Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
On Nov. 4, the Federal Communications Commission issued a decision that few have thus far given very much notice, but which is noteworthy for two reasons.
Historically, the FCC has applied a three-part screen to identify those geographic areas that receive more detailed examination for spectrum allocation and divestiture in merger proceedings.
According to Michael L. Katz in an August 19, 2008 paper titled, “An Economic Analysis of the Spectrum Component of the Federal Communications Commission’s Merger Review Screen,” the first two components of the screen were based on traditional market share measures and examine the level of market concentration and the change in concentration to which the transaction under consideration would give rise. The third screening component examined whether the merged entity would hold licenses covering more than 95 MHz of spectrum. In short, the FCC’s standard competitive analysis practice is first to define the relevant product and geographic markets, then to apply an initial screen to the spectrum holdings of the applicants, and then to conduct a market-by-market analysis of the markets captured by the initial screen.
This three-part screen was used by the FCC in the AT&T/Dobson merger, the Verizon Wireless/Rural Cellular merger, and in the Verizon Wireless/Alltel merger. However, on the same day the FCC conditionally approved the Verizon/Alltel merger, the FCC released its Auction 73 – Union Telephone/Verizon Wireless Form 601 decision in which it noted its intention going forward to expand the commission’s use of the three-part screen. In the decision, the FCC for the first time stated that it “intend[s] to apply prospectively [its] standard competitive analysis to spectrum acquired via auction as well as via transactions.” In other words, from now on, the FCC will apply its 95 MHz spectrum screen to both forms of spectrum acquisition – via auction and acquisition.
The FCC noted that if it had applied its 95 MHz spectrum screen to the Auction 73 applications at issue, it would have shown that it was unlikely that any competitive harm would have come by grant of the applications, although 17 CMAs for Verizon Wireless and 1 CMA for Union Telephone would have exceeded the 95 MHz spectrum screen.
Still, Verizon Wireless “voluntarily” agreed to divest ten megahertz of licensed spectrum in the CMA551 (New Jersey 2-Ocean). Absent this spectrum divesture, grant of the Verizon Wireless’ Auction 73 applications would have resulted in the company holding 111 MHz of cellular, PCS, SMR, and 700 MHz spectrum throughout the CMA.
One must wonder why, after all the “prime beach front property” spectrum has been captured, the commission is now finally willing to establish this broader analysis. One must also wonder what the actual benefit will be to the tier-two and tier-three wireless carriers who have attempted to acquire spectrum at auction, only to be outbid by the unfettered resources of certain tier-one competitors. It may take some time to answer these questions.
However, what is clear is that the FCC should have taken such action a long time ago.