AT&T: T-Mobile's 600 MHz reserve strategy is about protecting urban markets, not expanding rural coverage

AT&T (NYSE: T) thinks T-Mobile US' (NYSE:TMUS) push to expand the amount of spectrum smaller carriers can bid on in next year's incentive auction of 600 MHz broadcast TV spectrum is more about making sure T-Mobile has less competition in bidding in urban markets than in expanding its rural coverage.

Since last summer T-Mobile has pushed for that amount to be at least 40 MHz, up from a maximum of 30 MHz now, arguing that without that rule smaller carriers won't get enough low-band spectrum to level the competitive playing field with Verizon Wireless (NYSE: VZ) and AT&T, which control around 73 percent of the spectrum below 1 GHz.

"T-Mobile has made no secret of the fact that we want and need more low-band spectrum," T-Mobile CEO John Legere said last week. T-Mobile is pushing for more low-band spectrum to expand its rural footprint and improve its inbuilding coverage. "In rural areas, people are stuck with only dumb and dumber to choose from," Legere said, referring to Verizon and AT&T. 

The reserve is designed to let carriers with less than 45 MHz of spectrum below 1 GHz in a given market bid on the spectrum in that market. The move essentially prevents Verizon and AT&T from bidding on reserved 600 MHz spectrum in many markets.

In a company blog post, Joan Marsh, AT&T's vice president of federal regulatory, wrote that "the reserve framework will have very little impact on wireless service or deployment in rural America" because "in many rural areas, AT&T's low-band portfolio is simply not sufficient to trigger the auction restrictions so our bidding in most rural areas will not be restricted, regardless of the size of the reserve."

"What the restrictions are actually designed to do is protect T-Mobile from bidding competition in urban markets--even though T-Mobile itself argues that 92% of non-rural Americans have access to four or more mobile broadband providers," she wrote. "Only 40% of rural Americans, T-Mobile argues, enjoy the same and thus T-Mobile tries to build a case for expanding the restrictions to support deployment in rural America."

T-Mobile did not have an immediate comment.

In May 2014, when the reserve framework was first adopted, Mosaik Solutions conducted an analysis for FierceWireless of markets where Verizon and AT&T control more than 45 MHz of spectrum below 1 GHz. According to Mosaik's analysis, AT&T would face bidding restrictions in much of the Northeast, the West Coast, parts of the Southeast and in many of the largest metropolitan areas. However, AT&T would not face restrictions across vast swaths of the Midwest and Mountain states, backing up Marsh's claims. Verizon faces many more restrictions and will be barred from bidding on reserve spectrum in most of the country.

"For AT&T, the restrictions will predominantly impact our ability to compete for spectrum in urban areas," Marsh noted. "Indeed, our preliminary analysis suggests that we will be restricted in all Top 50 markets except six (Cleveland, Phoenix, Virginia Beach, Charlotte, Raleigh and Greenville to be exact). The restrictions will therefore directly impact our ability to serve customers in the most data hungry markets like NY, Los Angeles, Chicago, San Francisco, Baltimore-DC, Philadelphia, Boston and Dallas."

In many rural areas, on the other hand, AT&T's low-band portfolio is not sufficient to trigger the restrictions, "so our bidding in those areas will not be restricted."

Marsh noted that in Maine AT&T will not be restricted in either of the two license areas (or the one partial economic area in Vermont). In Iowa and Nebraska, AT&T will face no restrictions, and in most license areas in Kentucky, Montana, Oklahoma, the Dakotas, Tennessee and Wyoming AT&T will be similarly unrestricted. 

"Thus, an expanded spectrum set-aside is not about serving rural America," Marsh wrote. "It's about protecting T-Mobile from competitive bidding in the most urban markets in the country--markets where T-Mobile is currently competing very effectively and boasting about having the deepest spectrum portfolio per customer and the fastest LTE networks in the industry. And, for all its arguments about how essential this spectrum is to its future, recall that the last time the FCC held a low-band spectrum auction T-Mobile couldn't be bothered to show up. And, with Sprint--who hasn't shown up for a FCC auction since the PCS days--signaling  that it will not participate in this one either, it's becoming more and more difficult to find a rational argument for why a reserve is justified at all."

For the record, Sprint (NYSE: S) CEO Marcelo Claure has said the company is interested in participating in the incentive auction.  

Marsh wrote that T-Mobile is "misleading policymakers when it advocates for a bigger spectrum set aside in the name of rural competition. Instead of falling for that magenta herring, policymakers should be inviting all bidders to compete for rural licenses that come with stringent build requirements. That would ensure that the spectrum goes to the bidders most likely to make the capital commitments necessary to deploy rural services. That approach would be a far better and more direct way of encouraging broadband deployment in rural America."

For more:
- see this AT&T blog post

Related articles:
Verizon, T-Mobile's Legere knock each other in 600 MHz spectrum reserve fight
T-Mobile keeps lobbying FCC to increase size of 600 MHz reserve
Report: T-Mobile, Sprint won't get extra 600 MHz reserve in FCC auction
Sprint's Euteneuer: We're looking at 600 MHz auction, but don't need to participate
FCC moving forward with basic 600 MHz auction framework, but spectrum reserve remains unclear
Sprint, T-Mobile, Dish join forces with others to press FCC on incentive auction rules

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