WHILE THE DOMINANCE of AT&T Mobility and Verizon Wireless in the 700 MHz auction has renewed debate about whether a spectrum cap should be reinstituted, it appears concerns may have been overstated about the number of markets where the nation’s two largest cellular operators now exceed the Federal Communications Commission’s new standard for determining when a carrier’s spectrum holdings in a given market could pose an anticompetitive threat.
“The decision to eliminate spectrum caps by the FCC under Chairman [Michael] Powell is proving highly illconsidered,” stated House telecom subcommittee Chairman Edward Markey (D-Mass.) at an April 15 hearing on 700 MHz auction results. “Spectrum caps had ensured that incumbents couldn’t gobble up all of the available spectrum and effectively box out would-be competitors from reaching the market. And the so-called ‘spectrum screen’ of 95 megahertz that has substituted for the original cap has been blown away in this auction by AT&T and Verizon in 8 of the top 10 markets, and 17 of the top 25 markets, where that amount of spectrum has now been exceeded.”
Violation overblown?
However, based on interviews and investment research data, AT&T Mobility and Verizon Wireless do not appear to have surpassed the FCC’s 95 megahertz spectrum screen in as many markets as Congress and others have suggested as a result of their 700 MHz winnings. Still, there are solid indications the two carriers do exceed the 95 megahertz spectrum in perhaps more than a dozen large and small markets.
One estimate had AT&T Mobility and Verizon Wireless – which accounted for the lion’s share of the record $19 billion in the 700 MHz auction – now exceeding the 95 megahertz-per-market screen in 38 of the top 100 U.S. markets. The screen, which triggers closer scrutiny for possible competitive harm in local markets, was applied at a higher level in the FCC’s approval of AT&T Mobility’s purchase of Dobson Communications Corp. last year.
Prior to the AT&T Mobility-Dobson ruling, telecom regulators used a 70 megahertz spectrum screen in analyzing proposed mergers. The screen was raised to 95 megahertz because the agency decided to factor 700 MHz spectrum into the equation. The FCC does not count advanced wireless services and broadband radio service frequencies toward the new spectrum screen because spectrum in both services is not significantly available throughout the country (due to government relocation and band realignment issues) at this time. However, the FCC can still examine AWS and BRS spectrum holdings on a case-by-case basis in situations where the 95 megahertz-per-market limit is exceeded.
Screen vs. cap
The spectrum screen is not as rigid in application as the 45 megahertz spectrum cap approved by the FCC in 1994 during the Clinton administration. The spectrum cap was later raised to 55 megahertz before being eliminated in 2003.
But whether AT&T Mobility and Verizon exceed the 95 megahertz spectrum screen in fewer markets than policymakers initially believed is not apt to dampen policymaker’s interest in revisiting the spectrum cap.
“The issue is the same regardless,” said Colin Crowell, an aide to Markey. “What is the point of a ‘spectrum screen’ (however calculated) if it does not apply to spectrum acquired at auction, only for spectrum acquired through a merger? Second, why shouldn’t AWS count? If it is because it is encumbered, then will it apply when it is not? And if it is applied and counted later, then how do you then force divestiture right after someone has finally cleared the spectrum to make it useful?”
“As a result,” Crowell said, “this wouldn’t change Chairman Markey’s concern – it would only heighten his concern that the so-called ‘spectrum screen’ has essentially been rendered meaningless.”
Consolidation impact
House Commerce Committee Chairman John Dingell (DMich.) also suggested consolidation in the wireless industry bears more examination in the aftermath of the 700 MHz auction.
“[S]hould we be concerned that no new entrant for broadband services emerged from the auction?” asked Dingell at the April 15 hearing. “Should it be a matter of concern that the nation’s largest carriers came away with the most spectrum? How should this increase in spectrum consolidation guide our discussions, if at all?”
Michael Copps, one of two Democrats at the GOP-led FCC, stated in written testimony that the 700 MHz auction, market power wielded by the two largest wireless voice and DSL providers – AT&T Inc. and Verizon Communications Inc. – and other factors “underscore the damage that the commission’s decision to eliminate the spectrum caps has wrought.”
The 1993 law that created spectrum auctions warned against an “excessive concentration of licenses” and called for “disseminating licenses among a wide variety of applicants.”
To date the FCC’s spectrum screen has been applied only in the context of wireless mergers, even though top mobile-phone carriers have accumulated significant spectrum assets in auctions.
“The FCC has made no determination on whether the screen should be applied beyond a merger,” said an FCC spokesman. “The FCC always takes into consideration new information and industry trends that may impact the marketplace.”
