Sprint, T-Mobile urge FCC to allow for joint bidding arrangements in 600 MHz auction

Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) are pushing the FCC to allow for joint bidding arrangements in the 600 MHz incentive auction, arguing that the agency should not issue a blanket prohibition against them for nationwide operators.

Meanwhile, AT&T Mobility (NYSE:T) wants any companies that wish to bid jointly to form a consortium or joint venture well before the auction. Both T-Mobile and AT&T also want the FCC to make its rules more restrictive for the incentive auction to curtail the kind of bidding arrangements Dish Network (NASDAQ: DISH) established with so-called designated entities for the AWS-3 auction.

The main question though is to what extent the FCC will allow carriers to jointly bid on spectrum licenses in the incentive auction, which is currently scheduled to begin in early 2016. Under provisional rules the FCC adopted in October, the commission would bar joint bidding arrangements among Tier 1 carriers. The proposed rules are also aimed at getting more small businesses, rural telephone companies and businesses owned by members of minority groups to bid in auctions.

Sprint wants the FCC to reverse that stance and tie the eligibility of any joint bidding arrangements in the incentive auction to how much combined low-band spectrum the companies in such arrangements have. Specifically, Sprint wants the FCC to allow joint bidding arrangements in Partial Economic Areas where the parties collectively hold less than 45 MHz of spectrum below 1 GHz on a population-weighted basis. The FCC has established that specific 45 MHz threshold as the trigger for both applying extra scrutiny to spectrum deals and for being the cutoff that lets carriers bid on "reserved" spectrum in the incentive auction.

"By entering into joint bidding arrangements and combining their capital resources, competitive nationwide carriers might realize the economies of scale necessary to outbid AT&T and Verizon (NYSE: VZ) in the Incentive Auction and obtain critical low-band spectrum," Sprint wrote in its filing. "Competitive carriers' success at auction would invigorate mobile broadband performance and competition, and this increased competition would likely lead to greater innovation and improved service quality as AT&T and Verizon are spurred to invest more in their respective networks. Thus, the benefits of this targeted approach--including the ability to enter into network and spectrum sharing agreements and facilitate faster deployment of next-generation networks--far outweigh the risk of any anti-competitive harm from joint arrangements between competitive nationwide carriers."

T-Mobile wants the FCC to "consider joint bidding arrangements on a case-by-case basis, based on their own merits and not pursuant to a blanket prohibition." The company argues that the FCC has long recognized that such arrangements can stimulate investment, promote competition and accelerate broadband deployments. T-Mobile said such rules are needed more than ever after the AWS-3 auction, in which Verizon and AT&T acquired 63 percent of all the paired spectrum on a MHz-POP basis, "or roughly 91 percent of the value of the spectrum won by wireless service providers in that auction."

"It would be ironic indeed if the proposals advanced in the NPRM, which ostensibly are designed to increase competition in the auction process and in the wireless services market, were to handicap an entity--like T-Mobile--that might be best poised to deliver meaningful competition," T-Mobile added.

AT&T, for its part, thinks joint bidding arrangements should be prohibited. "To the extent that entities wish to coordinate their activities in the auction, they should be required to form a joint venture or consortium, and file for the approval of such a combined bidding entity well in advance of the short-form deadline," AT&T wrote in its filing. "Banning joint bidding arrangements in favor of bidding consortia would still allow small bidders to combine their resources, share risk, and bid in a coordinated manner, but they would participate as a single bidding entity, preventing the bid stacking, eligibility parking, and shadow demand that Dish and its DEs employed to gain an unfair advantage in" the AWS-3 auction.

Despite their differing positions, both T-Mobile and AT&T agreed that the FCC should implement rules that would prevent Dish from using designated entities like it did in the recent AWS-3 auction. In that auction, Dish's Northstar Wireless and SNR Wireless designated entities won 25 MHz of spectrum in the AWS-3 auction, including 13 MHz of paired spectrum, and qualified for $3.3 billion in small business discounts.

"Rules that permitted such bidding activity not only compromised the efficiency of the auction outcome, they lessened confidence in the auction process itself," T-Mobile wrote. "In many cases, these rules had the effect of keeping licenses out of the hands of smaller nationwide, regional, and rural service providers that valued them most. As a result, many AWS-3 licenses were not won by those parties most likely to deploy new technologies and services rapidly, promote the development of competition, and foster economic growth. This kind of bidding conduct must not be permitted to occur again or it will undermine the rightful goals of the historic incentive auction."

T-Mobile wants the FCC to change its designated entity rules, including a rule that would "prohibit designated entities from leasing more than 25 percent of their spectrum in the aggregate, across one or more lessee." That would block a company like Dish from using a DE as a vehicle to get a large chunk of spectrum.

AT&T said it supports the FCC's proposal to prohibit commonly-controlled entities from participating in auctions, but that the AWS-3 auction showed that rule does not go far enough. "By also barring any joint bidding arrangements that do not involve the formation of a single joint bidding entity, these two rules would effectively prevent the sort of gamesmanship and auction distortions Dish and its DEs were able to inflict," AT&T wrote. "In addition to a requirement that any entities that wish to coordinate their bidding form a joint bidding entity, the Commission should require each applicant to file an anti-collusion certification stating that it is not colluding with any other applicant regarding bids or bidding strategy."

"We basically played by the rules and bid economically for the auction," Dish Chairman Charlie Ergen told the Wall Street Journal, adding that Dish will offer further comment "at the appropriate time."

For more:
- see this Sprint filing
- see this T-Mobile filing
- see this CCA filing and release
- see this AT&T filing

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