FCC sets aside 30 megahertz for auction set to begin March 29, 2016
The Federal Communications Commission released its highly anticipated bidding rules for the planned 600 MHz incentive auction, which is officially on the docket to begin March 29, 2016.
The rules include confirmation that 30 megahertz of the at least 70 megahertz of spectrum will be set aside for participants with sparse holdings below 1 GHz, which is expected to eliminate bidding competition for those licenses from the likes of industry heavyweights Verizon Wireless and AT&T Mobility. A number of industry groups and mobile operators, led by T-Mobile US, lobbied the FCC to increase the potential set aside to 40 megahertz, although it seemed the FCC never seriously considered the move.
In addition to the reserved spectrum, the FCC also put a cap of 20 megahertz on acquisitions by a single entity covering partial economic areas with fewer than 500,000 people.
More significantly, the reserved spectrum is set to include licenses with the least amount of potential interference issues from television broadcasters that decide to not give up their spectrum holdings as part of the complicated auction’s reverse-auction proceedings. The FCC laid out numerous clauses in its rulemaking that would seem to leave wiggle room for television broadcasters to participate, following up on recent lobbying by FCC Chairman Tom Wheeler to garner participation interest from those entities.
T-Mobile US took the potential defeat in stride, noting it is pleased with the 30-megahertz reserve and that it “is looking forward to actively participating in the auction.” T-Mobile US CEO John Legere added his 2 cents via Twitter, stating “the reserve includes great quality spectrum and looks like the FCC will be monitoring closely so duopoly can’t game the system,” hinting at his pleasure in the reserved spectrum being free of potential interference.
“While not as large as we had hoped, I thank Chairman Wheeler and the commission for establishing a spectrum reserve of 30 megahertz, which is absolutely essential for competitive carriers’ participation in the incentive auction,” said Steve Berry, president and CEO of the Competitive Carriers Association. “AT&T and Verizon are reserve eligible in 74% of the geographic area of the U.S., covering 40% of the population, and each has the purchasing power to shut out competition. Access to low-band spectrum is critical for competitive carriers, especially smaller carriers serving rural and hard-to-reach areas, and allowing these carriers the opportunity to purchase spectrum in their home markets is a huge win for consumers and competition.”
AT&T, which has committed to spending at least $9 billion in the 600 MHz auction as part of it garnering approval of its recent $48.5 billion acquisition of DirecTV, expressed concerns over the potential interference issues. AT&T had been fighting T-Mobile US and its allies in their attempts to expand the reserve to 40 megahertz.
“In the past, FCC band plans have failed to properly account for existing interference concerns (think 700 MHz), but never in the history of FCC auctions has the commission chosen to affirmatively create long-lasting and debilitating in-band impairments,” noted Joan Marsh, VP for federal regulatory at AT&T, in a statement. “This not only repeats the sins of the 700 MHz band – which remains under-deployed to this day – it doubles down on them. Second, the burden of these impairments is being placed on the restricted bidders, reserving the cleanest spectrum for reserve-eligible bidders like T-Mobile in the auction pool least subject to competition. Category 2 licenses – with impairments of up to 50% — will be placed in the non-reserve, limiting the supply of clean licenses available for AT&T and Verizon in many markets.”
Who will participate?
Despite the sterling propagation characteristics embedded in the 600 MHz band, participation still seems mixed.
T-Mobile US appears to obviously be on board with the proceedings, having stated for years its desire to bolster its sub-1 GHz holdings in order to reach greater coverage parity with its larger rivals. AT&T is also expected to participate due to its pledge as part of the DirecTV proceedings.
Verizon Wireless has been unclear in its planned participation. The carrier, which spent $10 billion earlier this year as part of the FCC’s AWS-3 auction, stated it was waiting to see the final auction rules before deciding on its participation level. The carrier had mentioned that the AWS-3 auction’s record-setting haul could artificially inflate licenses in the 600 MHz auction.
“I will say that I think that the AWS-3 auction has given the [Federal Communications Commission] a little bit of a challenge around unintended consequences,” said Fran Shammo, CFO at Verizon Communications, during a recent conference call. “When you bid up spectrum so high and now you have broadcasters sitting on the sidelines that believe their spectrum is worth a certain amount of money, and then you have – where the FCC is trying to draft the rules around giving other carriers more, if you will, favorability to get the license than, say, some others – I think you’ve created a problem for yourself.”
Verizon Wireless is at an advantage compared to its rivals in that it already controls 20 megahertz of nationwide spectrum in the 700 MHz band that has provided the carrier with a broad “base” layer of coverage for its LTE network. Verizon Wireless has been more active in layering in higher-band spectrum resources in the 1.7/2.1 GHz and 1.9 GHz bands to provide additional capacity in densely populated areas.
Those densification plans also include the continued deployment of small cells, which Verizon Wireless said could account for up to $500 million in spending this year. The carrier also has at least 25 megahertz of spectrum in the 850 MHz band covering most of the country that is the basis for its legacy CDMA-based 2G system that it could also look to refarm for additional LTE support.
Sprint has also been ambiguous on its auction plans, with CEO Marcelo Claure earlier this year telling an audience at the CCA Global Expo event that the carrier’s participation was “to be determined.” Claure stated that the carrier would need to look at final rulemaking before making a decision, and that the AWS-3 auction’s record haul, which Sprint decided to sit out, had caused some concern regarding the potential investment needed to procure what is seen as even more valuable spectrum.
Claure did take a page from Sprint Chairman Masayoshi Son, in stating it might make sense for smaller carriers to partner with Sprint in the proceedings, noting that there were rural markets where Sprint had no interest in building out a network just as there were urban markets in which CCA members had no interest.
Sprint does control approximately 14 megahertz of spectrum nationwide in the 800 MHz band it acquired as part of its $35 billion purchase of Nextel Communications, which the carrier is currently refarming to support CDMA voice and LTE data services. The carrier also acquired in excess of 150 megahertz of spectrum nationwide in the 2.5 GHz band that it’s currently tapping in order to support higher throughput for its LTE network.
Another wild card is Dish Network, which controls significant spectrum resources that were recently bolstered by its controversial participation in the AWS-3 proceedings. Dish management this week stated that FCC plans to revoke a $3 billion bidding credit tied to designated entity partners could impact its participation in the 600 MHz auction.
“Obviously, to the extent that the FCC requires us to pay the discount in the last auction, then it would be a complicating factor for us in that auction,” explained Dish Network CEO Charlie Ergen.
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