Wheeler shoots down T-Mobile's push for 40 MHz spectrum reserve in 600 MHz auction

FCC Chairman Tom Wheeler is recommending to his fellow commissioners that the FCC reject T-Mobile US' (NYSE:TMUS) petition to increase the amount of spectrum set aside for smaller carriers to bid on 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 major blow to T-Mobile, which 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. T-Mobile has been increasing its lobbying on the issue the last several weeks as a formal decision neared. 

Click here for a larger version of this image from AllNet Labs, which shows AT&T's low-band spectrum holdings across the country.

"While some parties have petitioned the Commission to increase the size of the reserve, the draft Order on Reconsideration I am circulating today would maintain the reserve size at the current level," Wheeler wrote in a blog post on the FCC's website. "The draft Order concludes that the current reserve size of 30 MHz balances the desire to make low-band spectrum available to parties with limited holdings while facilitating competitive bidding for all auction participants."

Wheeler noted that "the rules adopted last year permit national carriers to bid for reserve spectrum in markets in which they have limited low-band spectrum and do not restrict any reserve-eligible bidder from bidding on unreserved licenses. There will be significant spectrum made available in all markets of the country to all bidders. As a result, consumers will benefit directly from competition in all parts of the country."

The FCC is set to vote on the rules governing the auction and on the size of the reserve at its July 16 monthly meeting. The auction is set to begin in the first quarter of next year.

If Wheeler votes to reject T-Mobile's petition, it will likely be defeated since the FCC's two Republican commissioners, Ajit Pai and Michael O'Rielly, were opposed to the creation of the reserve in the first place and would likely vote with him to command a majority on the five-member commission. 

AT&T (NYSE: T)  and Verizon Wireless (NYSE: VZ), 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 is 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 argues 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. 

"Low-band spectrum is the holy grail for AT&T and Verizon," Andy Levin, T-Mobile's senior vice president of government affairs, said in a statement. "If others get it, and the Big Two have to compete on price, their customers alone would save over $20 billion per year. That's why everyone with a wireless phone has a stake in the outcome of this proceeding, and the FCC should heed the calls of DoJ, many in Congress and a slew of consumer groups and move to strengthen the reserve."

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.

Click here for a larger version of this image from AllNet Labs, which shows Verizon's low-band spectrum holdings across the country.

Smaller carriers remain concerned about being boxed out of the incentive auction despite the reserve. Competitive Carriers Association President Steve Berry wrote in a recent blog post that smaller carriers "are willing and able to compete head-to-head with AT&T and Verizon in the market; in fact, most do today," and that "any statements that suggest competitive carriers want to prevent AT&T and Verizon from acquiring additional spectrum are simply untrue. CCA members want AT&T and Verizon in the same competitive ecosystem that supports all wireless carriers."

"But our members are rightly concerned about the Big Two's ability to foreclose competition by acquiring all or most of the available low-band spectrum or to prevent competitive carriers from acquiring anything other than the most impaired license blocks during the auction's assignment round," he added. "If the spectrum reserve is not large enough to allow for more than one carrier to acquire enough spectrum to compete, AT&T or Verizon have the resources to acquire reserve spectrum in rural markets to prevent would-be rivals from competing. This is a serious concern. Expanding the reserve from three to at least four blocks of spectrum while capping reserve purchases at two blocks per carrier does not harm AT&T, which concedes it can purchase reserve spectrum in the vast majority of the country."

At the FCC's June 18 meeting, as reports emerged that he was leaning against T-Mobile's proposal, Wheeler indicated that simply having the reserve as it is at 30 MHz is a victory for competition.

"It is important for competition in wireless that in the incentive auction there be a reserve for those carriers who do not have the assets necessary to compete fully and who might be precluded from accessing those assets by their competitors," he said at a press conference after the meeting. "That, in and of itself, is a revolutionary decision that this commission has already made. The question then becomes, how big is that? Some people want more, some people want less. It's no surprise."
"The important thing is that exists--that there exists for the first time, a set-aside, a reserve, to make sure that there is the capacity for equality of competition among wireless carriers," he said. "That is the key point."

For more:
- see this FCC blog post

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