T-Mobile: FCC auction rules that limit AT&T, Verizon will be a boon for competition

The lobbying fight is heating up over whether the FCC will approve rules that could limit how much spectrum Verizon Wireless (NYSE: VZ) and AT&T (NYSE: T) can bid on in next year's incentive auction of 600 MHz broadband spectrum. T-Mobile US (NYSE:TMUS) has fired the latest salvo, arguing that the FCC has the authority to issue such rules and that they will enhance competition, not lead to the failure of the auction.

The FCC is set to vote on rules for the incentive auction at its May 15 meeting. Verizon and AT&T have said in their recent filings to the commission that they are going to fight any rules that could restrict their bidding.

In its own filing to the FCC summarizing meetings its executives had last week with FCC officials, T-Mobile noted that Congress vested the FCC with authority to set auction rules and that it is "not required to allow every carrier to bid for every megahertz of a spectrum band that is made available for auction.'"

T-Mobile argued that "access to low-band spectrum and the economies of scale that greater access would enable represent two of the most pressing needs T-Mobile must satisfy if the company is to continue to play as disruptive a role in the market for the benefit of consumers as it has played over the last two years."

In discussing the proposed rules, T-Mobile wrote that "the prospect of having more demand than supply should come as welcome news to anyone concerned about generating sufficient auction revenues or generating large payments to broadcast licensees."  

"When demand exceeds supply, prices increase," T-Mobile wrote. "Preserving--and indeed expanding--the occasions when Verizon and AT&T must bid against one another for broadband spectrum, rather than contorting the rules to allow the two dominant carriers to divide the available resources evenly between them, may represent the single most meaningful thing the Commission can do to improve auction revenue, increase payments to broadcasters, and expand the amount of spectrum available for new wireless broadband services."

In the filing T-Mobile argued that more competitive bidding "not only increases revenue, but it will encourage AT&T and Verizon to increase overall bidding in order to clear more spectrum and avoid a lack of supply. This not only increases the amount paid to broadcasters, but increases the number of broadcasters that receive payment."

T-Mobile also wrote that arguments from AT&T that it needs 10x10 MHz blocks are without merit because two 5x5 MHz blocks that are combined via carrier aggregation produce the same peak data speeds for customers. T-Mobile also wrote that getting access to low-band spectrum will help smaller carriers cut down on roaming costs.

AT&T argued last week that "there is simply no basis" to give Sprint (NYSE: S) and T-Mobile special treatment in the auction, because they already control low-band spectrum. T-Mobile's 700 MHz A Block spectrum purchased from Verizon is a 5x5 MHz configuration covering 158 million POPs. Sprint controls 800 MHz spectrum and is now using that deploy LTE services to 150 million POPs by the end of this year.

Verizon made a similar argument last week, and told the FCC it would be "perverse and unjust" for the FCC to adopt auction rules that "subsidize some large multinational companies at the expense of their competitors."

The FCC 's proposed rules for the incentive auction would establish a market-based reserve of up to 30 MHz of spectrum for carriers that currently hold less than one-third of available low-band spectrum in a market. The FCC would then establish a still-undefined spectrum reserve "trigger point" to determine at what point the auction would split into "reserved" and "unreserved" bidding.

When that happens, the amount of "reserved" spectrum in each market will be established based on demand in that market by eligible bidders, but it will be no more than 30 MHz. If demand for the reserved spectrum is less than 30 MHz at that point, the remaining balance would be available on an unreserved basis.

Importantly, any carrier that holds more than one-third of available low-band spectrum in a market would be able to bid on all unreserved spectrum in that market, but would be ineligible to bid on any reserved spectrum, which is likely going to restrict Verizon and AT&T in many markets. The FCC also said that any provider that holds less than one-third of available low-band spectrum in a market would be able to bid on all unreserved spectrum in that market, and all reserved spectrum in that market.

Under the FCC's proposed rules, the agency will pay broadcasters to give up their spectrum, then the FCC will "repack" that spectrum so it can be auctioned to wireless carriers--broadcasters will share in the resulting auction revenues. 

For more:
- see this T-Mobile filing (PDF)

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