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DOJ Backs Spectrum Limits for Top Carriers, Opposes Further Industry Consolidation

Thursday, May 15, 2014

By Bryce Baschuk  

May 14 — The Department of Justice backed limits to prevent the nation's top two wireless carriers from purchasing all the low-band spectrum for sale at an upcoming Federal Communications Commission auction.

DOJ Assistant Attorney General William Baer said rules are needed to prevent industry giants like AT&T Inc. and Verizon Communications Inc. from using their market power to outspend smaller carriers in the FCC's 2015 broadcast spectrum auctions, according to a letter from Baer to the FCC that circulated May 14.

The letter simultaneously clarified the Justice Department's reluctance to permit further industry consolidation, such as the purchase by Sprint Corp. of T-Mobile US Inc., the nation's fourth largest carrier.

Baer said the agency “believes it is essential to maintain vigilance against any lessening of the intensity of competitive forces, or reduction in the number of effective competitors, in the wireless industry.”

Prevents Foreclosure Strategy

The letter came a day ahead of the FCC's planned vote on proposed auction rules (GN 12-268) (WT 12-269) to reserve a portion––up to 30 megahertz (MHz)––of broadcast spectrum for wireless carriers that own less than a third of the sub-1 gigahertz (GHz) licenses in U.S. markets. Both the DOJ and the FCC want to encourage competition in the auction because the 600 MHz band is seen as the most valuable “beachfront” property for mobile broadband due to its excellent propagation characteristics and ability to penetrate walls.

The current state of the U.S. wireless marketplace provides larger carriers with the motivation to box out smaller players for the valuable 600 MHz spectrum, Baer wrote.

“A foreclosure strategy is not merely theoretical––specific facts about the wireless industry, such as high market concentration, high margins, and scarce critical inputs, make anticompetitive foreclosure more likely,” Baer wrote. “If the largest providers are able to use a foreclosure strategy, they will be able to exercise a degree of market power, at least in certain areas, due to their networks' superior coverage characteristics,” the letter said.

Ruth Milkman, chief of staff to FCC Chairman Tom Wheeler, had asked Justice to clarify its position on the auction rules before the agency's May 15 vote.

‘Competition-Focused Rules.'

Justice previously urged the FCC to consider “caps, weights, and other measures” to prevent Verizon and AT&T from walking away with most of the broadcast spectrum. “The Department stands by the views articulated in those April 2013 comments, and that no intervening developments in the industry have affected the compelling economic rationale for well-defined, competition-focused rules concerning acquisitions by the most spectrum-rich providers,” Baer said in the May 14 letter.

Executives at Verizon and AT&T recently argued that the commission's spectrum aggregation rules would offer an unfair advantage that could permit carriers like T-Mobile and Sprint to buy spectrum at a discount. Executives from T-Mobile, Sprint, US Cellular Corp., Dish Network Corp. and C Spire Wireless, counter that providing smaller carriers with access to the 600 MHz band is necessary to help connect consumers in rural and underserved areas.

Hill Democrats Back FCC

Half a dozen Senate Democrats, in a letter sent to Wheeler May 14, said they supported the FCC's decision to reserve spectrum licenses for carriers that lack low-band spectrum.

The Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. No. 112-96) “clearly affirms the commission's authority to adopt and enforce bidder eligibility rules concerning spectrum aggregation in order to promote competition,” the Senate letter said. “We must have robust competition in the wireless marketplace to ensure consumers benefit from innovation and expanded service in both urban and rural areas.” The letter was signed by Sens. Ed Markey (D-Mass.), Richard Blumenthal (D-Conn.), Cory Booker (D-N.J.), Angus King (I-Maine), Maria Cantwell (D-Wash.) and Al Franken (D-Minn.).

The letter contrasts with a separate House Republican letter that slammed the FCC's spectrum aggregation proposal as “reckless” and “in conflict with the plain language of the statute.” That letter was signed by every Republican on the House Energy and Commerce Subcommittee on Communications and Technology.

Section 309(j) of the act says nothing “affects any authority the commission has to adopt and enforce rules of general applicability, including rules concerning spectrum aggregation that promote competition.”

Merger Doomed?

Baer's comments in the letter opposing industry consolidation are consistent with remarks he made to The New York Times in January. “It's going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,” he said then.

Softbank Corp. President Masayoshi Son, who bought control of Sprint in 2013, has recently sought to purchase T-Mobile. In January Son told antitrust officials that merging the two companies would enable Sprint to better compete against AT&T and Verizon.

A Sprint spokesman declined to comment on the letter.

In 2011 the Antitrust Division blocked AT&T's proposed bid for T-Mobile.

To contact the reporter on this story: Bryce Baschuk in Washington at bbaschuk@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Read the DOJ letter here: http://op.bna.com/der.nsf/r?Open=sbay-9k4s3n.

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