AT&T pushes FCC to deter 600 MHz auction defaults

As the wireless industry barrels ahead toward the start of the incentive auction of 600 MHz broadcast TV spectrum in March, AT&T (NYSE: T), T-Mobile US (NYSE:TMUS) and other industry players are telling the FCC to make sure their particular concerns get addressed.

AT&T, in particular, wants the FCC to take a harder line to deter potential defaults on 600 MHz bids. The suggestion comes after Dish Network's (NASDAQ: DISH) designated entity partners, in which Dish holds an 85 percent economic stake, decided to give up around a third of the paired AWS-3 spectrum licenses they won earlier this year in the AWS-3 auction -- mostly spectrum licenses covering New York, Chicago and Boston. The licenses that Dish's DEs are relinquishing represent around $3.4 billion worth of their winning bids; they will keep about $9.8 billion worth of the licenses they won at the auction.

Dish will have to pay a 15 percent penalty on the gross value of these bids, or $515 million, and the FCC can move to re-auction them. Dish 's DEs could potentially be able to bid on them in the future, a point AT&T has sharply criticized.

In a recent filing with the FCC, AT&T said the agency "should strengthen its proposed penalties to provide a meaningful deterrent to strategic defaults that could undermine the promise of the 600 MHz band."

"As the FCC is aware, there have been two recent 'selective' defaults with respect to Auction No. 97 that have resulted in the loss, at least in the short term, of billions of dollars in auction revenue," AT&T's Joan Marsh, vice president of federal regulatory, said in the letter. "As discussed below, AT&T believes that similar defaults in the Incentive Auction, particularly given its two-sided format, could imperil the outcome of the auction and carry significant consequences for the American public. Under the circumstances, the FCC should ensure that its default penalties create appropriate safeguards against this type of strategic default behavior in" the incentive auction.

Marsh said the FCC proposed the maximum default penalty percentage of 20 percent, "given the importance of deterring defaults in order to minimize the possibility that the auction will not generate shortly after its conclusion the full amount of the proceeds indicated by winning bids."

"But even that tentative conclusion, which may have seemed sufficient at the time, was prior to the era of a $3.4B default -- a number that is sufficiently large that it might, in fact, alter whether the revenue actually realized from Auction No. 1002 is sufficient for the FCC to meet its obligations to broadcasters participating in Auction No. 1001 after the FCC has closed the auction," Marsh said. "The FCC's Incentive Auction Order stated its expectation 'that payments to broadcasters relinquishing spectrum usage rights will be among the first disbursements once amounts become available for distribution,' which it represented addressed 'contention[s] that broadcasters should not bear financial risks stemming from any forward auction licensing delays or forward auction bidder defaults.' But if broadcasters will not bear the risk of post-auction defaults, it will be American taxpayers that must shoulder the burden. The FCC, accordingly, should do everything it can to avoid this possibility."

Marsh wants the FCC to keep the penalty for default at the highest level, or 20 percent, but also says the FCC should "take the additional step of prohibiting defaulting parties from participating in the re-auction of defaulted spectrum. Alternatively, the FCC could take the extraordinary step of prohibiting defaults -- and certainly prohibiting selective defaults -- and simply enforce its rule that a bidder 'assumes a binding obligation to pay its full bid amount upon acceptance of the winning bid at the close of an auction.'"

Meanwhile, representatives from T-Mobile met last week with members of the FCC's Incentive Auction Task Force and Wireless Telecommunications Bureau to inquire about technical bidding rules for the incentive auction. They also asked about when the agency will release supplementary information about the auction and when the forward auction will start, which will involve wireless carriers bidding on spectrum broadcasters have given up.

Additionally, the representatives from T-Mobile discussed the potential for opportunities to test the bidding software for the auction prior to the mock auction and reviewed the technical issues posed by the auction. They also asked about the spectrum reserve, and specifically sought additional information about what the effect the auction transition to each new stage of the auction will have on the amount of reserve spectrum.

In its filing, CTIA noted that its representatives last week asked the FCC to define when carriers will be able to "commence operations" in the 600 MHz band in a way that "would allow for limited but necessary market testing" of the spectrum once carriers get access to it.  

"As a result, low-power television and unlicensed users of the UHF band will be able to remain in operation in the 600 MHz band even after it is reallocated and licensed to others, while 600 MHz licensees will gain access to their licensed spectrum as necessary to 'commence service,' including the pre-requisite market and commissioning testing steps that must precede a commercial launch," CTIA said. "Under this proposal, secondary users could continue to utilize the mobile wireless band in the vast majority of areas beyond the market testing stage, until pre-commercial launch testing necessitates the use of the mobile wireless band for mobile wireless service."

For more:
- see this AT&T filing
- see this T-Mobile filing
- see this CTIA filing

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