ATLANTA--T-Mobile US (NYSE:TMUS), Sprint (NYSE: S) and Dish Network (NASDAQ: DISH) continued to push for the FCC to reserve up to 40 MHz of spectrum for smaller carriers to bid on in the incentive auction of 600 MHz broadcast TV spectrum. The current reserve is capped at 30 MHz. Yet executives from those companies acknowledged that this is just one of many issues carriers, broadcasters and regulators will need to deal with in the months ahead as the early-2016 start date for the auction draws closer.
During FierceWireless' executive breakfast panel on the auction, "Incentive Auction Opportunities and Perils," held here at the Competitive Carriers Association Global Expo, executives from the carriers grappled with a wide range of issues. Much still needs to be resolved in terms of the technical rules for the auction. All of the panelists noted that the FCC and auction participants will need to balance how much broadcasters are willing to sell their spectrum for with how much carriers are realistically going to spend to acquire that spectrum, in what is shaping up to be a fiendishly complex auction.
Yet the reserve question kept cropping up. For months T-Mobile has been pushing for at least 40 MHz to be reserved for smaller carriers, and Sprint and Dish executives agreed with that formulation. AT&T (NYSE: T) and Verizon Wireless (NYSE: VZ) will have too much low-band spectrum in many markets to bid on the spectrum.
Steve Sharkey, T-Mobile's director, chief engineering and technology policy, reiterated the carrier's stance that only a reserve of 40 MHz or more will allow at least two smaller carriers in a market to secure 10x10 MHz blocks of spectrum.
The incentive auction will consist of two main parts: The first is a "reverse" auction, in which broadcasters agree to sell their spectrum rights. After the reverse auction, the spectrum will then be moved around or "repacked" based on which stations relinquish their spectrum. Then the FCC will conduct a more traditional "forward" auction in which carriers and other entities bid on the spectrum licenses.
The incentive auction relies on getting broadcasters to relinquish their spectrum, and some fear that if too much of the spectrum is reserved and Verizon and AT&T are kept from bidding, broadcasters will shy away from giving up their spectrum because they might receive less money.
However, Rick Engelman, director of spectrum resources at Sprint, noted that raising revenue is not a primary goal of the incentive auction. The legislation authorizing the auction said that one of the auction's main purposes is to get spectrum to the widest number of companies possible to enhance competition, he said.
Jeff Blum, senior vice president and deputy general counsel at Dish, also agreed that raising revenue is not a primary concern, especially in light of the AWS-3 auction, which raised more than $41 billion in net winning bids and will fully fund FirstNet, the interoperable broadband network for first responders. He said CCA members should let the FCC know, through public filings, that they are interested in participating in the auction and want the size of the reserve increased. That will put pressure on the FCC commissioners to do so, he said.
The panelists also discussed the rules around "impaired" spectrum, or spectrum that will have too much interference to be used. The interference is likely to come mainly from broadcasters that are moved into the wireless band. The FCC's current rules envision impairment on up to 20 percent of the spectrum that carriers will bid on. The FCC will impair the spectrum on an aggregated, weighted and nationwide basis.
A key worry is that carriers won't know how much impairment there will be on their spectrum until after they buy it. Some level of impairment will be inevitable along the borders with Mexico and Canada, but carriers are worried about there being too much in other areas.
Sharkey said that T-Mobile wants the FCC to use a "gradiated acceptance of impairment," meaning that the more spectrum broadcasters give up, the more impairment carriers should be willing to accept. Engelman said Sprint would prefer to have carriers bid on "frequency-specific" blocks of spectrum so they know exactly how much impairment they are getting.
Harold Feld, senior vice president of Public Knowledge, noted that impairment could harm the quality of some licenses. He said the industry should learn the lessons of the 700 MHz auction, in which some bands, especially the A Block, were impaired, which led to a long fight about interoperability between different 700 MHz band classes. He said the FCC and the industry have "one chance here to do it right" with the 600 MHz auction and that "repairing it afterward will be complicated and difficult," if not impossible.
Feld suggested that the non-impaired spectrum be the spectrum that is reserved for smaller carriers, since Verizon and AT&T already have substantial low-band spectrum holdings and have greater flexibility.
But Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, a group of broadcasters that are interested in participating in the auction, warned against that notion and against increasing the reserve. He said there is a risk that Verizon and AT&T will sue the FCC in court and seek an injunction against the auction's being held because the rules are too tilted against them. "Be careful how far you push," Padden warned.
Sharkey responded that if no carriers but Verizon and AT&T can bid on and win spectrum the auction will fail as well.
Padden also railed against the FCC's "dynamic reserve pricing" system for determining how much broadcasters get paid and said it will result in a failed auction. Under dynamic reserve pricing, a UHF broadcaster may be offered a lower price for its spectrum even if it cannot feasibly be assigned a channel in the remaining TV portions of the UHF band; if it refuses the offer, it may be assigned to a channel in the 600 MHz band with wireless carriers. According to the FCC, the aim is to guard against the risk that a station may be awarded its opening price merely because there is no channel to offer in its pre-auction band.
Padden called it a "tool of the devil." Feld retorted that it was a "devilishly clever tool" designed to ensure that broadcasters did not hold out from selling for the sake of doing so.
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