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Regulators nix T-Mobile's hopes for more spectrum in upcoming auction

The FCC says it won't vote to increase the spectrum reserved for smaller carriers in the upcoming wireless auction.

T-Mobile and competitive wireless operators will have to vie for a smaller swath of spectrum than they had hoped for in next year's government auction.

FCC Chairman Tom Wheeler: "Broadband has gone from being a luxury to a necessity." Mark Wilson/Getty Images

Federal Communications Commission Chairman Tom Wheeler said in a blog post Thursday that he is recommending that the agency stick with a "spectrum reserve" it adopted last year for an auction set for next year. Despite petitions from companies such as T-Mobile to increase the reserve, Wheeler said he has decided that the current size of the reserve "balances the desire to make low-band spectrum available to parties with limited holdings while facilitating competitive bidding for all auction participants."

A public fight has raged over how much wireless spectrum the government should reserve for smaller carriers in an auction scheduled for early 2016. The FCC agreed last year to set aside some spectrum to allow operators of all sizes a fair shot at getting these valuable licenses. Companies, such as T-Mobile and Sprint have pushed for the FCC to carve out even more spectrum for them to bid on without having to bid against AT&T or Verizon, which could easily outspend everyone else. T-Mobile argues the extra spectrum is crucial if the FCC hopes to promote true competition in the wireless market.

Wireless spectrum is the invisible airwaves that carry streaming video, Web downloads and voice service to mobile devices. The upcoming auction will allow the TV broadcasters to sell spectrum to wireless broadband providers. This spectrum is particularly valuable because it runs on a lower frequency, allowing it to travel longer distances and through obstacles like walls. The upcoming auction is also the last auction the FCC is expected to hold for the next several years.

T-Mobile has been among the most vocal in urging the FCC to make more spectrum available exclusively for smaller players to bid on. Earlier this week, the carrier released a video depicting CEO John Legere as a superhero fighting against the evil "Duopoly," a two-headed man in a blue and red suit representing AT&T and Verizon. Legere, who is known for being a colorful character, has urged consumers to "make some noise" on this issue to get the FCC to increase the amount of spectrum it and other small players can bid on.

In his blog, Wheeler acknowledged the concern that AT&T and Verizon, which together own more than 70 percent of low-band spectrum, could shut out smaller players from bidding on the valuable radio waves. But he reiterated the FCC is committed to ensuring "multiple providers have a meaningful opportunity to acquire these valuable airwaves, which is critical to competition among wireless carriers." That's why the FCC voted to set a reserve last year, he said.

"There will be significant spectrum made available in all markets of the country to all bidders," he said. "As a result, consumers will benefit directly from competition in all parts of the country."

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T-Mobile's video portrays CEO John Legere as a hero taking out the evil "Duopoly," AT&T and Verizon. T-Mobile

In response to Wheeler's blog, T-Mobile said in a statement that the FCC should "heed the calls of the Department of Justice, many in Congress and a slew of consumer groups and move to strengthen the reserve."

Yesterday, the Department of Justice and five senators sent letters to the FCC urging it to listen to the concerns of smaller operators who are afraid AT&T and Verizon could use their market power to buy spectrum just to keep competitors from buying it. Specifically, the Department of Justice said it recognized the FCC "must balance competing policy priorities" in setting the reserve. But it asked the agency to "give considerable weight" to ensure that larger competitors like AT&T and Verizon don't walk away with the bulk of spectrum in the auction.

The FCC believes that the Justice Department is OK with its plans to keep the reserve where it is.

"The Commission appreciates DOJ's support both for our need to balance multiple priorities and for our existing reserve framework," an FCC official said in an e-mail.

The Competitive Carrier Association, which represents T-Mobile as well as hundreds of smaller rural and regional service providers, says ensuring smaller operators have access to spectrum in this auction is critical.

"The FCC must to do more to promote competition in the upcoming incentive auction and avoid restricting smaller carrier participation," the trade group said in a statement.

The FCC will vote on the proposal at its July 16 meeting.

The FCC will also vote in July on a separate proceeding to change the rules for small businesses bidding in future wireless auctions, including the upcoming auction. As part of these new rules, the FCC will for the first time cap the total amount of discounts the government offers to small companies bidding in the auction.

The new rules are meant to discourage larger companies from abusing the program that is intended to allow small businesses and rural operators to compete in spectrum auctions against larger players with more cash to spend. Critics have derided satellite provider Dish Network for taking advantage of such credits to score a $3.3 billion discount in the most recent wireless auction that ended in January. Dish was the second-highest bidder in the auction, bidding a total of $13.3 billion.

The FCC had previously launched an investigation into whether Dish's discounts in the previous auction are valid, and the agency is still considering this matter, an FCC official said.

Meanwhile, Wheeler believes his proposal to be voted on in July will prevent Dish or any other large company from taking advantage of the FCC's auction rules in the future.

"The modernized rules will increase transparency and efficiency to prevent potential gaming or abuse, as well as protect the integrity of the Commission's auction process," Wheeler said in his blog. "We will not allow small businesses to serve as a stalking horse for another party."