T-Mobile loses battle on spectrum reserve in 600 MHz incentive auction

As expected, T-Mobile US (NYSE:TMUS) lost its year-long fight to increase the spectrum reserve from 30 MHz of spectrum in a given market to 40 MHz in next year's incentive auction of 600 MHz broadcast TV spectrum. The move is a victory for AT&T (NYSE: T) and Verizon Wireless (NYSE: VZ) and a significant blow to T-Mobile and smaller carriers.

Although T-Mobile lobbied for the change until the very end, FCC Chairman Tom Wheeler indicated in late June that he was opposed to increasing the size of the reserve. He said on multiple occasions in recent weeks that the fact that there is a reserve at all will be a major boon to competition. Wheeler, along with Commissioners Jessica Rosenworcel and Michael O'Rielly approved the move, with Commissioner Mignon Clyburn approving and dissenting in part, and Commissioner Ajit Pai concurring.

AT&T and Verizon which will be excluded from bidding in many markets where they hold more than 45 MHz of low-band spectrum below 1 GHz, have argued against increasing the size of the reserve.

T-Mobile's argument was 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. T-Mobile argued that Verizon and AT&T would then be able to split the remaining 40 MHz of non-reserved spectrum evenly between them, and that Verizon and AT&T could bid on reserved spectrum in markets where they do not hold more than 45 MHz of low-band spectrum.

A T-Mobile spokesman did not immediately respond to a request for comment. However, on Twitter, T-Mobile CEO John Legere said the reserve is "unprecedented, will benefit consumers & encourage competition. This is a #victory and I want to thank you for fighting with @TMobile. Good news - the reserve includes great quality spectrum & looks like the @FCC will be monitoring closely so duopoly can't game the system. @TMobile is committed to showing up, playing hard and being successful at the auction. #WeWontStop."

Although the decision on the spectrum reserve was voted on yesterday before the FCC's open meeting, at the meeting today, Clyburn described some features of the reserve. She said there will be a 20 MHz cap on the amount of spectrum any reserve-eligible bidder can acquire in Partial Economic Area (PEA) markets with fewer than 500,000 people. Clyburn said that rule should provide additional incentive for smaller wireless carriers to bid on spectrum in those markets, which should in turn spur more broadcasters to relinquish their spectrum for carriers to bid on.

Clyburn also said that the FCC staff will be carefully monitoring bidding activity in the reserve to ensure that larger carriers cannot "foreclose" and box out smaller carriers from acquiring spectrum.

Together, Verizon and AT&T control around 73 percent of the country's low-band spectrum. Yet according to maps provided by AllNet Labs, while Verizon faces many more restrictions and will be barred from bidding on reserve spectrum in most of the country, it will be free to bid on the reserved spectrum in most of Florida, as well as parts of the Midwest, Maine, Texas and Wisconsin, and several other markets scattered throughout the country. AT&T would face bidding restrictions in much of the Northeast, the West Coast, parts of the Southeast and in many of the largest metropolitan areas. However, AT&T would not face restrictions across vast swaths of the Midwest and Mountain states.

It's unclear how other smaller carriers feel about the reserve. Sprint declined to comment and a spokeswoman for the Competitive Carriers Association did not immediately have a comment.

The FCC also voted to deny a petition asking the agency to reconsider its May 2014 decision not to weigh low-band spectrum more heavily than high-band spectrum when looking at the effects of sales of spectrum between two parties in a given market. Sprint, which has a trove of 120 MHz of high-band 2.5 GHz spectrum, had pushed for the weighted system.

For more:
- see this release

Related articles:
FCC tentatively sets March 29, 2016, as start date for 600 MHz incentive auction
T-Mobile, leaning on economist's arguments, keeps pushing for larger 600 MHz spectrum reserve
FCC's Wheeler reaffirms that incentive auction will take place in Q1 2016
T-Mobile's quest for larger 600 MHz reserve gets boost from DOJ
Wheeler shoots down T-Mobile's push for 40 MHz spectrum reserve in 600 MHz auction
Reports: FCC's Wheeler opposed to T-Mobile's plan to increase size of 600 MHz reserve
AT&T: T-Mobile's 600 MHz reserve strategy is about protecting urban markets, not expanding rural coverage

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