AT&T praises FCC's license and band plans for AWS-3 auction

AT&T (NYSE:T) is cheering the FCC's proposed license and band plans for the forthcoming AWS-3 spectrum auction, but the FCC's rules for spectrum license size and band plan are not yet final or public.

In a company blog post, Joan Marsh, AT&T's vice president of federal regulatory, wrote that "a draft order for the AWS-3 auction is circulating for a vote at the FCC, and while I have not seen the item, early reports of its recommendations suggest to me that the commission staff has got this one exactly right."

The FCC has said that at its March 31 open meeting the five-member panel will "consider a Report and Order that would adopt allocation, licensing, service, and technical rules to make available for auction 65 MHz of AWS-3 spectrum for flexible use services, including mobile broadband."

The FCC is proposing to auction the 1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz bands, collectively known as AWS-3. Congress has directed the FCC to allocate and license the 2155-2180 MHz band by February 2015.

According to an FCC official familiar with proposal for the AWS-3 auction, the auction will have two sub-bands, each with its own band plan. One of the sub-bands will consist of one unpaired 5 MHz block (1695-1700 MHz) and one unpaired 10 MHz block (1700-1710 MHz), licensed in Economic Area (EA) geographies. The other sub-band will consist of paired spectrum: one 5x5 MHz block (1755-1760 and 2155-2160 MHz) licensed in Cellular Market Area (CMA) geographies, and two 10x10 MHz blocks (1760-1770 and 2160-2170 MHz, and then 1770-1780 and 2170-2180  MHz) licensed in EA geographies.

An EA is the largest-sized geographic unit used to divide spectrum license areas, and CMAs are the smallest.

The AWS-3 auction, which is expected to take place in the fall, will be a prelude to the larger and more complicated 600 MHz incentive auctions scheduled for 2015. Multiple carriers are using AWS spectrum for LTE deployments, so the AWS-3 auction is sure to draw interest from a wide range of bidders, though the Tier 1 carriers will have the most financial firepower.

In the blog post, Marsh wrote that "incorporation of the large block and license sizes will not only ensure that the FCC drives the greatest efficiencies out of this spectrum, but also that it attracts the most revenue at auction. A quick study of the AWS-1 auction is instructive on these points."

Marsh noted that in the first round of the AWS-1 auction, in 2006, the highest bidding activity was for the 10x2 Regional Economic Area Grouping, or REAG licenses. "The large block coupled with the large license size simply attracted the most interest (and dollars) out of the gate," she wrote. "On the other side of the auction, the 5x2 CMA licenses had little first round interest with an activity ratio of only 0.68 (which represents more supply than demand in the first round)."

Marsh also wrote that the final MHz/POPs revenue figures "are also instructive," and that the 10x2 REAG licenses topped the revenue charts at $0.73 MHz/POP, followed by the two smaller REAGs blocks ($.60 and $.58). The CMA-based 5x2 licenses came in at only $0.39 MHz/POP, she wrote. "The value of the larger block size is also apparent in the winning bids for the REAG licenses," Marsh added. "In three regions, the 10x2 block sold for more than the two 5x2 blocks added together. Given incumbent relocation demands (and the still unfunded FirstNet pot), a robust revenue stream from this auction is as essential as it will be in the 600 MHz auction."

Marsh said AT&T "would have preferred to see package bidding for at least one of the 10x2 blocks. We continue to believe package bidding addresses important exposure risks and can drive incremental revenue. But, hey, life is not a box of chocolates, or something like that."

Other carriers have taken different approaches from AT&T. In a recent FCC filing on the AWS-3 auction, T-Mobile US (NYSE:TMUS) noted "the public interest would be better served by auctioning of the spectrum" in 5 MHz blocks, "which will potentially increase auction participation by competitive carriers and increase auction revenues." T-Mobile also pushed for a mix of EA and CMA licenses.

T-Mobile representatives also noted that FCC is "not planning to adopt rules in its mobile spectrum holdings proceeding until after it adopts AWS-3 rules. If the FCC adopts spectrum aggregation limits, as T-Mobile has suggested in that proceeding, carriers would be well served by having 5 MHz blocks, so that they can more effectively tailor their spectrum holdings in a particular area to conform with any limits the FCC later adopts."

Verizon Wireless (NYSE:VZ), for its part, noted in a recent filing that it wants the FCC to auction the AWS-3 spectrum in larger EAs and in 10x10 MHz blocks.

Steve Berry, president of the Competitive Carriers Association, said in a statement that the group is "pleased that the FCC is working on rules for the AWS-3 auction, but hopes to see broader participation and increased competition in the auction through some adjustments to the current proposal." 

"To make sure that carriers of all sizes have an opportunity to bid, the FCC should auction more spectrum based on CMAs," he said. "The AT&T blog points to larger geographic sizes resulting in greater revenue in the 2006 AWS auction while noting that the AWS auction closed before the mobile data explosion, but fails to mention that following the introduction of the iPhone and growth of 3G data, this trend was turned upside down in the 2008 700 MHz auction. In that auction, CMAs generated more than double the price of larger-sized licenses. Further, based in part on AT&T's appetite to gobble-up competitors, several previous bidders focused on EA-sized licenses and larger are no longer independent carriers.  Increasing the number of blocks offered in CMAs will help increase competition in the auction room and the market."

For more:
- see this AT&T blog post
- see this T-Mobile filing
- see this Verizon filing

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