FCC to promote competition with rules for upcoming spectrum auction

The Federal Communications Commission wants to make sure that smaller wireless operators have a shot at buying airwaves in the upcoming wireless spectrum auction. And it's developing a policy for this auction slated for next year that it hopes will do just that.

On Thursday, FCC chairman Tom Wheeler began circulating among his fellow commissioners a proposal that will set aside a reserve slice of spectrum for smaller carriers to bid on during the upcoming incentive auction, which he detailed in a blog post Friday. This auction, which will resell low-band TV spectrum from broadcasters, is particularly valuable to wireless operators large and small because signals can propagate over longer distances at these frequencies under 1 GHz. Signals can also penetrate through obstacles, such as walls more effectively. This makes deploying next generation services like 4G LTE more cost-effective at these frequencies.

Currently, the two largest wireless operators in the US -- AT&T and Verizon -- control almost two-thirds of all the available low-band spectrum today. Even though the FCC says it's not trying to restrict any specific carriers from participating in the auction, the agency wants to make sure that it gives all players a fair chance to bid. And it wants to ensure that one or two carriers do not walk away from the auction with the bulk of the licenses in the 600 MHz broadcast TV frequency band.

"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 writes in a blog post on Friday. "It also creates challenges for consumers in urban environments who sometimes have difficulty using their mobile phones at home or in their offices."

What about AT&T?

AT&T has been skeptical of the FCC's plan, which it had been briefed on a few weeks ago. Earlier this month, the company filed a letter with the FCC threatening to not participate in the auction if the rules proposed were put in place for the upcoming auction.

"If the restrictions as proposed are adopted, AT&T will need to seriously consider whether its capital and resources are directed toward other spectrum opportunities that will better enable AT&T to continue to support high quality LTE network deployments to serve its customers," Joan Marsh, vice president of federal regulatory affairs for AT&T, wrote in her ex parte letter to the FCC.

If AT&T lives up to its threat, it could put the whole auction in jeopardy. But Wheeler has already called AT&T's bluff.

"I have a hard time envisioning this once-in-a-lifetime opportunity for this kind of beach-front spectrum being something that people throw up their hands and walk away from," he said Wednesday at meeting of the FCC, according to Reuters.

Wheeler further tried to assuage AT&T's fears that it will somehow be at a disadvantage in this auction by emphasizing that all carriers, both large and small ones, will have access to spectrum in every available market.

"Any party desiring to bid on any license area will be free to do so," he says in the blog.

The proposal

The way the auction will work under these rules is that once a certain threshold or price is met from the bidding on the auction, the auction will essentially split into two parts. There will be a reserved portion of licenses that only companies with few licenses for low-band spectrum will be allowed to bid on. And then there will be an unreserved portion of spectrum, which everyone in the auction will be allowed to bid on.

How much will be set aside in the reserved block of spectrum will depend. But the reserve portion of the bidding will not exceed 30 MHz, which will leave at least 70 MHz of unreserved spectrum that large carriers, such as AT&T and Verizon will be allowed to bid on along with any other bidder.

The auction will conclude once all bidding on both the reserved and unreserved blocks has ceased.

Picking winners and losers

AT&T and Verizon lobbied Congress when the legislation authorizing the auctions was first adopted. And now AT&T is still trying to make its voice heard at the FCC to keep the auction free of restrictions. AT&T's main argument against imposing any bidding restrictions is that it will maximize auction revenue. Meanwhile, competitive carriers, such as T-Mobile and Sprint, have asked for an auction design that would ensure that smaller operators are not shut out of the auction.

"You have AT&T and Verizon taking 82 percent of the profits in wireless and about 68 percent of the subscribers," Kathleen Ham, vice president of federal regulatory policy at T-Mobile, said during a panel at the Competitive Carrier Association in San Antonio last month. "We are nipping at their heels, but they have deep pockets."

Smaller operators fear that without restrictions on the auction, AT&T and Verizon, which have the most money to spend, will outbid all other competitors and will ultimately walk away with the lion's share of the spectrum. They say this is what happened in the last major wireless auction of 700 MHz spectrum in 2008.

It appears the FCC has listened to these arguments.

"As a result of this 'auction' design, it will not be possible for one or two bidders to sweep the auction," Wheeler says in his post. "At the same time, we will maintain a vibrant and competitive bidding process to assure the spectrum is priced at a realistic market valuation."

Wheeler's proposal will be voted on by the four other FCC commissioners at the agency's open meeting May 15.