The Federal Communications Commission looks set to limit bidding participation on some carriers for its planned 600 MHz incentive auction currently scheduled for next year. The limitations are set to impact carriers with substantial sub-1 GHz holdings, and while no names were named, AT&T Mobility and Verizon Wireless are expected to be the most impacted.
In a blog post, FCC Chairman Tom Wheeler touched on the benefits of low-band spectrum in terms of providing superior propagation characteristics for both broad coverage and in-building penetration. Wheeler then noted that “two national carriers control the vast majority of low-band spectrum,” that provides them an advantage and impacts competition.
“This disparity makes it difficult for rural consumers to have access to the competition and choice that would be available if more wireless competitors also had access to low-band spectrum,” Wheeler said. “It also creates challenges for consumers in urban environments who sometimes have difficulty using their mobile phones at home or in their offices.”
Due to these challenges, Wheeler explained that the FCC has proposed a “market based reserve for the auction,” that once a to-be-determined financial amount of all bidding activity is met a trigger will be flipped that will then put a limit on which entities will be allowed to bid on up to 30 megahertz of spectrum set aside for those determined to not currently control sufficient low-band spectrum.
“Those ‘reserve-eligible’ bidders who are still actively bidding at the trigger point will then begin bidding for reserved spectrum against only other eligible bidders, and not against bidders who already hold a dominant low-band position in that license area,” Wheeler noted. “Of course, all bidders will be able to continue to bid on all of the ‘unreserved’ spectrum.”
Wheeler went on to explain that the proposal would limit the ability for one or two bidders “to sweep the auction” while maintaining a competitive auction process.
“The net effect of the market based reserve, therefore, is to promote a robustly competitive auction with all parties vying to establish a fair market price,” Wheeler stated. “Only when the auction reaches the trigger point will bidders split into two groups. Those without much low-band spectrum will complete against only each other for a limited amount of reserved spectrum, and competitive bidding for unreserved spectrum will also continue for those bidders who already hold a lot of low-band spectrum.”
The plan looks to take a page from T-Mobile US’ “dynamic market rules” proposal put forth last year, which stated:
“Under the dynamic market rule, the auction would first proceed with a spectrum-aggregation limit. If the commission’s revenue target is met while the limit is in place, then the auction would be able to close once there is no longer any active bidding. If the revenue target is not met, however, the limit would be gradually relaxed. Should the bidding fail to clear the revenue target once the limit is completely removed, the commission would resume the process by starting at the next lower spectrum target with the aggregation limit in place.”
The FCC decision also steals a bit from Industry Canada’s recent handling of its 700 MHz spectrum auction, which limited that country’s three dominate players from bidding on certain spectrum blocks in an attempt to lure new entrants.
In addition to limiting participation from AT&T Mobility and Verizon Wireless, the proposal could also impact some regional carriers like U.S. Cellular and C Spire, which control significant sub-1 GHz spectrum holdings in select markets. T-Mobile US, which recently closed on an acquisition of 700 MHz license from Verizon Wireless, is not expected to see any impact as those licenses contain just 12 megahertz of spectrum per market. Sprint is also not expected to be impacted as it controls around 14 megahertz of spectrum below 1 GHz in most markets. Typical 850 MHz cellular licenses included 25 megahertz of spectrum each, while spectrum licenses from the 700 MHz auction ranged from six megahertz to 22 megahertz each.
A number of interested parties discussed the FCC’s plans for upcoming spectrum auctions at the recent Competitive Carriers Association event in San Antonio.
AT&T earlier this month reacted to reports of the FCC’s plans by stating that limiting the participation of carriers currently controlling more than one-third of spectrum below 1 GHz in markets would prevent the carrier from bidding on licenses covering more than 70% of the U.S. population. Joan Marsh, VP of federal regulatory at AT&T, said in an FCC filing that such a scenario could see the carrier instead focus its financial means on other spectrum opportunities.
“Such restrictions would put AT&T in an untenable position, forcing AT&T to reevaluate its potential participation in the auction,” Marsh noted in the filing.
AT&T has claimed that for the FCC to meet revenue goals for the 600 MHz incentive auction, which AT&T claims could top $30 billion, the government agency should not limit bidding. Marsh recently noted that for the auction to be successful, the FCC will need to convince television broadcasters to cough up at least 84 megahertz of spectrum, which would provide for 70 megahertz that can then be auctioned to wireless operators. Using the 700 MHz spectrum auction for reference, which garnered nearly $20 billion in bids for 70 megahertz of spectrum, Marsh claims that factoring in relocation costs and any additional funding needed for FirstNet and next-generation 911 services could push the total cost required to run the auction to that $30 billion mark.
Using that revenue mark, Marsh argues that it will take considerable participation of larger operators to meet that funding requirement and that setting aside spectrum or limiting bidding on any license will impact the fund-raising capabilities of the auction.
“The Commission should instead be focused on ensuring that the wireless industry as a whole can raise the $30 billion in auction capital that may be needed to close an 84 [megahertz] auction, especially given capital commitments that will be made for the AWS-3 auction,” Marsh said. “And notably, as we learned with the H-Block auction, there is no guarantee that all major operators will even show up.”
Late last month the FCC announced partial rules for the AWS-3 spectrum auction that will include 50 megahertz of spectrum in the 1.7/2.1 GHz band set aside for commercial services. The spectrum license will include three 5×5 megahertz options, leaving just a single 10×10 megahertz license covering the country. While the FCC release did not specify the size of geographic size of those licenses, comments indicated that the 5×5 megahertz licenses would include two sized to economic area dimensions and one sized to commercial market area dimensions.
Smaller operators have been pushing for the FCC to carve out sufficient spectrum in smaller geographic areas in an attempt to cater to their more specific coverage needs that generally do not include major markets. The Competitive Carriers Association has said it would prefer the FCC move forward with CMA-sized licenses, which would include 734 total licenses covering the country. Larger carriers tend to prefer larger license blocks in the EA (176 total licenses) or larger blocks that they claim are easier to manage in an auction format.
Bored? Why not follow me on Twitter?
