Wireless Windfall

Wireless Windfall

Bandwidth leasing provides a win-win for universities and wireless companies.
 

WHEN PRESIDENT HAMID SHIRVANI STEPPED ONTO THE California State University, Stanislaus, campus to begin his tenure more than three years ago, he realized the university was using only about 10 percent to 15 percent of the channels on its radio spectrum license. Leasing the excess capacity to a wireless provider could generate revenue, but he had no idea how valuable those channels could be. “We should not complain that we don’t get enough money from the state or from taxpayers—but focus on opportunities,” Shirvani says. “It’s a wonderful occasion to be entrepreneurial to generate money and revenue from other sources. I focus more heavily on entrepreneurial aspects, much like a private college.”

The limited availability of spectrums in the Central Valley ultimately drove the price up during CSU Stanislaus’ negotiations. Although it took about two years to complete the deal, Shirvani certainly believes it was worth the wait—the university will receive roughly $54 million over three decades from Clearwire. In addition, its IT upgrade has enabled the university to offer more courses completely online, which is significant considering it serves a large geographical area covering six counties.

“For a single parent, not having to drive two-and-a-half hours each way to school twice a week—that provides another 10 hours of time to them a week instead of driving,” Shirvani points out.

 

Back in the 1960s, the Federal Communications Commission (FCC) started issuing broadcast licenses to school districts, colleges, and universities for educational programming under the Instructional Television Fixed Service (ITFS) program. Over time, this broadcast band proved to be underutilized, and the rules changed. In 2005, the FCC allowed companies to provide wireless internet service on the Educational Broadband Service (EBS) spectrum. This change sparked a renewed interest in leases and bandwidth.

“Educators went along with the idea because they thought the transmission of one-way traditional video service was becoming pass— in their businesses as well,” says Todd Gray, an attorney at Dow Lohnes in Washington, D.C., who has helped negotiate nearly 250 EBS lease deals, 143 of those for colleges and universities. “Interactive distance learning is really where things have moved, and real-time, one-way video is not that useful.”

In addition to higher ed institutions not wanting or needing to utilize these channels for the transmission of traditional video services, IHEs simply don’t have the capacity or wherewithal to construct their own high-speed data networks. An institution sitting on a license for four channels doesn’t have the resources to build a viable broadband network.

“Leasing opportunities offer the best of both worlds,” Gray relates. “It takes the spectrum that really is excess in terms of a university’s own use and results in financial return for the university. The university can later piggyback its own use on the commercial system that is ultimately built.”

 

Colleges and universities forging agreements with wireless broadband providers find that the deals benefit not only the university but also the students and the community.

Changing demand at the University of South Florida provided the impetus for administrators to lease its excess bandwidth with commercial operators. The university serves 70,000 enrolled students and offers 1,700 distance learning course sections annually, the majority of which are online offerings. With higher demand for more interactive video and online sources, USF leaders determined it was more valuable to the university to lease bandwidth to a commercial operator rather than to invest in the type of network restructuring of the spectrum needed to provide the range of services students demand, such as voice, video, podcasting, e-mail, emergency notification, and video streaming.

“We looked at what a commercial lease would offer and saw that as an opportunity for a commercial operator to be able to develop the network more rapidly and more broadly,” says Lynn Rejniak, director of classroom technology services. “They could offer it to our entire university community and beyond—to our 10 county service region, for example, because of other leases they may hold.”

Metropolitan Community College (Mo.) officials began exploring the idea of leasing the institution’s excess bandwidth in late 2006 when they learned their lifetime licenses with the FCC must be re-registered. The RFP generated interest from Sprint and Clearwire, and Metropolitan entered into a 30-year lease agreement with Sprint—including an option for Sprint to terminate at the end of year 10 or year 20, if desired.

The college’s overall objective in creating an agreement with Sprint was developing a win-win situation. In order to negotiate an appropriate deal, it was important for the team at MCC to understand what would constitute a win for Sprint, says Al Tunis, vice chancellor at MCC. Essentially, Sprint needed access to the college’s bandwidth to reach the coverage it wanted in the area. According to the deal, Sprint is leasing 95 percent of MCC’s bandwidth. In return, it is paying $40 million over the 30 years and providing the college with credits to make decisions as technology changes. The college could, for example, apply credits to offset wireless phone charges on its own Sprint cell phone bill.

Tunis calls the deal a partnership. “As technology changes, we want to use them as a resource,” he explains. “Sprint puts more resources toward technology than obviously we can afford, so we want to take advantage of that as much as we can.”

Leasing agreements provide similar benefits to the community through increased competition. Telecommunications companies recognized years ago that the wave of the future is what we know today, explains Jason Rogers, vice president for administration and university counsel at Belmont University (Tenn.). That translates to handheld devices that nearly everyone uses, and leasing opens greater bandwidth for those services. “The community benefits from that, and more telecommunications companies are involved in competing, so the consumer benefits from the price competition as well,” Rogers says.

 

Colleges and universities leasing their excess bandwidth to telecommunications firms use their revenue in a variety of ways to support the students and the institutions.

Administrators at CSU Stanislaus will rely on the nearly $54 million windfall over the 30-year term to fulfill the university’s long-term technology needs. This money is huge for a university such as CSU Stanislaus, where state cuts have made the university’s budget extremely tight. Thanks to the new money, computers will be replaced every three years in staff, faculty, and student computer labs. It will also help the university keep its wireless internet network on campus, which the campus activated in fall 2008. The first one-time payment of nearly $4 million is being used to equip all classrooms to be “smart” classrooms by the end of 2008. The university also tweaked the contract to provide about 40 low-income students with free laptops and Clearwire internet services.

“If we didn’t have this money, we couldn’t provide the students with these services,” President Shirvani says. “Way after many of us are gone, the money will still be coming and allocated to information technology.”

'Way after many of us are gone, the money will still be coming and allocated to information technology.' -Hamid Shirvani, California State University, Stanislaus

Metropolitan Community College established a quasi-endowment—meaning it’s not specified for a specific project—for its $40 million agreement with Sprint, based on the guidance of the college’s board of trustees. Proceeds of the investment are helping to control rising costs. With roughly 91 percent of the college’s revenue coming from tuition and state and local taxes, the board asked the college to be as creative as possible to offset the burden to taxpayers and students. “If we can expand where our other revenue comes from, we’ll not require students or taxpayers to pay for the increasing cost of education,” Tunis says.

The University of California at Santa Barbara is using its potential $26 million revenue over 30 years to replace now-dead student long-distance revenue, which withered as a result of the proliferation of cell phones. The Communication Services department provides the voice services for the campus, and the department funds itself through the resale of its services. Any time the department can find alternatives to campus funds, it’s worthwhile, according to Paul Valenzuela, associate director and operations manager of the Communications Services department and the office of Information Technology at UC Santa Barbara. The unexpected revenue source, he relates, “allows us to do business with a company delivering wireless broadband applications and explore some of the same technology for ourselves.”

The revenue generated from Belmont’s broadband leasing, which runs up to 15 years, is going into the revenue side of the budget to support academic programs. This includes areas such as scholarships, equipment for labs and classrooms, salaries, and capital improvements to accommodate enrollment growth.

The economy plays into bandwidth leasing just as in any other business decision. Gray, the Dow Lohnes attorney, reports that the leasing activities of Sprint Nextel and Clearwire essentially ground to a halt in 2007 because the firms didn’t have the money to enter into new leases. They also became concerned, he says, about deploying resources on the networks they already have.

“The greatest challenge to someone sitting on a license that hasn’t been leased is finding the right opportunity,” Gray says. “We’re hopeful that the proposed $3 billion investment in the Sprint Nextel merger with Clearwire [approved in November 2008] will enable them to acquire new leases and start deploying systems all over the country.”

Before Belmont University signed its bandwidth lease in 2002 with Clearwire, the big question was determining what the deal was worth and how long the agreement should last. Rogers says the university didn’t want to obligate capacity it might need in the future. Through the help of academic folks at the university and the advice of Gray, Belmont came to a point of comfort with the terms and commitment it was making. According to Gray, the service area and the population density dictates the dollar amount for leases. Most leases tend to fall in highly concentrated, populated areas rather than rural areas because of the economies of scale. In such places, firms can build their networks out and anticipate greater revenues.

Valenzuela at UC Santa Barbara experienced the same dilemma regarding leasing the university’s excess bandwidth with Clearwire. The spectrum UC Santa Barbara leases is now no longer in the research pool. “If our researchers start developing applications and need to use the spectrum, we won’t have it available—and that’s risky,” he relates. “We had to mitigate that a bit, which is why we put a stopgap in place. If we find we need that spectrum again, we can cancel and get it back.”

Gray confirms that the deals universities have negotiated have shown a fair amount of flexibility by reserving the right to recapture one or two of the channels at some point down the road if they ever believe it is possible to build an institutional broadband network. “At the moment, virtually all the spectrum held by universities and others in major areas has been leased or will soon be leased, because it makes so much sense for universities to do this.”

Vicki Powers is a freelance writer based in Houston who often covers technology issues.


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