FCC Rejects Bright-Line Spectrum Limits, Alters Case-by-Case Spectrum Screen

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By Bob Emeritz  

May 15 — Rejecting a “bright-line” spectrum acquisition standard, the Federal Communications Commission reaffirmed its practice of assessing the effect of spectrum acquisition on competition in specific markets on a case-by-case basis.

The commission generally retained its existing “spectrum screen,” under which it conducts a competitive review of any transaction where it appears that an entity will end up with more than one-third of the “suitable and available” spectrum for mobile services in a geographic market. But it added an “enhanced review” process when the spectrum at issue in any transaction is from a band lower in frequency than 1 gigahertz.

The spectrum screen was amended to include spectrum from the AWS-4, Broadband Radio Service and Educational Broadband Service, bands not previously considered in assessing a carrier's percentage of ownership.

The order also created a reserve for smaller bidders of up to 30 MHz of 600 MHz spectrum—desirable due its strong propagation characteristics—and restricted post-auction exchanges of 600 MHz spectrum.

The action came at the commission's May open meeting, where the agency also voted to issue a notice of proposed rulemaking on net neutrality as well as approved rules for incentive auctions of spectrum and the licensing and use of wireless microphones. (see related stories in this section).

No Bright Lines

The notice of proposed rulemaking in the spectrum holdings proceeding (WT Docket 12-269) had solicited comment on abandoning the case-by-case system in favor of “bright-line” limits to initial licenses acquired through competitive bidding and to licenses acquired through the secondary market. It was thought that bright-line limits could “offer providers greater certainty, clarity, and predictability regarding which licenses they could acquire.”

The agency elected to apply a bright-line rule only in a limited instance, however: bidders will be allowed to acquire any amount of spectrum in the AWS-3 band auction, without restriction or review.

Measured Support, Vigorous Dissent from Commissioners

Commissioner Mignon Clyburn applauded the order as critical to reducing the disadvantages of rural areas in access to broadband services. The senior Democratic commissioner was particularly pleased with the language accounting for the engineering differences between spectrum below and above-1 GHz, and noted her strong support of the reservation of up to 30 megahertz of spectrum for smaller players in the 600 MHz auction. She was less comfortable with the amount of recovered broadcast spectrum reserved for smaller bidders.

“In the draft order the chairman originally circulated, the split of unreserved to reserved spectrum in these scenarios, would have been 30/30 and 30/20, respectively. Much to my dismay, those original proposals were changed to 40/20 and 40/10,” she said. The change caused her to concur in part.

Commissioner Jessica Rosenworcel supported the plan as an essential component of the commission's “solemn duty … to ensure that the proceeds from these auctions are sufficient to support a nationwide, interoperable, wireless broadband network for public safety.”

“It has been more than a dozen years since the horror of 9/11,” she said in a separate statement. “Too much time has passed and too many lives were lost for us to fall short of our promise, at long last, to provide interoperable communications to our first responders. I believe that our efforts today honor this responsibility.”

Rosenworcel also applauded the commission's modification of the spectrum screen—“the prism through which we review transactions.” In altering the screen, she observed, “we acknowledge that carriers now use more spectrum than ever before to provide wireless broadband service. But we also acknowledge that transactions involving valuable low-frequency spectrum merit enhanced scrutiny.”

Republican Commissioners Ajit Pai and Michael O'Reilly dissented vigorously.

Pai focused on the uncertainty created by the order. “We adopted the notice of proposed rulemaking with the promise of providing needed transparency and predictability to secondary market transactions. Now, we offer only a black box. Indeed, we make the problem worse than before by adopting a vague and undefined "enhanced review" standard for transactions involving below 1 GHz spectrum,” he said.

Worse still, he added, “today's order endangers the success of the broadcast incentive auction. As I stated when we launched this proceeding, the FCC should not limit competitors' ability to compete. We should not pick winners and losers. The inevitable effect of a policy that restricts participation is less spectrum repurposed for mobile broadband, less funding for national priorities, a higher budget deficit, and an increased chance of a failed incentive auction.”

O'Rielly said, “Today's order effectively replaces our centuries-old belief in the American free market system, as embodied in the Commission's auction process, with one that seeks to produce a specific outcome to benefit a select few. … I am sure some will assert that this market manipulation is all in the ‘public interest,' but I can't agree with such an argument or the resulting outcome. Substituting the proven success of market-based spectrum allocation with the commission's subjective judgment goes against the spirit and, more importantly, the letter of the law. It also will result in consumer-harming inefficiencies, and could readily lead to a failed incentive auction.”

Industry Acceptance

Enhanced scrutiny and spectrum reserves notwithstanding, AT&T Senior Executive Vice President of External and Legislative Affairs Jim Cicconi found much to like in the commission's order.

“Today, the commission adopted rules and an auction framework that puts the auction on the path toward success. While many important issues remain to be resolved, we believe that the spectrum aggregation and auction rules adopted today represent a significant step forward and will demonstrate to broadcasters that the incentive auction can and will attract significant carrier interest and demand. And while we have long opposed auction restrictions and set asides, the compromise framework will give AT&T a fair shot to participate at auction for a meaningful 600 MHz footprint,” he said.

Jeff Blum, Senior VP and Deputy General Counsel of Dish Network Corp., concurred, saying, “Today's spectrum aggregation and incentive auction orders provide some elegant solutions to complex problems. Consumers and competition will benefit from non-dominant carriers having the opportunity to obtain critical low-band spectrum.”

DOJ Weighs In

Competition enforcers from the executive branch also lent their support to the commission's decision.

The day before the vote, Asst. U.S. Attorney General William Baer reaffirmed the position of the antitrust division of the Department of Justice favoring regulations protecting the ability of smaller carriers to obtain available spectrum, particularly in the lower-frequency bands.

The DOJ had submitted an ex parte comment in April 2013 explaining its view “that rules that ensure the smaller nationwide wireless networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic in the wireless market and benefit consumers.”

Baer's filing stated, “that the Department stands by [that view], 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.”

The text of the FCC's report and order was not available late May 15.

To contact the reporter on this story: Bob Emeritz in Washington at bemeritz@bna.com

To contact the editor responsible for this story: Paul Barbagallo at pbarbagallo@bna.com

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