In comments to the FCC, AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) argued against rules that would reduce how much spectrum carriers can hold in certain markets. Meanwhile, smaller carriers pushed for proposals that would limit the spectrum holdings of the nation's two largest carriers.
The FCC is considering changes to its so-called spectrum-screen, which it uses when reviewing spectrum transactions. If a carrier acquires too much spectrum and violates the screen, the deal is more closely scrutinized. Currently, the screen is different for each proposed transaction. The FCC voted in late September to open up a review of its rules.
Verizon said in its comments that the FCC should build on the strengths of the current system by including a "safe harbor providing certainty for transactions that do not exceed the screen, while enabling more detailed review of markets triggered by the screen for potential competitive harm." Verizon said the FCC should reject a spectrum cap "which is an inherently inflexible tool ill-suited to the dynamic spectrum market, and which can block spectrum transactions that are clearly pro-consumer."
AT&T said the FCC should update the screen "to include all of the available spectrum that is 'suitable' for mobile wireless services," and specifically include spectrum that Clearwire (NASDAQ:CLWR) controls when it makes that consideration. AT&T also wants the FCC to "reaffirm that the 'safe harbor' provided by the screen is truly safe," meaning that the FCC "will not entertain spectrum aggregation-related challenges to any proposed spectrum acquisition that does not exceed the safe harbor level." The FCC also needs to update its screen to reflect the realities of the market, and the screen should reflect that it is "simply not realistic to assume that any holding of more than a third of the available spectrum in any market may create a risk of market foreclosure."
In contrast, Sprint said Verizon and AT&T have aggregated around 75 percent of the spectrum for wireless below 1 GHz, and that the FCC should treat this spectrum differently. Sprint said the FCC "should adopt a cap for spectrum below 1 GHz that would apply prospectively to both commission spectrum auctions and secondary market transactions, including the incentive auction the commission will be conducting for broadcast TV spectrum. This measure, which should apply to licensed spectrum holdings but not spectrum that is leased or subleased pursuant to an arm's length agreement, would help to ensure a more competitive distribution of spectrum below 1 GHz to enhance competition." Clearwire, which Sprint is partnered with, owns vast spectrum holdings above 1 GHz.
T-Mobile USA wants the FCC to put in place so-called bright-line spectrum limits "for initial licenses acquired through competitive bidding. Such an approach provides certainty for bidders and is far more administratively efficient than a post-auction case-by-case review."
Interestingly, but not surprisingly, Clearwire said the FCC should "continue its flexible, case-by-case analysis of transactions through use of the spectrum screen rather than reinstituting a hard cap. While a hard cap would lead to greater certainty regarding the level of permitted spectrum aggregation, it might unduly restrict the ability of the commission to consider unforeseen changes in the marketplace." Clearwire has around 160 MHz of 2.5 GHz spectrum on average in the top 100 markets, and regularly touts its spectrum depth as its key asset.
Trade groups also laid out their proposals for the FCC. CTIA said that the agency should "apply the spectrum screen in a clear, predictable manner, consistently across all transactions, and should update it regularly." CTIA also argued against a spectrum cap. The group said a cap would "fail to account for the dynamic nature of the mobile communications marketplace and the introduction of new technologies, and would create unnecessary inefficiencies."
The Competitive Carriers Association, which represents the interest of almost every wireless carrier except Verizon and AT&T, took a more critical eye toward the screen. The CCA said that the FCC should apply "three independent thresholds to spectrum acquisitions: one targeted specifically at local spectrum holdings below 1 GHz, one that evaluates an entity's aggregate local spectrum holdings (both above and below 1 GHz), and one for nationwide holdings." The CCA also wants the FCC to "establish a rebuttable presumption that transactions exceeding any of the new thresholds would be contrary to the public interest. Such reforms not only would strengthen the screen as a tool for evaluating the competitive effects of spectrum transactions, but also would provide the necessary certainty to entities contemplating spectrum acquisitions."
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