Verizon pressures FCC to not limit spectrum auction participation

Verizon Communications late last week threw in its two-cents worth in terms of the Federal Communications Commission’s plans to craft rules for its highly anticipated 600 MHz incentive auction, which is scheduled for mid-2015.
Having sat out most of the early arguments in the process, Verizon noted in a filing that its regulatory representatives recently met with FCC commissioners in presenting its view of how the auction should commence. Those views seemed to echo comments put forth by rival AT&T, which has argued that rules should not preclude any participant from bidding on any of the licenses eventually put up for bid.
“In the context of the incentive auction, Verizon stated that the more certainty the rules provide, the more broadcasters and wireless providers will participate, and the more spectrum will be re-purposed for use by all providers to meet the needs of consumers and businesses for broadband,” Verizon noted in its filing. “Verizon stressed that the best way to promote a successful incentive auction is to ensure the widest possible participation from broadcasters and robust competition between wireless carriers.”
Verizon added that bidding restrictions would reduce the amount of spectrum made available and add to the already complex proceedings, and that such rules would unfairly favor some wireless carriers over others.
“T-Mobile and Sprint are large corporations with established, well financed corporate parents,” Verizon explained. “They and their parent corporations are more than capable of paying substantial amounts to acquire spectrum in the incentive auction if they choose to do so. The last time T-Mobile chose to participate in an auction, it dominated the bidding – spending $4.2 billion and acquiring more spectrum than Verizon and AT&T combined. And Sprint’s new owners have ample resources with which to buy spectrum in the incentive auction if they choose to participate.”
Verizon also brought up recent sub-1 GHz spectrum acquisitions by T-Mobile US as well as Sprint’s vast spectrum holdings in the 2.5 GHz band as reasons to forgo restrictions.
FCC Chairman Tom Wheeler last month noted in a blog post that the agency was looking to limit bidding for 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. 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. 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.”
AT&T last 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.
Wells Fargo Securities senior analyst Jennifer Fritzsche last week noted in a research report that Verizon could be more focused in the FCC’s planned AWS-3 auction as opposed to its 600 MHz incentive auction. In the note, Fritzsche said that during a meeting with Verizon executives, CTO Tony Melone appeared “particularly excited about the AWS-3 upcoming auctions. Melone indicated AWS-3 is preferred over the broadcast incentive auction as [Verizon] needs more spectrum for ‘capacity more than coverage.’”
Verizon Wireless’ current LTE network is built on its 700 MHz spectrum holdings the carrier won during a government auction in 2008. Over the past several months, Verizon Wireless has added capacity support for its LTE service using the 1.7/2.1 GHz spectrum it has acquired through a 2006 auction and from a handful of third-party deals. The carrier also has spectrum in the 850 MHz and 1.9 GHz band currently supporting its legacy CDMA-based services, and has expressed an interest to eventually begin re-farming those spectrum assets to support its LTE service.
The FCC in late March laid out partial plans for the AWS-3 auction, which will include 50 megahertz of spectrum in the 1.7/2.1 GHz band for commercial wireless services and is expected to begin later this year. Those rules elicited mixed reaction from wireless carriers due to the size of the licenses to be put up for bid.
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