AT&T to buy up to 40 MHz of spectrum in incentive auction, but Verizon remains aloof

AT&T Mobility (NYSE: T) said it plans to purchase between 20 MHz and 40 MHz of spectrum in the FCC's 600 MHz incentive auction of broadcast TV spectrum, set for next year, if the auction entices enough broadcasters to participate. However, Verizon Wireless (NYSE: VZ) said only that the FCC has made "progress" on the rules for the auction, comments likely reflecting the carrier's displeasure with auction rules designed to limit the amount of 600 MHz spectrum AT&T and Verizon can acquire during the auction.

For their part, Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) stopped short of specifically promising to participate in the 600 MHz auction. But they both expressed satisfaction with FCC rules that essentially prevent AT&T and Verizon from acquiring up to 30 MHz of spectrum in markets across the country, reserving that spectrum for smaller carriers like Sprint, T-Mobile and others.

The apparent hesitation expressed by Sprint and T-Mobile in regard to their support for the FCC's 600 MHz auction rules could be partially due to a stipulation that would effectively remove the reserved spectrum if Sprint and T-Mobile were to pursue a merger before the start of the auction. Analysts at Credit Suisse pointed out that "there is language in the spectrum aggregation rules that could allow the FCC to retract the reserve rules if a major transaction among the top 4 carriers is announced." Thus, the FCC could withdraw its plan to reserve up to 30 MHz of spectrum during the auction for smaller carriers if Sprint and T-Mobile pursue a merger.

As for the nation's Tier 2 and 3 regional wireless carriers, they generally were very pleased with the FCC's auction rules.

"Ntelos looks forward to participating in the 600 MHz auction, and thanks the FCC for adopting rules that will promote wireless competition," said Jim Hyde, the carrier's president and CEO. Ntelos is the nation's seventh largest wireless carrier, with around 468,000 subscribers, and provides service in parts of Virginia, West Virginia, Maryland, Ohio, Kentucky and North Carolina.

Other smaller carriers, including Bluegrass Cellular, Carolina West Wireless, Cellcom and Union Wireless specifically said they would likely participate in the 600 MHz auction next year.

Dish Network (NASDAQ: DISH), for its part, complemented the FCC on its auction rules, but did not specifically say that it would participate in the auction. However, the company has been feverishly working to collect a wide range of spectrum--most recently Dish paid $1.564 billion in the FCC's H Block auction as the only bidder, and Dish Chairman Charlie Ergen has attempted to purchase LightSquared and its spectrum.

But, according to analysts, Dish may not build out its spectrum and could instead sell its spectrum to AT&T or Verizon. The FCC's recent changes to its so-called spectrum screen--which limits the amount of spectrum any one carrier can own--paves the way for Dish to sell its spectrum holdings to Verizon or AT&T.

"Now that the screen has been set, it appears that both AT&T and VZ have a clear path toward acquiring DISH for spectrum; neither deal would trigger the screen," the analysts at New Street Research wrote today in a note to investors. "While buying DTV would be financially accretive for AT&T, we believe that the company would be making a strategic mistake by not acquiring DISH. DISH's ~45MHz of mid-band downlink spectrum would confer a capacity advantage to AT&T that Verizon could not hope to close."

The New Street analysts noted that the FCC's spectrum screen previously covered a total of roughly 453 MHz of spectrum and would kick in if a carrier acquired more than one-third of that total (150 MHz) in a given market. If a carrier purchases spectrum that pushes it over the screen in a given market, the FCC would review the transaction more carefully and could move to block it. Under the FCC's new changes, the screen now includes a total of 582 MHz of spectrum (due to the addition of the AWS-4, H-Block, and EBS bands) and thus would kick in if a carrier acquired more than 195 MHz (around one-third) of the spectrum in a given market.

The screen is especially concerning for Sprint because, as New Street points out, the carrier owns an average of roughly 201 MHz of spectrum in the nation's top 100 markets, largely due to its vast holdings of 2.5 GHz spectrum (which sits in the EBS band). In comparison, Verizon owns an average of 105 MHz, AT&T owns 129 MHz and T-Mobile owns 78 MHz of spectrum in the nation's top 100 markets.

For more:
- see this Sound Off about the FCC's incentive auction rules

Related Articles:
FCC incentive auction rules likely to benefit Sprint, T-Mobile and smaller carriers
CCA's Berry expects strong participation from smaller carriers in 600 MHz auction
T-Mobile: FCC auction rules that limit AT&T, Verizon will be a boon for competition
AT&T: There's 'no basis' to give Sprint, T-Mobile a leg up in incentive auction
Verizon takes aim at Sprint, T-Mobile in pushing back on FCC auction restrictions
FCC to add Sprint, Dish spectrum to spectrum screen

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