AT&T blasts T-Mobile proposal for 600 MHz auction

AT&T (NYSE:T) criticized a T-Mobile US (NYSE:TMUS) proposal for a sliding spectrum screen as part of the upcoming incentive auctions of 600 MHz broadcast spectrum, arguing that it could "almost certainly doom the auction."

The latest back and forth between AT&T and T-Mobile comes as the FCC continues to receive input on how it should design the auctions, which are scheduled to take place in 2014. The FCC is still deciding numerous aspects of the auction process, including the band plan for the spectrum and how wireless will be able to bid on the airwaves, which the FCC hopes to transfer from broadcast use to mobile broadband.

AT&T filed a document with the FCC that was written by Yeon-Koo Che, a professor of economic theory at Columbia University, and Philip Haile, a professor of economics at Yale University. In an accompanying blog post by Joan Marsh, AT&T's vice president of federal regulatory, the carrier said that T-Mobile's proposal is unnecessary and will also reduce auction revenues by putting limits on how much spectrum carriers could acquire.

The backdrop of the proposed rule is a continuing fight between T-Mobile, Sprint (NYSE:S) and smaller carriers on one side, and AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) on the other side over how restricted the two larger carriers should be in bidding for the spectrum in the auction. The smaller carriers have argued for caps on how much spectrum AT&T and Verizon can acquire below 1 GHz, limits that the larger carriers have said will deprive the auction of needed revenue.

In late June, T-Mobile proposed a rule, which it calls a "Dynamic Market Rule," that combines market forces with limits on spectrum aggregation. Under the rule, the forward part of the auction, where carriers will bid to acquire spectrum that broadcast TV stations have relinquished, would start with a spectrum-aggregation limit. The limit would be one-third of the low-band spectrum in a given market. However, there would be a carve-out for AT&T and Verizon, which would be able to obtain a 5x5 MHz block of spectrum in any market where they exceed the limit.

If the FCC's revenue targets are met with the limit in place, then the auction would close once there is no longer any active bidding. However, if the revenue target is not met, the limit on how much spectrum a carrier could hold would be then be gradually relaxed for all bidders. If the revenue target isn't met once the limit is totally removed, the FCC would resume the process by starting at the next lower spectrum target with the aggregation limit in place.

Marsh wrote that such a rule is unnecessary because carriers are more focused on capacity improvements now that coverage, which 600 MHz would provide because of its strong propagation characteristics. She also wrote that "to the extent this is less the case in rural areas, those areas are not spectrum-constrained and the lower cost of building out low band spectrum in such areas is offset by the higher cost of the spectrum itself."

Further, Marsh wrote that T-Mobile's plan would "introduce complexities, distortions and risks that would reduce auction revenues and almost certainly doom the auction," including that it would  "exacerbate existing exposure risks and introduce significant new ones for bidders subject to the shifting caps."

"T-Mobile's proposal also would create incentives and opportunities for manipulation that would not otherwise exist, and add enormous and potentially crippling complexity to an already complex and uncertain auction mechanism," Marsh wrote.

In a statement provided to The Hill, Kathleen Ham, T-Mobile's vice president of federal regulatory, said that without "competitive safeguards" there won't be anything to stop AT&T and Verizon from securing all of the low-band spectrum in the auction.

"Such an outcome would be bad for consumers and bad for competition in the wireless broadband marketplace," she said. "The two dominant carriers already control nearly 80 percent of low-band spectrum. Reasonable spectrum concentration limits at auction, combined with sound auction-design features such as the Dynamic Market Rule, will promote competition, encourage innovation and increase consumer choice, without harming auction revenue."

For more:
- see this FCC filing (PDF)
- see this AT&T blog post
- see this The Hill article

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