Report: FCC's planned incentive auction rules would set aside spectrum for smaller carriers

The FCC is contemplating a plan that would reserve for smaller carriers a chunk of the spectrum to be auctioned in next year's planned incentive auctions of 600 MHz broadcast TV spectrum, according to a Re/code report.

The report, citing unnamed sources briefed on the plan, said that the rules being floated by FCC Chairman Tom Wheeler would create two separate classes of licenses that carriers could bid on, restricted and unrestricted.

Every carrier could bid for the spectrum, which would be mostly paired in 5 MHz blocks in markets across the U.S, the report said. However, crucially, if bidding by carriers reaches a to-be-determined threshold, the FCC would reserve no more than 30 MHz of spectrum in any market for companies that don't currently control a lot of spectrum in that market. Such a move could push Verizon and AT&T to outbid each other for the unrestricted licenses. The Re/code report also said the FCC has proposed setting limits on restricted licenses so the winners couldn't immediately sell them to Verizon and AT&T.

Bloomberg also reported, according to unnamed sources, that the FCC is contemplating rules for the auction that could limit how much spectrum Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) could acquire in the auction. Sprint (NYSE:S), T-Mobile US (NYSE:TMUS), U.S. Cellular (NYSE:USM), Dish Network (NASDAQ: DISH) and an array of groups, including the Competitive Carriers Association, have urged the FCC to adopt such restrictions.

Over the course of the past year, Verizon and AT&T have repeatedly and vehemently argued against bidding restrictions, arguing that such rules will depress auction revenue and amount to picking winners and losers. Earlier this month, AT&T specifically pushed back against the notion of spectrum "set-asides," or portions of spectrum specifically set aside for smaller carriers or new entrants.

The FCC is expected to vote on auction rules in May, though they will be subject to public comment and could be revised after that. The incentive auctions are scheduled to begin in mid-2015. Wheeler's aides began briefing some lawmakers and staffers on Capitol Hill about the planned rules earlier this month, the Re/code report said.

"All who want to participate in the auction will be able to bid," Wheeler said in a statement distributed to media outlets. "In order to assure coverage and competition in rural America it may be necessary to assure no one can monopolize the bidding."

Representatives from the Tier 1 carriers either declined to comment or did not immediately respond to a request for comment.

"We appreciate Chairman Wheeler's focus on ensuring that all carriers, no matter what size, have the opportunity to bid in the 600 MHz spectrum auction," said Steve Berry, president and CEO of the Competitive Carriers Association, in response to a request for comment on the recent reports. "While cellular market areas (CMAs) are the best way to ensure smaller carrier participation, we are pleased the FCC will use partial economic areas (PEAs) proposed by CCA as a compromise, which are significantly smaller than EAs, in the upcoming incentive auction."

Importantly, the FCC is also expected to vote on incentive auction rules alongside rules to revise its "spectrum screen," which determines how much spectrum carriers can hold. Carriers have been debating for more than a year how the FCC should redesign its spectrum screen, which the commission uses when reviewing spectrum transactions. If a carrier acquires too much spectrum and violates the screen, the deal is more closely scrutinized. Currently, the screen is different for each proposed transaction.

Under Wheeler's new proposal for the screen, spectrum held by Sprint and Dish that was previously excluded from the screen would now be included. Verizon and AT&T have pushed heavily for that outcome. For Sprint specifically, that would mean the carrier's 120 MHz of 2.5 GHz spectrum that it owns in 90 percent of the top 100 U.S. markets would be taken into account in a spectrum screen.

According to Re/code, the changes to the spectrum screen would not be used to hold back carriers in acquiring spectrum in the incentive auctions, but would apply in the future. Such an outcome could potentially give a victory to Verizon and AT&T while also placating smaller carriers via the rules for the incentive auctions.

For more:
- see this Bloomberg article
- see this Re/code article

Related Articles:
Wooing TV broadcasters is FCC's next big job for 600 MHz incentive auction
T-Mobile blasts AT&T's 600 MHz auction position as 'sacrificing competition'
L.A. TV stations show broadcast channel sharing for 600 MHz auction is possible
TV broadcasters remain wary of 600 MHz incentive auction
FCC's Wheeler lays out vision for 3.5 GHz band, incentive auctions
FCC to issue report on 600 MHz incentive auction structure in the spring
T-Mobile: We need more low-band spectrum despite Verizon deal

Correction, April 15, 2014: This article incorrectly stated a rule the FCC is contemplating for the 600 MHz incentive auctions. If bidding by carriers reaches a to-be-determined threshold, the FCC would reserve no more than 30 MHz of spectrum in any market for companies that don't currently control a lot of spectrum in that market.

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