T-Mobile proposes sliding spectrum screen rule for 600 MHz auction

T-Mobile US (NYSE:TMUS) laid out a new proposal for the design of the incentive auctions of 600 MHz broadcast spectrum, and is pushing for a sliding spectrum screen that it argues will help ensure the auction generates enough revenue.

The backdrop of the proposed rule is a continuing fight between T-Mobile, Sprint Nextel (NYSE:S) and smaller carriers on one side, and AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) on the other over how restricted the two larger carriers should be in bidding for the spectrum in the auction. The smaller carriers have argued for caps on how much spectrum AT&T and Verizon can acquire below 1 GHz, limits that the larger carriers have said will deprive the auction of needed revenue.

Seeking to rebut that argument, T-Mobile's newly proposed rule, which it calls a "Dynamic Market Rule," would seek to combine market forces with limits on spectrum aggregation. The carrier proposed the rule last week in meetings with FCC officials and briefed reporters about it on Monday.

Under the rule, the forward part of the auction, where carriers will bid to acquire spectrum broadcast TV stations have relinquished, would start with a spectrum-aggregation limit. The limit would be one-third of the low-band spectrum in a given market. However, there would be a carve-out for AT&T and Verizon, which would be able to obtain a 5x5 MHz block of spectrum in any market where they exceed the limit.

If the FCC's revenue targets are met with the limit in place, then the auction would close once there is no longer any active bidding. However, if the revenue target is not met, the limit on how much spectrum a carrier could hold would be then be gradually relaxed for all bidders. If the revenue target isn't met once the limit is totally removed, the FCC would resume the process by starting at the next lower spectrum target with the aggregation limit in place.

"This proposal allows the FCC to put auction restrictions to a market test," Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research and former FCC deputy chief economist, said during a conference call with reporters explaining T-Mobile's proposal, according to CNET.

According to CNET, Rosston said that the relaxation of the rules would be done one at a time on a market-by-market basis. T-Mobile argues that this approach should spur competition for the right to buy additional spectrum licenses until the revenue target is hit, which should increase the prices bidders pay.

"By relying on actual bids rather than predictions of bidder behavior, the Dynamic Market Rule helps remove any risk that revenue targets for clearing broadcasters and funding the FirstNet public safety network will not be met," T-Mobile wrote in an FCC filing. "Imposing modest constraints on excessive low-band spectrum aggregation will promote competition, increase consumer choice, encourage innovation, and accelerate broadband deployment."

An AT&T spokesman said the company is studying the T-Mobile proposal but declined to comment further, according to IDG News Service. In a company blog post earlier this month, Bob Quinn, AT&T's senior vice president of federal regulatory, wrote that "if the incentive auction rules are manipulated to essentially set aside spectrum for these or other providers, less revenue will be generated. Broadcasters, fearing they will not receive top dollar for their spectrum due to that set aside, will contribute less spectrum to the auction. This will, in turn, jeopardize the entirety of the auction including the critical goal of raising the billions of dollars necessary to fund FirstNet."

The incentive auctions are scheduled to begin next year. Under the FCC's proposed rules, broadcasters will submit bids to relinquish their 6 MHz pieces of spectrum in a reverse auction where the FCC will pay them. (The FCC's band plan for the broadcast spectrum carriers would use calls for 5 MHz blocks.) The process is voluntary for broadcasters, but many worry that broadcasters might not give up their spectrum based to their previous resistance to the auctions. After broadcasters give up their spectrum, it will be "repacked" so that broadcasters that do not give up their spectrum can stay on the air. Then the FCC will conduct a traditional "forward" auction in which wireless carriers will bid for the freed spectrum. There is an ongoing debate over what the "band plan" should be for the spectrum once broadcasters are repacked.

For more:
- see this FCC filing
- see this FCC slide
- see this Broadcasting & Cable article
- see this CNET article
- see this IDG News Service article

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