FCC rejects proposal favoring small carriers in spectrum auction

PCWorld News

Small mobile carriers lost a battle Thursday when the U.S. Federal Communications Commission declined to make it easier for them to get access to a reserved slice of spectrum during a 2016 auction of television spectrum.

The FCC, in a 3-2 vote, approved a wide-ranging set of rules for the upcoming incentive auction in which U.S. TV stations have the option of giving up their current spectrum and moving to other channels or stop broadcasting over the air in exchange for a piece of the auction proceeds. The world’s first, two-way spectrum auction, with TV stations selling spectrum and mobile carriers buying, will begin March 29, 2016, the FCC announced.

The FCC decided to leave in place a condition needed to trigger a 30MHz spectrum block that locks out the nation’s two largest carriers from bidding, handing a defeat to T-Mobile USA, Sprint and smaller mobile carriers. Even though it declined to change the conditions triggering the reserve, the FCC did vote to keep the controversial reserve provision intended to increase bidding from smaller carriers.

The full spectrum reserve will be triggered if TV stations give up 84MHz of spectrum to be auctioned, giving Verizon and AT&T the opportunity to still bid on about five 10MHz blocks of spectrum.

T-Mobile had called for the FCC to trigger the so-called spectrum reserve for small carriers if a minimum spectrum price was met, or if the auction raises enough money to reimburse TV stations for their spectrum and pay for moving them to new channels, whichever condition happens first. The FCC rejected the T-Mobile proposal, instead requiring that both conditions be met.

T-Mobile, however, applauded the FCC for keeping the spectrum reserve for smaller carriers, even after the FCC rejected its calls to limit the conditions and increase the size of the reserved spectrum to 40MHz.

The carrier “is committed to showing up, playing hard and being successful at the auction,” T-Mobile CEO John Legere tweeted. The spectrum reserve is “unprecedented, will benefit consumers & encourage competition,” he said in another tweet. “This is a victory.”

T-Mobile and its allies argued that the TV relocation condition will allow Verizon and AT&T to game the auction by cherry-picking spectrum in select cities. In that scenario, the two large carriers would target spectrum in the most desirable U.S. cities and drive off competing bidders before the total bids reach the TV relocation trigger.

Smaller carriers and consumer groups argued for a spectrum reserve because the two largest carriers control more than 70 percent of the desirable low-band spectrum in the U.S.

AT&T and Verizon had argued against any spectrum set-aside for small carriers, saying the spectrum reserve gives special treatment to their competitors. Reserving 30MHz of spectrum for other bidders could also drive down the revenues from the auction, they argued.

The commission’s two Republican members criticized several parts of the auction design, including the spectrum reserve. The spectrum rules will carve out the reserve from the spectrum least likely to be affected by interference by neighboring TV stations, leaving Verizon and AT&T to bid largely on spectrum with interference concerns, said Republican Ajit Pai.

Pai and fellow Republican Commissioner Michael O’Rielly opposed any spectrum reserve. “The commission shouldn’t pick winners and losers,” Pai said. “Rather, we should give all participants an equal opportunity to bid on what spectrum they want.”

Not placing limitations on bidding would increase spectrum revenues and ensure that spectrum “flows to its highest value use,” Pai added.

Pai also raised concerns about the FCC’s plans to put relocated TV channels next to mobile spectrum to be auctioned. The FCC’s band plan could lead to signal interference and could drive down prices paid, he said.

The Democratic majority rejected proposals from the commission’s two Republicans as well as several U.S. lawmakers, trade groups and advocacy groups in designing the auction rules, Pai said. The commission’s majority “has been absolutely convinced that it has all the right answers,” he said. “As a result, there’s been a stunning unwillingness to listen to what anyone else ... has to say.”

FCC Chairman Tom Wheeler defended the auction rules, saying they are a series of compromises in a complicated auction.

“This is like a very complex jigsaw puzzle, except that nobody’s ever put the puzzle together before,” Wheeler said. “You don’t have the advantage of the picture on the top of the box to say this is what it should look like in the end.”

Critics of the auction design are arguing against it “in terms of the worst possible case,” he added. The plan is a “good, balanced, logical solution to an incredibly complex, never-tried situation.”

In addition to the spectrum reserve, the FCC established a 20MHz cap that any spectrum reserve bidder can win in small U.S. markets. That cap should encourage bidding by small, regional carriers, agency officials said.

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