T-Mobile, Sprint Seek Changes to FCC’s May Spectrum Holdings Order

The order was developed after a prolonged fight between AT&T and Verizon and their competitors, led by T-Mobile and Sprint. In the end, Chairman Tom Wheeler agreed to a compromise with Commissioner Jessica Rosenworcel assuring that AT&T and Verizon would have a shot at buying 600 MHz licenses nationwide. Commissioner Mignon Clyburn made clear she was not pleased with how the order had changed regarding the big two carriers.

T-Mobile argues that the FCC went too far to accommodate Verizon and AT&T at the expense of challengers. The amount of spectrum reserved for competitors is “inadequate to provide competitive carriers, including T-Mobile, Sprint, and other providers, a meaningful opportunity to expand their low-band spectrum holdings,” T-Mobile said (http://bit.ly/1mFZ10O). T-Mobile said if only 60 MHz of spectrum is cleared for auction, the amount reserved for competitors would be only 20 MHz, and if the auction clears 50 or 40 MHz, competitors would be guaranteed just 10 MHz. T-Mobile also challenged the FCC’s decision to set aside spectrum for competitors only when the bids reach a still-to-be determined trigger amount, which guarantees the auction will fund FirstNet, pay the cost of relocating broadcasters and other expenses (http://bit.ly/1sO6dvK). The FCC “omitted any explanation” for imposing the trigger and “must reconsider this arbitrary and capricious decision,” T-Mobile said.

Sprint challenged the order primarily because the commission rejected its proposal to weigh different spectrum differently as it had proposed in the run-up to the approval of rules. Sprint is a dominant holder of 2.5 GHz spectrum, most of which is now included in the screen. “Without weightings, the spectrum screen will trigger numerous ‘false positives’ for transactions involving higher band spectrum,” the carrier said in its recon petition (http://bit.ly/1sSb9BE). “This problem is exacerbated by the Commission’s decision to count in its screen the vast majority of 2.5 GHz spectrum, despite the many encumbrances that continue to inhibit the full utilization of this spectrum.”

Competitive Carriers Association President Steve Berry said Tuesday the FCC should look carefully at the petitions. Both carriers are members of his group. Both “raise legitimate concerns about competitive carriers’ ability to access low-band spectrum in the incentive auction and on the secondary market,” he said. “If the FCC wants four nationwide carriers to succeed in the currently consolidated market, the FCC should and can do more to promote competition in the industry through smart and targeted spectrum policy.” T-Mobile’s concern about what happens if broadcasters sell only 30 MHz of spectrum nationwide is understandable since there remains “much uncertainty about the amount of spectrum that will be available,” Berry said. “Sprint rightly notes that not all spectrum is created equal and the FCC’s recent decisions fail to adequately acknowledge these differences."

But several wireless industry lawyers told us the FCC seems unlikely to make many changes to the order given the difficult time Wheeler had rounding up three votes for rules in May. “It’s hard to imagine the FCC cobbling together three votes again for a new position on this,” said a former FCC legal adviser who does not represent carriers. “It’s not even clear they could get three votes for the same outcome today."

Guggenheim Securities analyst Paul Gallant said concessions are at least possible. “That was a pretty careful compromise on a critical piece of the auction rules,” Gallant said. “But it’s possible the commission will at least consider an adjustment with a Sprint/T-Mobile deal now off the table."

"I'd be very surprised if the FCC granted the petitions,” said Randolph May, president of the Free State Foundation. “I hope the commission doesn’t give any further bidding preferences to these carriers.”

"The FCC does not make a decision like this without thinking about it a lot” and Sprint and T-Mobile don’t offer truly new arguments, said Armand Musey, managing director at business valuation firm Goldin Associates. “Unless a change in the industry landscape causes a big shift at the FCC, it is unlikely they will reverse.”

Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, said he has little sympathy for the two carriers because Sprint is a subsidiary of Japan’s SoftBank and T-Mobile of Germany’s Deutsche Telekom. “The international commercial giants ... need to quit begging for handouts and subsidies and focus instead on competing,” he said.

The FCC “went out of its way” to provide reserved spectrum for competitors, said Doug Brake, telecom policy analyst at the Information Technology and Innovation Foundation. On the screen, the subject of Sprint’s complaints, “the commission was pretty clear in the order that variations in frequency would be considered in its case-by-case review of proposed transactions, with any deals under 1 GHz getting special scrutiny” Brake said. “I expect that is an adequate solution that can avoid establishing the extensive record needed to develop an extensive weighting scheme."

Given the demise of a possible Sprint/T-Mobile deal, it would make sense to give Sprint more “head room” to buy spectrum in the secondary market given the limitations of its 2.5 GHz spectrum, said Public Knowledge Senior Vice President Harold Feld. “From a competition perspective, it is hard to see why it makes sense to allow AT&T and Verizon to acquire more spectrum in the secondary market spectrum but prohibit Sprint from buying more spectrum,” he said.

T-Mobile is right to keep its argument alive through the November AWS-3 auction, Feld said. If that auction pays for FirstNet the FCC “would look more favorably on addressing the trigger,” he said. “How the FCC addresses the reserve will also be shaped by the AWS-3 auction. If AT&T and Verizon dominate the AWS-3 auction, it will provide further evidence that the FCC needs a larger reserve, since competitors cannot outbid AT&T and Verizon.”