Verizon takes aim at Sprint, T-Mobile in pushing back on FCC auction restrictions

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Verizon Wireless (NYSE: VZ) pushed back hard against proposed FCC rules that could restrict how much spectrum it can acquire in next year's incentive auction of 600 MHz broadcast spectrum.

Verizon argued in a filing with the FCC that the commission should not give competitors Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) a leg up in the auction. The rules, which are not yet final, are likely going to be subject to vigorous lobbying in the next two weeks ahead of the FCC's planned vote on May 15.

In the filing with the FCC, Verizon noted that its executives met on Monday with Commissioners Ajit Pai and Michael O'Rielly, the two Republicans of the five-member FCC panel, as well as with their staff members. As it has in the past, Verizon "stressed that the best way to promote a successful incentive auction is to ensure the widest possible participation from broadcasters and robust competition between wireless carriers."

However, Verizon wrote that "bidding restrictions proposed by competitors would reduce the amount of spectrum made available in the auction and would add to its complexity. Set-asides in general can reduce auction revenues by limiting competition in the auction, and harm consumer welfare."

By potentially restricting Verizon and AT&T (NYSE: T) in bidding on parts of spectrum that would be set aside in many markets, Verizon argues, the FCC would be depressing auction revenue. That could increase "the risk that broadcasters do not relinquish substantial amounts of spectrum." In order for the incentive auction to be a success, enough broadcasters need to give up their spectrum in the "reverse" part of the auction so that carriers can bid on it in the "forward" part of the auction. However, Verizon and AT&T have argued broadcasters will shy away from relinquishing their spectrum if they know that two largest carriers are restricted, because that could lower how much money they will eventually be paid.

The restrictions the FCC is contemplating could potentially benefit Sprint, T-Mobile, U.S. Cellular (NYSE:USM) and other smaller carriers. Verizon wrote that "it would be perverse and unjust" for the FCC to adopt auction rules that "subsidize some large multinational companies at the expense of their competitors. T-Mobile and Sprint are large corporations with established, well-financed corporate parents. They and their parent corporations are more than capable of paying substantial amounts to acquire spectrum in the incentive auction if they choose to do so."

The main takeaway from the proposed rules is that they are designed to ensure that carriers that control a lot of low-band spectrum to "run the table" in the auction. The FCC 's proposed rules would establish a market-based reserve of up to 30 MHz of spectrum for carriers that currently hold less than one-third of available low-band spectrum in a market. The FCC would then establish a spectrum reserve "trigger point" to determine at what point the auction would split into "reserved" and "unreserved" bidding. The FCC hasn't yet defined what that point will be but it could be based on market prices.

When that happens though, the amount of "reserved" spectrum in each market will be established based on demand in that market by eligible bidders, but it will be no more than 30 MHz. If demand for the reserved spectrum is less than 30 MHz at that point, the remaining balance would be available on an unreserved basis.

Any carrier that holds more than one-third of available low-band spectrum in a market would be able to bid on all unreserved spectrum in that market, but would be ineligible to bid on any reserved spectrum, which is likely going to restrict Verizon and AT&T in many markets. The FCC also said that any provider that holds less than one-third of available low-band spectrum in a market would be able to bid on all unreserved spectrum in that market, and all reserved spectrum in that market.

For more:
- see this FCC filing
- see this Reuters article

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