T-Mobile Offers ‘Simple’ Proposal for Ensuring Competition, Adequate Revenue, in Incentive Auction

T-Mobile, widely expected to be a top contender for 600 MHz spectrum in the incentive auction of broadcast TV spectrum, is proposing what it calls a “Dynamic Market Rule,” for how the auction should proceed, to guarantee both broad participation in the auction and that the auction meet all its revenue goals, including funding FirstNet. T-Mobile suggests all carriers be allowed to buy at least 10 MHz of spectrum in every market, but could face restrictions buying more than that amount.

Russo was joined on the call by economist Greg Rosston of Stanford University, a former FCC economist and current chairman of the Commerce Spectrum Management Advisory Committee. Stanford is playing a big role in the development of the auction rules, though FCC officials say they're working with other economists as well.

"We want to make sure the forward and reverse auction work smoothly and move spectrum toward its most socially efficient use,” Rosston said. “In general, socially efficient use of spectrum and not revenue should be the goal of auction design. However, in this auction revenues are a necessary condition to move spectrum from television broadcasting to a more flexible use.” Spectrum will be available for sale to carriers only if the prices reach the level needed to compensate broadcasters, he said. “That sets up a goal of maximizing the public interest with a constraint of assuring a certain amount of revenue,” he said.

Rosston said the T-Mobile proposal is in keeping with concerns in a Department of Justice filing on spectrum aggregation and competition (CD April 15 p7) and also would ensure broader participation in the auction. “T-Mobile ... believes that there will not be a revenue shortfall because other bidders would have more incentive to show up at the auction and bid aggressively if they realize there is a likelihood that they will acquire spectrum and, conversely, T-Mobile believes that without such assurances they wouldn’t show up and the large carriers would acquire spectrum cheaply, suppressing auction revenues.”

Rosston was asked why a major carrier like T-Mobile needs the protections it’s seeking in the proposal from the nation’s two largest competitors -- Verizon Wireless and AT&T. DOJ discussed “use value” and “foreclosure value” in its April filing, he said. “The fact that a big company has a lot of resources doesn’t mean it should have to pay more than its use value for the spectrum,” he said. “The fact that somebody else has foreclosure value is an issue in competition policy. That’s the point of it, not whether T-Mobile is a big company or not."

"T-Mobile US is a newly publicly traded company,” Russo said. “If you look at the percentage of the marketplace right now, T-Mobile is about 10 percent, where the big two are about 33 percent. We see there could be a definite incentive to block competition and to foreclose us from entering the auction. I think that’s a real threat.”

T-Mobile presented its plan at the FCC last week, according to an ex parte filing posted by the FCC Monday (http://bit.ly/12laJCG). T-Mobile executives Rosston and Andrzej Skrzypacz, also a Stanford economist, met with Wireless Bureau Chief Ruth Milkman and Gary Epstein, head of the Incentive Auction Task Force, to lay out the plan. T-Mobile also filed a one-page chart explaining its proposal (http://bit.ly/19w3pdE). Trey Hanbury of Hogan Lovells, who also represented T-Mobile at the FCC meeting, said the carrier has only presented the plan once so far to the FCC. “It’s still early in the process and it’s a deliberative process and we'll see where it goes,” he said. AT&T and Verizon declined to comment.

"This is sort of a ‘belts and suspenders’ suggestion,” said Steve Berry, president of the Competitive Carriers Association. “Everyone believes there will be plenty of funds generated in the 600 MHz auction, but I think T-Mo wanted to make sure there is no reason for one of the largest carriers to suggest that there could be a scenario where the auction would not create enough revenue to meet the FirstNet responsibility or be a successful auction, even with spectrum aggregation limits in place. This is not particularly unusual and has been used before. This is another possible safeguard for why the scare tactics of the duopoly will not come to pass. There will be a successful auction, even if you have in place spectrum aggregation limits for the auction and there is a way to plan for that.”

"Ideally, this should take the revenue issue off the table,” said Harold Feld, senior vice president of Public Knowledge. “The commission has used this idea of some sort of condition precedent to modify the rules before. For example, the decision whether to use anonymous bidding in the AWS-1 auction was determined by the level of participation prior to the auction ... and, of course, the no-locking/no-blocking rule on [the 700 MHz] C Block, where the government made more than its reserve price."

In a separate filing, the Rural Telecommunications Group renewed its call for spectrum caps for spectrum below 1 GHz. “First, in order to ensure that no fewer than four (healthy) competitors are able to prosper in any particular market, RTG asks the FCC to prohibit any carrier from holding more than 25 percent of suitable and available spectrum or more than 40 percent of the suitable and available spectrum below 1 GHz,” RTG said (http://bit.ly/11BWHB6). “Because spectrum is a finite resource, RTG also proposes that each new FCC spectrum auction, especially those involving prime, low-band frequencies like the 600 MHz Band, include reasonable spectrum caps that prevent incumbent players from amassing excessive amounts of low-band spectrum and foreclosing existing and new market entrants from accessing newly released low-band licenses.” RTG also urged the FCC to impose interoperability requirements for both the 600 MHz and 700 MHz band.