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March 16 — The four nationwide wireless carriers continue to clash over how much spectrum the Federal Communications Commission should set aside for smaller players in the agency's controversial auction of broadcast TV airwaves, now set for 2016.
T-Mobile US Inc. and Sprint Corp.—the No. 3 and No. 4 U.S. carriers—want the FCC to increase the current reserve for smaller bidders from 30 megahertz (MHz) to 40 MHz; predictably, Verizon Wireless and AT&T Inc.—the No. 1 and No. 2 carriers—do not.
“The AWS-3 [Advanced Wireless Service-3] auction demonstrates conclusively that a bidder can win licenses in an auction if that bidder (or its parent) is willing to finance robust participation,” Verizon Wireless said in reply comments filed March 13 with the FCC in AU Docket No. 14-252 and GN Docket No. 12-268. “T-Mobile's and Sprint's parents are among the best-capitalized companies in the world and are in a position to acquire substantial amounts of spectrum at the incentive auction if doing so at market prices suits their business needs.”
At the AWS-3 auction, which closed in January, AT&T Inc. bid $18.2 billion, Verizon bid $10.4 billion, and T-Mobile bid $1.8 billion, according to the results released by the FCC. Dish Network Corp., through joint-bidding agreements with SNR Wireless LicenseCo and Northstar Wireless, bid $10 billion. Sprint Corp. did not participate in the auction.
“The facts of the AWS-3 auction completely undercut T-Mobile's and Sprint's claims that the commission must change the rules to favor their participation,” Verizon said in its filing. “Of the 31 applicants that won licenses, one entity bought more licenses and more spectrum, and covered more POPs [the standard unit for measuring spectrum prices], than anyone else—and it was not Verizon or AT&T. In fact, Dish and its two 85-percent-owned entities…accounted, on a gross dollar value basis, for 50 percent of all new bids placed in the auction—nearly three times what Verizon bid and more than T-Mobile, Verizon and AT&T bid combined.”
Working with Dish, SNR Wireless LicenseCo and Northstar Wireless used the FCC's pro-small-business Designated Entity (DE) program to claim more than $3 billion in discounts in the auction, drawing the ire of public-interest groups and at least one FCC commissioner in the process.
In a press statement released March 16, Republican Commissioner Ajit Pai said that allowing Dish to maintain these discounts would make a “mockery” of the small business program.
“There were over 440 licenses in the auction for which the Dish entities outbid smaller companies or ones that were not providers of nationwide service that had been winning the licenses,” Pai said in the statement. He added, in a near echo of Verizon's filing, “that's more than three times as often as those smaller providers were outbid by AT&T, Verizon, and T-Mobile combined.”
At stake in the FCC's incentive auction is roughly 100 megahertz of 600 MHz spectrum, which the FCC will try to reclaim from television stations and then sell to the carriers, with a portion of the proceeds paid back to the broadcasters. The wireless industry is expecting valuable, low-band spectrum; Congress is expecting between $15 billion and $30 billion for the General Treasury.
Spectrum in the 600 MHz broadcast TV band is desirable for mobile for one simple reason: Signals travel far distances and penetrate walls and windows, meaning wide-area indoor and outdoor coverage with fewer cell sites. Put another way, the 600 MHz auction is about coverage for blanketing the country with 4G; the AWS-3 auction was about capacity for handling rapid increases in data usage in more congested cities.
Both desperately needing more low-band coverage spectrum, Sprint and T-Mobile are certain to be active bidders in the incentive auction—and want 40 MHz on which to bid.
“Currently the two dominant carriers [Verizon and AT&T] possess nearly 75 percent of the available low-band spectrum, with nearly 80 percent of low-band spectrum in the top 10 and top 50 markets,” Sprint said in March 13 reply comments in the same dockets.
Sprint explained further that both Verizon and AT&T have at least one 10+10 MHz, LTE (long term evolution) channel dedicated for mobile broadband service as well as cellular spectrum holdings that can help facilitate deployment of an additional 10+10 MHz broadband channel in the near future. The FCC's incentive auction is a rare opportunity for Sprint and T-Mobile to obtain 10+10 MHz channels to better compete with their bigger rivals, Sprint said.
AT&T and Verizon each highlighted the fact that, despite Sprint's and T-Mobile lack of formidable low-band spectrum, Sprint holds 197 MHz of spectrum—nearly twice as much as Verizon.
“Expanding the size of the reserve from 30 to 40 MHz could be particularly harmful to auction revenues, because as a practical matter such an incremental jump would facilitate market division between reserve-eligible bidders like T-Mobile and Sprint and allow both to obtain two blocks apiece without having to bid against each other,” AT&T said in its March 13 reply comments. “Such an expansion of the protected portion of the auction would permit those two providers to obtain 20 MHz of spectrum at prices far below market levels and likely result in a disproportionate incremental reduction in auction revenues.”
The FCC first created the reserve for smaller players in its Mobile Spectrum Holdings R&O in May 2014. T-Mobile now argues that expanding that reserve to 40 MHz—while limiting reserve-eligible bidders to acquiring no more than 20 MHz—would “promote vigorous and sustained post-auction competition while driving incentive auction revenues upward.”
“A [40 MHz reserve] will encourage Verizon and AT&T to bid against each other for the non-reserve spectrum, which should increase prices for the non-reserve blocks and could lead to higher auction revenues overall,” T-Mobile said in its March 13 comments.
On another issue, T-Mobile said the commission should scrap the second prong of the proposed test for the “Final Stage Rule,” which establishes a minimum price per MHz-POP before the auction system will create the spectrum reserve. This triggering mechanism was not mandated by Congress, T-Mobile noted. However, should the commission retain the threshold, it should ensure that the price per MHz-POP is set no higher than $1.25 in the top 25 markets.
“Any increase above this price per MHz-POP risks auction failure,” T-Mobile wrote.
AT&T, of course, disagreed: “The truth is that $1.25 per MHz-POP is far below any reasonable estimate of the market value of this spectrum. As AT&T showed, prices for Lower 700 MHz ‘B Block' spectrum, which are the most comparable to the 600 MHz band plan,' sold for $3.75 per MHz-POP in the top 40 PEAs [partial economic areas].”
Reached for comment on FCC Commissioner Ajit Pai's statement, a spokeswoman for Dish said the company is confident that it fully complied with the DE rules in the AWS-3 auction.
“The DE program has been successful in providing much smaller entities the ability to access stronger capital structures, which has facilitated their meaningful participation in an auction process from which they would otherwise be precluded,” the Dish spokeswoman said in a statement. “Our approach—publicly disclosed ahead of the auction—was based on DE investment structures that have been approved by the FCC in past wireless spectrum auctions, including structures used by AT&T and Verizon.”
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For the full text of the filings, http://apps.fcc.gov/ecfs/comment_search_solr/search
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