Half of Incentive Auction Spectrum Could Be Off Limits for AT&T, Verizon

Like most aspects of the incentive auction, the restrictions are complicated. In an attachment to an April 16 letter, AT&T Vice President Joan Marsh said restrictions would apparently work based on different amounts of spectrum that would be purchased from broadcasters for resale to carriers. If the FCC recovers 40 MHz, then three-fourths, or 30 MHz, would be available to all bidders, according to the chart (http://bit.ly/1rBnlTD). But if the FCC recovers 60 MHz, fully half, or 30 MHz, would be set aside for competitors. That scenario is raising questions inside the FCC as commissioners look more closely at the proposed rules, agency officials say.

In a recent blog post, FCC Chairman Tom Wheeler emphasized that the amount of spectrum that will be set aside for competitors is limited. “The exact amount of ‘reserved’ spectrum available will depend on how much spectrum non-dominant providers are actively bidding for at the trigger point, but in no instance will the reserve exceed 30 megahertz,” Wheeler said April 25 (http://fcc.us/1tZW8Ou). But Wheeler does not discuss percentages that could be set aside.

Wheeler explained the need for a set aside in an April 17 letter to Rep. Bruce Braley, D-Iowa. “My proposal would reserve a modest amount of this low-band spectrum in each market for providers that, as a result of the historical accident of previous spectrum assignments, lack such low-band capacity,” he wrote. Industry officials asked Tuesday whether a possible 50 percent set aside can be fairly characterized as modest.

A senior FCC official said the draft proposal is “a total balancing act” and AT&T’s letter focuses on just one scenario. But if the FCC clears 100 MHz of spectrum, all carriers could bid on 70 MHz of spectrum, the official said. “If the wireless industry shows up and the broadcasters show up, which they will do if the wireless industry indicates that it’s here to bid, there’s going to be plenty of spectrum available for unreserved and reserved bidders alike,” the official said. The Wireless Bureau is under pressure from competitors as well to set aside more reserved spectrum. “We really want competition inside the auction and outside of the auction,” the official said, noting that the FCC is not proposing bidding limits in the AWS-3 auction. “This is a targeted, limited policy.”

"The FCC has never set aside more than 30 percent of the spectrum in a mobile band,” said Fred Campbell, director of the Center for Boundless Innovation in Technology. “The original purpose of spectrum set asides was to ensure that small companies would win at least some spectrum licenses, not at least half of them. It sounds like the FCC’s real purpose here is to ensure everyone other than Verizon and AT&T win spectrum, including the other nationwide carriers. That would be a totally unprecedented approach.” Campbell was chief of the Wireless Bureau under former Chairman Kevin Martin.

"I'm afraid the FCC’s attempt to micromanage the market by skewing the auction rules is not going to end well for the incentive auction,” said Randolph May, president of the Free State Foundation. “And, frankly, by showing that it is willing to write auction rules in ways designed to achieve preconceived outcomes concerning its own version of an ‘ideal’ market structure, the FCC’s action doesn’t bode well for the conduct of future auctions. The more the FCC indulges in adopting rules that encumber the incentive auction in one way or another, including by differentiating between the supposed value of various frequencies, the more it will be pressed to do so in the future. ... It looks like, ultimately, Congress will have to reform spectrum policy because the current FCC majority’s mindset is tied too tightly to notions that, even in today’s technologically dynamic marketplace environment, it has the wisdom to manage competition."

The Competitive Carriers Association supports the rules proposed by Wheeler, said President Steve Berry. “We commend the FCC for recognizing the unique value of low-band spectrum and crafting a transparent auction framework that appropriately balances one-time revenue objectives and the long-term benefits of robust competition,” Berry said. “Most importantly, we are pleased the FCC seems to recognize the importance of ensuring that every carrier, large and small, has a fair opportunity to bid on this valuable resource. We completely agree that the largest two national carriers who control the vast majority of the much-desired, low-band spectrum and with staggering national market power should not be able to, as Chairman Wheeler said, ’sweep the auction.'” CCA would go even further and impose a national eligibility requirement in addition to market-based requirements, Berry said. “A dual eligibility requirement would more accurately reflect market power while still allowing AT&T and Verizon to bid on reserve blocks of spectrum in areas where they do not hold excessive low-band spectrum,” he said.

In another incentive auction fight, NAB Executive Vice President Rick Kaplan defended his group’s proposal that the FCC drop plans to allow unlicensed use of the 600 MHz duplex gap following the auction and put in place a flat 10 or 11 megahertz duplex gap, with four or five megahertz reserved exclusively for wireless microphones. “NAB believes this is both fair and essential, as licensed wireless microphone users will be foregoing the current two exclusive 6 megahertz channels in favor of only 4 or 5 megahertz vital to providing breaking news coverage in local communities throughout the country,” he said in a blog post (http://bit.ly/QWedho).

Kaplan reacted to a comment from the Michael Calabrese, director of the Wireless Future Project at the New America’s Open Technology Institute, that the proposal “would be a death sentence for unlicensed broadband and innovation post-auction.” “Unlicensed spectrum advocates ... are on a serious roll in the spectrum department,” Kaplan said. “In proceeding after proceeding, they keep racking up more free spectrum. And I completely subscribe to the theory of when you are on a roll, you should keep shooting.” He added, “If there is any kind of ‘death sentence’ in the draft order, it’s clearly just for wireless microphones.”

"In the compromise leading to the 2012 Spectrum Act, Congress clearly intended that the FCC authorize only unlicensed use of the duplex gap,” Calabrese responded, via email. “Allowing licensed mics in the duplex gap would kill the emerging market for unlicensed broadband, since there would not be national markets without at least some access in cities like New York and L.A. The FCC should continue to reserve two broadcast channels for priority use by licensed microphone operators. This complies with the statute. ... Moreover, it’s important to realize that whereas most locally-vacant TV channels are not available for unlicensed use ... they are routinely used by TV news and other wireless microphones. For example, today in New York City there are 22 locally vacant TV channels where wireless mics can operate but unlicensed devices are prohibited.”