T-Mobile only major carrier that seems enthusiastic about 600 MHz auction, as broadcasters are split

The FCC's vote to approve final rules for next year's incentive auction of 600 MHz broadcast TV spectrum drew a lukewarm response from both wireless carriers and broadcasters. FCC Chairman Tom Wheeler had said that no stakeholder got everything they wanted in the complex set of rules, and that was reflected in the reactions to the 3-2 vote to approve the rules and set the auction to start on March 29, 2016.

Broadcaster participation is crucial to the auction's success, since the FCC will need broadcasters to relinquish their spectrum so that wireless carriers can then bid on it. Getting enough wireless carriers on board is also vital since the agency needs to raise enough money for broadcasters and covering relocation costs for moving them into new channels.

Of the major wireless carriers, T-Mobile US (NYSE:TMUS) stood alone as the only truly enthusiastic potential participant, even though T-Mobile lost a fight to increase the size of the spectrum reserve in the auction from 30 MHz to 40 MHz in a given market, which it and smaller carriers had pushed for.

T-Mobile CEO John Legere said on Twitter that the reserve is "unprecedented, will benefit consumers & encourage competition" and that T-Mobile "is committed to showing up, playing hard and being successful at the auction."

AT&T (NYSE: T), which last year had said it planned to buy 20 to 40 MHz of spectrum in the incentive auction, was decidedly less enthusiastic. Joan Marsh, AT&T's vice president of federal regulatory, said in a company blog post that while AT&T was glad the FCC had put to test "T-Mobile's never-ending quest to expand the favors it will receive at auction," it has serious concerns about the auction's framework.

AT&T is concerned that the FCC's rules will allow broadcasters to be assigned into the wireless bands after the auction, which could cause harmful interference; that the cleanest and least impaired spectrum will be set aside for reserve-eligible bidders to bid on, leaving AT&T and Verizon (NYSE: VZ) to bid on airwaves with the most interference issues; and that the FCC will allow unlicensed wireless use in the duplex gap, the space between downlink and uplink channels, which can also cause interference. CTIA echoed many of AT&T's concerns on interference.

Marsh said AT&T fears that "in this instance, getting it done has taken precedent over getting it right."

Sprint (NYSE: S) said in a statement that it plans to review the rules and work with the FCC "to advance a competition agenda that benefits consumers, spurs innovation and drives economic growth," but stopped short of committing to participate in the auction. Earlier this week during Sprint's quarterly earnings conference call, Sprint CEO Marcelo Claure said that since the 600 MHz spectrum "will not be commercially available potentially around 2020, we have to work with the spectrum that we have today," according to a Seeking Alpha transcript. Claure said the auction "provides an opportunity to acquire low-band spectrum" but that Sprint needs to make sure the auction rules are such that it's "worthwhile for Sprint to participate."

Verizon was even more non-committal. "T-Mobile and Sprint are financially well-positioned to participate in spectrum auctions as confirmed in their recent quarterly earnings calls with Wall Street," Verizon said in a statement. "We did not believe they needed set-asides from the FCC at the expense of American taxpayers in the first place, and they certainly didn't need any additional help on top of that."

In July on Verizon's second-quarter earnings conference call, Verizon Communications CFO Fran Shammo said "the need for low-band spectrum for us is not a great need."

Competitive Carriers Association President Steve Berry said in a statement that his group "remains concerned about how and when the reserve will be triggered, but we thank Commissioner Clyburn for calling on the Commission to ensure foreclosure-level bidding is nipped in the bud with flexibility to change bidding increments. In addition, I thank Commissioner Clyburn for her steadfast work to prevent any one carrier from purchasing all reserve spectrum in smaller markets through the establishment of a 20 MHz cap."

FCC Chairman Tom Wheeler said the rules "strike a fair balance that serves the greater public interest." He seemed to indicate in a press conference after the FCC's open monthly meeting that if carriers did not participate in the auction they would be wasting a golden opportunity to get more spectrum. "This is their call," he said. "This is a once-in-a-lifetime opportunity. They don't make spectrum like this anymore. And they can decide what they want to decide."

Broadcasters are also split on whether to participate and whether the auction rules are favorable enough. The National Association of Broadcasters excoriated the FCC, calling the rules "a major setback for stakeholders eager for a successful incentive auction."

In contrast, Preston Padden, who leads a group of broadcasters called Expanding Opportunities for Broadcasters Coalition, said in a statement that "based on a remarkably open and fair process, the FCC has adopted compromise auction rules that make no stakeholder, including our Coalition, 100 percent happy. As a concession to the shortness of life, it is time to end the debate and get on with the auction." The EOBC is a group of 87 TV stations weighted toward the largest markets and controls 48 MHz of spectrum in New York City and 48 MHz in Los Angeles, Padden said.

Some large broadcasters are inclined to participate. Sinclair Broadcast Group COO David Amy said during the company's earnings call this week that it could relinquish licenses with an aggregate value of $2 billion. Sinclair is the largest TV station operator in the United States, owning or operating a total of 154 stations across the country.

Media General CEO Vincent Sadusky said this week the company "is positioned well to consider several spectrum monetization opportunities in projected high demand markets. We are big believers in the broadcast business and its future, but we also have done much work in this area to refine our strategy and consider potential auction opportunities." Media General operates 71 TV stations in 48 markets.

Gray Television CEO Hilton Howell said this week that "it is extremely unlikely that Gray will participate" in the auction "because our stations make a lot of money. They have got tremendous cash flow. And they have an enormously important role in their individual communities." Gray owns or operates 77 TV in 44 markets.

Representatives for 21st Century Fox and CBS did not immediately respond to requests for comment and a Nexstar Broadcasting Group spokeswoman said the company had no comment.

The incentive auction consists of two main parts. The first is a "reverse" auction, in which broadcasters agree to sell their spectrum rights, with prices going down in each round. After each round of the reverse auction, the FCC will "repack" the broadcasters based on the results of each round, so that they broadcasters know whether or not there is space for them in the TV band. Once the rules for the reverse auction are met, then the "forward auction" is held for carriers to bid on generic blocks of broadcaster spectrum. There will also be an "assignment round" in the forward auction for carriers to bid on specific spectrum bands. If the FCC's "final stage rule" is met, then bidding on the reserved spectrum can begin. After the auction ends, the FCC will then reassign broadcasters into new channels.

In terms of the rules themselves, they establishe two categories of generic spectrum blocks for bidding in the of the forward auction: "Category 1" blocks with potential impairments that affect zero to 15 percent of the population of a geographic area, and "Category 2" blocks with potential impairments that affect greater than 15 percent and up to 50 percent.

The FCC said that it may relocate TV stations in the downlink, uplink, or duplex gap in a limited number of geographic areas where necessary "to accommodate market variations in broadcaster participation."

The rules also affirm the proposed average price and spectrum benchmarks of $1.25 per MHz-POP in the top 40 Partial Economic Areas and 70 MHz of licensed spectrum, respectively, to implement the final stage rule. Both of those targets need to be hit in the forward auction to trigger the establishment of the spectrum reserve.

For more:
- see this FCC release (PDF)
- see this Multichannel News article 
- see this Broadcasting & Cable article
- see this LA Times article
- see this AT&T blog post

Related articles:
T-Mobile loses battle on spectrum reserve in 600 MHz incentive auction
FCC tentatively sets March 29, 2016, as start date for 600 MHz incentive auction
Unlikely allies fight plan to move TV stations into duplex gap
T-Mobile, leaning on economist's arguments, keeps pushing for larger 600 MHz spectrum reserve
Broadcasters warn that FCC could lower 600 MHz auction opening prices by a collective $8.3B

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