Hill Pressure Growing for FCC to License Spectrum in Small Blocks, Berry Says

CCA President Steve Berry told us he remains hopeful the FCC will approve licenses smaller than the EAs used in many auctions. “I can understand why some may wish the FCC only does EAs, but the fact of the matter is that even the FCC is recognizing there may be areas that would benefit greatly by smaller geographic blocks of spectrum,” Berry said Friday. “The concept of smaller geographic areas, either CMA or a subset of EAs, is actually gaining steam on the Hill and in some corridors at the FCC. An auction without smaller blocks of spectrum is the equivalent of a regulatory execution of smaller competitive carriers. If the FCC and Hill want to maximize revenue, then they will maximize licenses available. The FCC is tasked with promoting competition under the Communications Act, not eliminating competition. Complexity is a challenge easily overcome and I don’t think the Hill will be particularly moved by the FCC argument of complexity."

Support for small license sizes is high throughout CCA, said Chuck Willis, vice president of Bluegrass Cellular, during a panel discussion at the CCA conference. “I would say [support] is very, very broad. I think with the exception of probably a couple of members most people are in favor of CMAs,” he said. “I think it has to do with probably the size of the company.”

T-Mobile Vice President Kathleen Ham said in the past her company has supported CMAs in some auctions. “I think the complexity of this auction just makes it more of a challenge,” she said of the incentive auction. If the FCC sells CMAs across five blocks of spectrum, it adds up to some 5,000 licenses, she said. “It’s a lot of licenses,” she said. “At the same time you have this reverse auction and the forward auction and they're trying to figure all that out. I think computationally it’s just very, very difficult to achieve."

A small carrier executive said many small carriers want CMAs, but others are satisfied with the larger license sizes. “CMAs are gone in the ash heaps of history,” said a former FCC spectrum official. “It’s really being driven by trying to modernize the licensing systems. The other licenses are too small and it’s just really unwieldy when people are trying to do deals.” EAs “are plenty small in 2013,” the former official said.

"I'm sure the commission is looking at it, it’s just the smaller the license is the more complicated the intertwining of the reverse and forward auctions becomes and that’s going to be something the commission is going to have to grapple with,” said a former eighth floor aide. The FCC is already going to have to convert the designated market areas (DMAs) used in broadcasting to wireless licensing areas, whether EAs or CMAs or something else, and that will already be complicated, the source said. “It gets problematic as you get smaller license sizes … especially if you recover different amounts of spectrum in different markets.” The former official said “the reality is” the incentive auction will see the most participation from the “big four carriers.”

FCC concern about small license sizes “makes sense to me as a practical matter in light of inherent auction design/implementation complexities and the mature state of a mobile wireless market dominated by a handful of national-scale carriers,” said Jeff Silva, analyst at Medley Global Advisors. “At the same time, I suspect smaller wireless carriers could find bidding opportunities limited under an EA auction regime. It’s a tough balancing act for the FCC at a time when policymakers are anxious to improve broadband availability/options in rural America. Truth is, given the huge mix of variables and risks involved, it will be next to impossible for the FCC to devise an incentive auction framework that’s universally embraced by stakeholders across the board. If the FCC merely gets close to meeting its core objectives, it will have succeeded.”