T-Mobile US (NYSE:TMUS) is continuing to lobby the FCC to increase the size of the spectrum reserve in next year's incentive auction of 600 MHz broadcast TV spectrum, arguing that without a larger reserve Verizon Wireless (NYSE:VZ) and AT&T (NYSE:T) will continue to dominate the industry.
The lobbying, in the form of a letter sent late last week from T-Mobile CTO Neville Ray to FCC Chairman Tom Wheeler, came shortly after a Reuters report indicated that the FCC staff is leaning against increasing the size of the spectrum reserve from 30 MHz to 40 MHz or more, as T-Mobile has advocated since last summer.
Last week, citing unnamed sources, Reuters reported that although no recommendation has yet been prepared and the deliberations could still shift, the FCC staff's current thinking is that an adequate amount of spectrum has already been set aside for smaller carriers. Democratic Commissioner Jessica Rosenworcel is the swing vote on the issue, and is unlikely to vote for changes, the report added.
FCC spokesman Neil Grace told Reuters that the commission's staff members are working on various auction-related matters. "At this time, that preparatory work is active, remains ongoing, and no decisions have been made," he said.
T-Mobile, Sprint (NYSE: S) , Dish Network (NASDAQ: DISH), C Spire Wireless and a group of policy and public interest groups forged a new alliance called "Save Wireless Choice," intended to pressure the FCC to craft 600 MHz auction rules that would increase the size of the reserve to 40 MHz or at least half of the spectrum available in the auction. The letter from Ray was promoted by that group.
"All spectrum is not created equal. The 600 MHz spectrum is particularly valuable because it penetrates buildings more readily and covers a much wider geographic area with fewer transmitters than higher-band spectrum," Ray wrote. "All carriers need a mix of both high- and low-band spectrum to compete effectively, but, given the highly concentrated nature of low-band resources in the wireless market and the very limited supply of those resources, continued concentration of low-band spectrum with the two dominant carriers will have a pronounced effect on competition and consumers."
"Without a reserve of at least 40 megahertz, AT&T and Verizon will be able to increase their lowband spectrum holdings, entrench their dominant positions in the wireless marketplace, and choke off any threat of competition in the future," Ray added. "Verizon and AT&T have deployed networks in many areas of the country that would not be economically feasible without low-band spectrum's exceptional propagation characteristics."
The spectrum reserve, which was crafted as a compromise last year among the FCC's three Democratic commissioners, is designed to let carriers with less than 45 MHz of spectrum below 1 GHz in a given market bid on the spectrum in that market. The move essentially prevents Verizon and AT&T from bidding on reserved 600 MHz spectrum in most markets.
Ray repeated T-Mobile's argument that a reserve of 30 MHz of spectrum would let smaller carriers bidding on that spectrum acquire only one 10x10 MHz configuration, which most regard as essential to strong LTE deployments. "A reserve comprised of only 30 megahertz allows only a single competitive carrier to acquire a 10+10 megahertz block without being blocked by the foreclosure tactics of the two dominant incumbents," he wrote. "Meanwhile, the smaller 30 megahertz reserve would allow AT&T and Verizon to split the minimum 40 megahertz of non-reserve spectrum evenly between them, which would leave each dominant provider a 10+10 megahertz block without having to directly compete against one another."
The counter-argument from AT&T, Verizon and others is that limiting Verizon and AT&T's participation in the auction will depress auction revenues and will scare broadcasters away, since broadcasters will think they will not get as much money as they otherwise might be able to for their spectrum. Broadcaster participation is crucial for the incentive auction, since broadcasters need to sell their spectrum to the FCC so that carriers can bid on it.
Ray noted that T-Mobile has aggressively pursued secondary market acquisitions of 700 MHz A Block spectrum, covering around 190 million POPs. "The results achieved so far with these low-band frequencies exceed our already high expectations of benefit in areas covered by both mid- and low-band spectrum," he wrote. "Indeed, the recorded signal strength is on average eight times stronger after low-band deployment than before low-band deployment. Post-deployment results from suburban Cleveland indicate that the signal range from a 700 MHz tower is approximately 1.8 times greater than our mid-band spectrum, which means low-band spectrum allows us to provide a coverage area three times as great as we could using higher-frequency bands, such as PCS and AWS."
However, Ray noted that while T-Mobile's 700 MHZ spectrum lets it expand its coverage and improve inbuilding penetration, the "major shortcoming of our deployed 700 MHz spectrum is that available supply is limited." He noted that T-Mobile's current 5x5 MHz low-band deployment "effectively caps the number of subscribers that we can serve—dramatically so in comparison to" Verizon and AT&T.
"This limitation also constrains both average and peak supportable speeds at a time when these capabilities are becoming ever more important to consumers. Auction participants that are only able to acquire a 5+5 megahertz block because of an insufficient spectrum reserve will be similarly limited in their ability to serve customers and offer innovative services," Ray wrote.
"Adopting a spectrum reserve of at least 40 megahertz will help ensure multiple carriers have an opportunity to acquire the low-band spectrum necessary to improve network reliability, extend coverage deeper inside buildings, and bring more meaningful consumer choice to rural and underserved areas throughout the United States," Ray added.
- see this T-Mobile filing (PDF)
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