FCC proposal would limit AT&T, Verizon in spectrum auction

The U.S. Federal Communications Commission has not one, but two, controversial items on its Thursday meeting agenda, with a vote on rules limiting the amount of spectrum the nation’s two largest mobile carriers could buy in an upcoming auction in addition to the potential release of a net neutrality proposal.

FCC Chairman Tom Wheeler’s net neutrality proposal has been grabbing headlines and generating social-media protests in recent weeks. But his plan to set limits on how much spectrum AT&T and Verizon Wireless can buy in 2015 auctions now controlled by U.S. television stations has generated a heated, behind-the-scenes debate about the authority of the agency.

The spectrum rules could have a major impact on mobile competition across the U.S., with implications for the quality of service customers receive, the mobile broadband speeds available, and the prices they pay.

The FCC is scheduled to vote Thursday on whether to approve Wheeler’s spectrum proposal, which would limit the participation of AT&T and Verizon in the so-called incentive auction after bids reach a threshold partly based on auction prices. After bidding reaches a trigger point, the FCC would set aside a portion of spectrum that AT&T and Verizon could not bid on, Wheeler said in a blog post last month. The amount of reserved spectrum in any one area would be less than half of the spectrum available.

Reserved spectrum

The two largest mobile carriers in the U.S. own most of the low-band spectrum, where wireless signals are able to travel farther and penetrate buildings easier that signals in higher bands, Wheeler wrote. That makes it difficult for other mobile carriers to compete with Verizon and AT&T in rural areas and in dense urban areas, he said.

The goal of his plan, he wrote, “is to promote a robustly competitive auction with all parties vying to establish a fair market price. As a result of this design, it will not be possible for one or two bidders to sweep the auction.”

With the incentive auction covering highly coveted spectrum in the 600 MHz band, Wheeler’s proposal set off a heated debate about the agency’s role in setting spectrum auction rules. As the FCC was putting together Wheeler’s proposal, AT&T threatened to sit out the 600MHz auction if the FCC puts too many bidding restrictions in place.

“The proposed restrictions are complicated and unnecessary,” Joan Marsh, AT&T’s vice president for federal regulatory affairs, wrote in an April letter to the FCC. “Such restrictions would put AT&T in an untenable position, forcing AT&T to re-evaluate its potential participation in the auction.”

The proposal would set up rules in which AT&T and Verizon would be “walled off” into a separate auction for a limited amount of spectrum, a lawyer for AT&T wrote in comments to the FCC this month.

AT&T vs. Verizon, head to head

“In essence, AT&T and Verizon would be forced to compete for a single [LTE-capable] block, with the virtual certainty that both companies would end up with fragmented and inefficient 600 MHz footprints,” AT&T lawyer Peter Keisler wrote.

The proposed rules would “tilt the playing field” to smaller carriers, Keisler added. “The clear purpose of the bidding exclusions is to allow ‘favored’ competitors to buy more low-frequency spectrum, and to buy it more cheaply, than AT&T and Verizon,” he wrote.

Congress has prohibited the FCC from adopting auctions-specific rules that would prevent carriers from participating in the incentive auction, Keisler added.

Supporters of Wheeler’s proposal say the FCC has always had broad authority to create auction rules. Wheeler’s proposal does not prevent any carrier from bidding in the auction, supporters have said.

The Spectrum Act, the section of the Middle Class Tax Relief and Job Creation Act of 2012 that establishes the incentive auction, requires the FCC to allow all qualified companies to bid in the auction. But the legislation also gives the agency wide latitude to set spectrum aggregation rules that “promote competition,” said Steve Berry, president and CEO of the Competitive Carriers Association, a trade group for small mobile carriers.

With that language, Congress gave the FCC more authority to limit large carriers from amassing too much spectrum, Berry said in a panel discussion on the spectrum proposal at the New America Foundation last week.

Wheeler’s proposal would leave about 40MHz in each region available for open bidding, added Michael Calabrese, director of the Wireless Future Project at the Open Technology Institute at the New America Foundation.

The rules are “by no means a radical or exclusionary set-aside,” he said at the same spectrum briefing. “This is hardly a very severe limit on any participant in the auction.”

While rural carrier groups like Berry’s have applauded Wheeler’s plan, critics have questioned whether it would benefit rural areas as much as the FCC chairman has suggested.

Sprint and T-Mobile USA, the third and fourth largest carriers in the U.S., appear to be more focused on serving urban areas than rural areas, said Rick Boucher, a former Democratic U.S. representative from southwestern Virginia.

“If satisfying Wall Street’s demands for Sprint and T-Mobile to use newly acquired spectrum only to serve revenue-rich urban and suburban broadband customers is the nation’s primary goal, the FCC may be on the right track,” Boucher wrote in a blog post for the Internet Innovation Alliance. “On the other hand, if expanding mobile broadband deployment to rural Americans everywhere, from the mountains of western Virginia to the open ranges of the West, best serves the public interest, the FCC may want to choose a different path.”