T-Mobile, leaning on economist's arguments, keeps pushing for larger 600 MHz spectrum reserve

T-Mobile US (NYSE:TMUS) is not giving up on its quest to get the FCC to expand the amount of spectrum set aside for smaller carriers to bid on in next year's incentive auction of 600 MHz broadcast TV spectrum. FCC Chairman Tom Wheeler has indicated he will vote to reject T-Mobile's petition on the matter, but the carrier continues to lobby the agency ahead of its July 16 vote on the auction rules.

In a pair of filings yesterday, T-Mobile leaned on the findings of William Lehr, an economist and industry consultant whose research focuses on the economics and regulatory policy of the Internet infrastructure industries. T-Mobile, like other carriers, regularly cites research from such economists to bolster their policy arguments before the FCC.

T-Mobile has argued since last summer that the size of the reserve should be increased from 30 MHz of spectrum in a given market to 40 MHz to enhance competition. Sprint (NYSE: S) and the Competitive Carriers Association have also taken that stance. T-Mobile says 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. 

AT&T (NYSE: T) and Verizon Wireless (NYSE: VZ) argue that increasing the size of the reserve is not necessary, that T-Mobile and Sprint have enough resources to compete and that increasing the size of the reserve will depress auction revenues and scare away broadcasters from relinquishing their spectrum. Verizon and AT&T will be excluded from bidding in many markets where they hold more than 45 MHz of low-band spectrum below 1 GHz, especially urban markets.

T-Mobile notes that Lehr, who is currently a researcher in the Computer Science and Artificial Intelligence Laboratory at the Massachusetts Institute of Technology, has conducted research that says "sustaining robust facilities-based competition in the U.S. mobile broadband market would add significantly more" than $20 billion in economic savings to consumers each year.

In a separate letter, Lehr, who holds a PhD in economics from Stanford University and an MBA from the Wharton School of the University of Pennsylvania, reiterated many of the arguments T-Mobile has been making for nearly a year. He noted that AT&T and Verizon Wireless control around 73 percent of the spectrum below 1 GHz, that low-band spectrum has strong propagation characteristics and that the 600 MHz auction will be the last time for the foreseeable future that could level the playing field between Verizon and AT&T and Sprint, T-Mobile and other smaller carriers.

"Lower-frequency spectrum holdings directly contribute to the market segmentation that reduces the intensity of price competition," Lehr wrote. "For example, in the first quarter of 2015 T-Mobile, which holds very little lower-frequency spectrum, had an ARPU of $46.43.12 During the same period, AT&T reported an ARPU of over $66.00. Eliminating today's disparity in access to lower-frequency spectrum will make it feasible for smaller MNOs to match AT&T's and Verizon's coverage, forcing AT&T and Verizon to compete more aggressively on prices and quality, benefiting all consumers. The consumer benefit of promoting sustainable robust competition in mobile broadband services is conservatively estimated to be in excess of $20 billion per year, or more than $200 billion in net present value terms. This is the equivalent of $5 per month for every man, woman and child in the United States."

Lehr wrote that "increasing the size of the reserve to 40 megahertz will force the dominant providers to bid strongly against each other to win two out of the three blocks of nonreserved spectrum. The desire to win two blocks of unreserved spectrum may induce AT&T and Verizon to compete even more aggressively to avoid losing ground against each other, driving up revenue. As the U.S. Department of Justice has noted, there is a 'well-established competition principle that those with market power may be willing to pay the most to reinforce a leading position.' By contrast, retaining a 30 megahertz reserve would allow AT&T and Verizon to acquire at least 20 megahertz each—half of the remaining 40 megahertz or more of unreserved spectrum—without having to bid aggressively against each other."

Hitting back against Verizon and AT&T's arguments, Lehr wrote that increasing the size of the spectrum reserve "does not threaten the ability of the auction to clear spectrum since demand for reserve blocks by eligible bidders must be sufficient to clear the revenue threshold or the spectrum will never become reserved." He noted the auction provides "a market-based self-correcting mechanism if the reserve is set too high" and that "by contrast, denying access to adequate lower-frequency spectrum asymmetrically, and potentially irreparably, would harm both smaller and emerging MNOs and consumers."

For more:
- see this T-Mobile FCC filing

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