Sprint, T-Mobile could be barred from joint bidding in 600 MHz under FCC proposal

FCC Chairman Tom Wheeler is circulating a proposal that would bar Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) from creating a joint venture to bid for spectrum in next year's planned incentive auction of 600 MHz broadcast TV spectrum.

The carriers plan to create a joint venture to bid for spectrum in next year's auction, according to a July Bloomberg report. Meanwhile, the Wall Street Journal separately reported that the JV would seek to raise $10 billion for bidding.

"If two of the largest companies are able to bid as one combined entity in the auction, their combined resources may have the effect of suppressing meaningful competition," Roger Sherman, chief of the FCC's wireless telecommunications bureau, wrote in an FCC blog post announcing the agency's move. "Therefore, the item [that would prohibit joint bidding] tentatively concludes that joint bidding arrangements between nationwide providers should not be allowed. It also asks questions about such arrangements between providers of different sizes."

The item, a notice of proposed rulemaking, is being circulated among the four other FCC commissioners and will be voted on as soon as all of the commissioners are able to.

The two carriers, which are reportedly moving toward a deal to a merge, reportedly were discussing plans to bid on the airwaves through a JV that would be independent of the merger transaction, according to the Bloomberg report, which cited unnamed sources. The Journal report said the $10 billion figure is part of a roughly $45 billion financing package being put together by SoftBank to finance Sprint's acquisition of T-Mobile. That amount would eclipse the $9 billion AT&T Mobility (NYSE: T) has set aside for the auction, according to the Journal.

In the meantime, French Internet and mobile player Iliad has put forward a $15 billion offer for 56.6 percent of T-Mobile. Such a deal is seen as less likely to draw scrutiny from regulators at the FCC and Department of Justice because Iliad does not compete in the U.S. and would not be removing a national competitor from the market. A Sprint/T-Mobile deal is expected to face strong skepticism from regulators. The FCC has said it reserves the right to revise its incentive auction rules if any of the national carriers propose a merger.

"It's certainly a hint that they are predisposed against a merger," Craig Moffett, an analyst at MoffettNathanson, told Bloomberg.

The FCC last reviewed its competitive bidding rules eight years ago, and wants to revisit the rules in light of the massive consolidation that has taken place in the industry since then. Sherman wrote that the proposal is aimed at helping smaller businesses enter the wireless market.

"Considering the significant challenges new entrants face in building wireless networks, we can and should provide smaller businesses--including enterprises owned by women and minorities--a better on-ramp into the wireless business," Sherman wrote. "Here's one way: smaller companies may want to leverage business partnerships with larger companies through more flexible leasing arrangements to gain access to capital and cash flow, not to mention operational experience. Allowing structured entry into the wireless business make sense, especially given the billions of dollars it would take to build a new national network from scratch. With experience in operations and investment, smaller networks will have the prospect of progressing into more robust, facilities-based competition, which has been, and remains, a critical goal of the Commission."

The FCC's rulemaking would allow joint bidding between non-nationwide carriers.

Sherman wrote that the rulemaking acknowledges the challenges small entrants face in getting into the wireless market, including "challenges like raising funds to compete in an auction, finding a revenue stream to support business expansion, or developing a business model based on market needs rather than regulatory mandates. Perhaps most importantly, the NPRM [rulemaking] recognizes the challenge of entering into a marketplace in which more than 95 percent of existing customers are served by the top four providers." 

For more:
- see this FCC blog post
- see this WSJ article (sub. req.)
- see this Bloomberg article

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