FCC Delays Reverse Auction till 2015; Spectrum Aggregation & Ownership Limits?

The Federal Communications Commission (FCC) has delayed the “Broadcast Television Spectrum Incentive Auction” until 2015.  FCC Chairman Tom Wheeler published a blog post Friday announcing the delay, saying he hopes the auction will take place in mid-2015.  The FCC had set a goal of completing the auction in 2014 and we thought this would be the top priority for the new FCC Chairman.

Wheeler wrote: “I believe we can conduct a successful auction in the middle of 2015.  To achieve that goal, there will be a number of important milestones along the way.  The Task Force will provide more details about the timeline and milestones in a presentation at the January 2014 Commission meeting.”

When the auction is finally held, TV stations will consider bids to relinquish their licensed spectrum and either go out of business or obtain another frequency slot (i.e. TV channel). The licensed spectrum will then be put up for bid by wireless carriers, who covet the low-frequency airwaves because they can cover greater distances and travel more easily through physical barriers.

Observers have called the spectrum auction the most complex proceeding ever undertaken by the FCC. Mr. Wheeler said he has spent more time reviewing the incentive auction than any other issue since taking office, and determined it would be best to wait in order to ensure success. He hopes to avoid any technical difficulties with the software that will be used for the auction and “get it right.”

“I am also confident that the policy challenges are only part of the picture; we must also get the enabling technology right,” he wrote.

Because AT&T Inc. and Verizon Wireless control most of the spectrum under one gigahertz, the auction is considered particularly crucial for T-Mobile US Inc. and Sprint Corp. because it represents a rare opportunity to obtain low-band spectrum.  The 700 MHz band has been dubbed “beachfront property,” because of its excellent propagation characteristics.

“While AT&T is eager to see new spectrum allocations brought to market as soon as practical, we appreciate the enormity of the task the commission faces,” said Joan Marsh, vice president of regulatory affairs at AT&T.

Public interest groups and the smaller wireless firms have lobbied the FCC to set auction rules that would prevent AT&T and Verizon Wireless from grabbing up all the low-band spectrum at the auction. Mr. Wheeler has hinted that he is open to such limitations, but has yet to tip his hand one way or another.

There is also considerable pressure on the FCC to maximize revenue from the auction. The proceeds will be used to compensate broadcasters and fund a $7 billion public safety communications network known as FirstNet.  “This entire Commission is also acutely aware of the importance of the auction to fund FirstNet,” Wheeler wrote.

It’s unclear whether enough TV broadcasters will participate in the auction, which is voluntary. Stations affiliated with the Big Four networks (ABC, CBS, NBC, Fox) aren’t expected to, leaving smaller, independent  TV stations as the most likely participants.  Whether those stations will yield enough spectrum for the auction to be deemed a success remains to be seen.  Another issue is that if the FCC limits bids from AT&T and Verizon, that could depress the prices paid for the airwaves, resulting in less revenue.

Click here for a complete description of the Broadcast Television Spectrum Incentive Auction.

A related FCC spectrum concern is whether the commission will permit AT&T and/or T-Mobile to bid for Verizon’s 700Mhz spectrum that may be put up for sale. AT&T already holds the rights to adjacent 700MHz spectrum, and certainly has the cash to buy Verizon’s if it is put up for sale.  T-Mobile operates its network primarily in the 1900MHz and AWS (1700/2100MHz) frequencies, so the 700MHz spectrum is much more valuable than what they now hold. T-Mobile has targeted AT&T in its marketing in an effort to get customers to bring their phones to its network—and has successfully reversed a long streak of subscriber losses.

Availability of 700MHz spectrum is limited, and regulators have suggested there should be caps placed on ownership so that it isn’t monopolized by industry leaders Verizon and AT&T, which already own roughly 75% of the low-band spectrum currently in use by wireless carriers. In April, the Obama administration’s antitrust team had urged the FCC  to develop auction rules that ensure that T-Mobile US and Sprint are able to buy some of the prime airwaves and better compete nationally with their  two larger rivals.

The F.C.C. already enforces rules limiting “spectrum aggregation.” In theory, the FCC’s spectrum screen prevents further acquisition once a company goes above 33% of the licensed airwaves in one market area. But it applies that limit on a case-by-case basis, usually when one company buys another and asks to transfer ownership of the spectrum licenses.  Although it relies on general guidelines, the rules are unique to every individual transaction. Spectrum deals that violate the FCC’s screen are viewed much more closely by regulators.

After regulators rejected AT&T’s bid to acquire T-Mobile,  AT&T has lobbied the commission for a review on how to measure spectrum.  On the other hand, T-Mobile and  Sprint Corp have argued for ownership limits on lower band spectrum.  The FCC has not decided on any of this yet.