FCC bars package bidding in 600 MHz auction, dealing another blow to Verizon and AT&T

The FCC has decided against allowing package bidding in next year's planned incentive auction of 600 MHz broadcast TV spectrum, moving against Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T), which had argued that package bidding would be a more efficient way to conduct the auction.

Package bidding would have permitted bidding on "all-or-nothing" groups of licenses as well as on individual items within those groups. By prohibiting package bidding, the FCC is allowing smaller carriers to bid on licenses in rural areas without the possibility of larger carriers buying chunks of licenses grouped together. Thus, the FCC's decision on package bidding represents another attempt by the agency to encourage smaller wireless carriers to participate in the 600 MHz auction-the agency is also withholding up to 30 MHz of spectrum for smaller carriers to bid on.

"We do not intend to incorporate package bidding procedures into the forward auction because of the additional complexity that package bidding would introduce into the auction," the FCC said. "The forward auction will offer multiple blocks of licenses in multiple categories in many hundreds of geographic areas. To permit bidders to bid on combinations of those licenses would considerably complicate the bidding process and the procedures to determine clock prices and winning bids."

The FCC's decision on packaged bidding is in its report and order on the incentive auction, which was published earlier this week. The document includes hundreds of pages of rules for the auction, which will likely be among the most complex spectrum auctions in history.

The FCC's decision represents a blow to Verizon and AT&T. Verizon, for instance, had proposed a package of the top 100 Partial Economic Areas (PEAs) based on population and had supported pre-defined packages of the largest markets in which bidding on individual spectrum licenses within the package would not be permitted.

AT&T had argued that the FCC needed to allow packaged bidding because it would make it economically more efficient for carriers to acquire larger blocks of licenses. "Many carriers will wish to invest in 600 MHz technology–which will be a new band for all carriers--in a particular geographic area only if they can be assured of having 600 MHz spectrum holdings throughout a larger set of geographic areas, such as their regional or national service footprints," AT&T wrote in an April 2 filing to the FCC. "An inability to place all-or-nothing bids for such geographic packages would present a classic exposure problem, as auction participants face the prospect of winning geographic areas that have limited value to them unless their spectrum holdings in those areas can be combined with similar spectrum holdings in other geographic areas to create an economically rational footprint."

The Competitive Carriers Association and smaller carriers had argued against the use of package bidding, which they said would prevent smaller carriers from acquiring spectrum in smaller markets at the edge of major metropolitan areas.

While the FCC declined to allow package bidding in the part of the auciton where carriers will bid on spectrum, the commission will seek comment on a proposal that "may strike a compromise between the larger carriers' interests in ensuring a minimum scale of operations in urban areas and smaller bidders' interests in smaller markets."

Under that plan, the FCC would create an aggregation of the largest PEA licenses and a bidder could indicate that they wanted to bid on that larger package or in individual PEAs not included in the package. Unlike package bidding, where a bidder would make an all-or-nothing package bid on a group of licenses or bid separately on the licenses comprising the package, in this case carriers' bids  for the individual PEAs would not be accepted.

CCA President Steve Berry told FierceWireless he is pleased the FCC decided to prevent packaged bidding. "You have an opportunity for every carrier, small and large, to bid and potentially win in the markets that are most important to them," he said. "If you do package bidding. I think you further make a disparity between the regional and rural markets."

Berry also said not having package bidding could open the market to new entrants. "It improves the chances that they can actually win some of the Partial Economic Areas they want to bid on," he said. "I just see it as enhancing the competitive nature of the auction itself."

The FCC adopted PEAs as the service area for the 600 MHz band, a middle ground in terms of license size area between larger Economic Areas favored by Verizon and AT&T and smaller Cellular Market Areas favored by many smaller carriers. The commission's 600 MHz auction rules lay out a 600 MHz band plan consisting of 5 MHz paired uplink and downlink bands, with the uplink portion starting at channel 51 (698 MHz) and expanding downward.

The FCC's main task now will be to drum up broadcaster participation. Without broadcasters giving up their spectrum, which carriers will then bid on in the "forward" part of the auction, the auction as a whole will not succeed.

For more:
- see this FCC document (PDF)

Related Articles:
Mosaik: Verizon could face bidding restrictions across much of country in 600 MHz auction
AT&T to buy up to 40 MHz of spectrum in incentive auction, but Verizon remains aloof
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

Article updated June 4 to clarify that the FCC will seek comment on an alternative package bidding proposal.