated ISM bands fr unlicensed use (1985) First generatin f GPS satellites cmpleted (1985) First Internet services prvided thrugh dial-up cnnectins Internet cmmercialized and pened up t the public in 1995 First cmmercial hand-held mbile phne released (1G analg) 1990s Secnd generatin (2G) cellular technlgy (digital) launched First text messages sent frm cell phne t cell phne Internet access started switching frm dial-up t bradband U.S. Army begins aggressive wrk n sftware radis that culd dynamically change frequencies (1994) FCC cnducts its first spectrum auctin (1994) FCC finally publishes Wi-Fi device standards fr ISM bands that it riginally allcated in 1985 (1997) Digital televisin bradcasting begins (late 1990s) Third generatin (3G) cellular technlgy launched Frth generatin (4G) cellular technlgy released in Suth Krea! 4G nt launched in the U.S. until 2008 by Sprint Nextel First reallcatins f U.S. spectrum bands in the 700 MHz range Analg services phase-ut t digital service begins Licensing TV white spaces accelerates share spectrum mvement 2 The Spectrum Handbk 2013

12 Executive Summary This Handbk has three bjectives: 1) t serve as a primer fr explaining the cmplex issues arund the use f electrmagnetic spectrum; 2) t analyze, frm bth an ecnmic and a legal perspective, the regulatry prcesses being cnsidered r underway t reallcate r change the use f spectrum bands; and 3) t be a reference surce fr industry prfessinals. Part I f the Handbk prvides an verview f the spectrum and the regulatry prcess. Part II f the Handbk explains the varius available spectrum bands, discussing their range, lcatin, and physical prperties and hw these impact their ability t be used. An analysis f the current allcatin f these spectrum bands in the United States fllws. Part III cntains detailed explanatins f the varius spectrum band plans. Thrughut the Handbk, we prvide links in the ftntes t surces fr additinal infrmatin. Frm a macr-perspective, regulatrs wrldwide are currently reallcating spectrum frm underutilized applicatins t the burgening mbile wireless bradband applicatins. Given the needs and imprtance f wireless bradband, frm an ecnmic and scial perspective, this trend is likely unstppable. The FCC is allcating bth licensed spectrum (including the bradcast incentive auctin) and unlicensed spectrum (including the 3.5 GHz and 5 GHz prcesses). Unlicensed (shared) spectrum is ne apprach t minimize disruptin frm these reallcatin effrts and expand utilizatin is the small but significant spectrum sharing mvement. Spectrum sharing is simultaneusly prpsing t imprve spectral efficiency and calling int questin the need fr licenses altgether. As a result f the existing prcesses underway t imprve the efficiency f spectrum allcatin alng with new technlgies that further imprve efficiency, the extent f spectrum crunch (i.e. the apparent lack f available spectrum) is prly understd and htly debated. Summit Ridge Grup des nt believe it is likely t bring infrmatin access t a grinding halt in the United States. Rather, we may see temprary cngestin while regulatrs apprve new reallcatins f spectrum and spectrum-sharing plans, and service prviders build ut services n new spectrum. These prcesses, cmbined with wireless carriers imprved ability t regulate custmer data usage primarily by charging higher fees and/r capping usage, and fflading traffic via Wi-Fi and ther technlgies shuld allw peratrs t cntinue t prvide reliable service in the face f increasing demand. These trends are als likely t temper the increase in spectrum prices in the future. 3 The Spectrum Handbk 2013