Spectrum cap not the way to go, but status quo is not acceptable either

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.
The unprecedented concentration of spectrum in the hands of Verizon Wireless and AT&T Mobility is extremely disconcerting. Permitting the nation’s largest carriers to warehouse unused spectrum in rural areas is a particular disservice to both consumers and tier-two and tier-three wireless carriers that typically provide service in these areas. Moreover, this underutilization of rural spectrum has become more prevalent since the Federal Communications Commission abolished the spectrum cap. Given all this, is it any wonder that some in the wireless industry would like to see the return of a spectrum cap?
That said, there are many reasons why a spectrum cap is not be the best approach to limiting the ability of the nation’s largest carriers to abuse their market power by warehousing spectrum and engaging in other anti-competitive practices like forcing smaller carriers into unreasonable roaming arrangements and limiting competitor access to certain handsets.
Because of industry consolidation, as well as the huge amounts of spectrum acquired in recent auctions by the nation’s largest carriers, nationwide carriers have amassed a significant amount of spectrum, particularly in rural areas, that remains unused. This spectrum warehousing has been facilitated by FCC construction requirements that are generally minimal enough to allow nationwide carriers to initially only build out urban areas to meet the construction requirements. For example, licensees who initially acquired the 30 MHz A- and B-Block personal communications services (“PCS”) MTA licenses merely had to construct enough sites to cover one-third of the covered population within five years and two-thirds of the covered population within 10 years with no requirement that carriers actually had to be providing commercial service to subscribers.
Coverage to one major city in a market usually satisfies both PCS coverage requirements. As a result, nationwide operators that acquire regional type licenses typically focus their initial build-out on the nation’s most densely populated areas. Although the build-out plans of these carriers may eventually include some rural parts of their licensed market, the end result is the warehousing of significant amounts of rural spectrum.
The FCC must address this problem by taking actions to ensure that small carriers, including new entrants, have reasonable access to spectrum. But imposing a spectrum cap alone will not solve the underutilization of rural spectrum.
There are nationwide carriers that already hold a substantial amount of spectrum in many rural areas and much of that spectrum remains fallow. Instituting a spectrum cap would not force these carriers to build-out or divest any of their unused spectrum. Further, a strict (110 MHz) spectrum cap could actually prevent certain rural carriers that might truly need the spectrum from acquiring spectrum in future auctions or the secondary market, particularly in areas where there is sufficient competition to justify the additional spectrum acquisition. A better approach may be for the FCC to do a case-by-case analysis as Union Telephone Company, WCAI and others have suggested.
Further, the FCC should prohibit one carrier from holding both cellular licenses in a given market and the FCC must take a much more active role in the auction and secondary licensing process.
In addition to considering market competition and spectrum holdings, the FCC should require a more detailed explanation as to why an individual carrier needs additional spectrum in a particular market rather than relying on general statements such as that additional spectrum will allow the carrier to provide more robust service offerings.
At the very least, carriers looking to acquire spectrum via auction, acquisition or any other means should be required to provide a county-by-county breakdown of the amount of spectrum they currently use to offer commercial services, as well as a description of the commercial services the carrier is providing on the used portion of the spectrum; the amount of licensed spectrum the carrier holds in the county that remains unused; and, a detailed statement about the proposed future use of any unused spectrum.
If the FCC considers adopting a spectrum cap on a county-by-county basis, it should include a spectrum cap exemption for those tier-two and tier-three carriers that provide service in predominantly “rural” areas. The primary focus of larger carriers is on serving urban areas. In large part, rural areas are being served by smaller carriers who have more familiarity with the communities in their service area and provide better coverage and service. Small, rural carriers may require additional spectrum as they continue to roll-out more advanced wireless services. A strict spectrum cap may prevent them from doing so.
Additionally, the FCC must condition any transactions that result in a tier-two or tier-three carrier holding more than 110 MHz of spectrum in rural counties with stringent build-out requirements that would result in substantial coverage, divestiture of excess spectrum (above 150 MHz) within a certain timeframe following grant of the licenses (e.g., 6 months), and unused spectrum having to be returned to the FCC upon expiration of the build-out condition for re-auction. The intended consequences of such conditions would prevent warehousing and will likely result in carriers partitioning rural spectrum to other carriers intent on using it.
Finally, the FCC should not limit its focus only to spectrum below 2.3 GHz as some have suggested. Rather, the commission should extend any adopted cap to include spectrum above 2.3 GHz, including BRS/EBS and the WCS band, which is likely to be used within the next three years for the provision of broadband, data, and voice services to consumers and business users.
The FCC, in lieu of a spectrum cap, should take a harder look as part of a future rulemaking proceeding, at future transactions and auctions involving rural spectrum and implement additional rules, such as more stringent build-out requirements, to prevent the underutilization of rural spectrum. The commission must take a much more active role in the auction and secondary licensing process and should prohibit one entity from holding both cellular licenses in a given market.
If the FCC considers implementing a spectrum cap, it should create a spectrum cap exemption for tier-two and tier-three rural carriers or, in the alternative, increase the amount of spectrum that can be held by these carriers in rural areas.
You may contact Eric at eric.peterson@rca-usa.org. You may contact RCR Wireless News at rcrwebhelp@crain.com.