FCC Can Fix Incentive Auction by Eliminating Impairments to Extent Possible, AT&T Says

AT&T and Verizon said in initial comments they faced a double whammy of sorts on the auction rules: They'll be limited on the licenses they can buy, and under the FCC’s proposal would be able to buy only spectrum with the greatest impairment (see 1502230049). “A central assumption” in the forward auction of spectrum to broadband providers -- “that each spectrum block will be reasonably generic in quality -- has been lost,” AT&T said in its reply comments. “The commenters, in grappling with these issues, broadly agree that the Commission’s proposed fixes will not do the job (and in fact will likely make things worse).”

The FCC can fix the auction most easily by getting rid of impairments by keeping TV stations out of the 600 MHz band plan “to the maximum extent consistent with reasonably high clearing targets,” AT&T said. AT&T reinforced its filing with a blog post by Joan Marsh, vice president-federal regulation. “In many ways” the FCC’s proposals “stray far” from the FCC’s “core missions in the auction, including a commitment to simplicity and fungibility," Marsh said. “The proposals currently on the table introduce interference into the proposed band plan where it need not exist, they contemplate a level of market variability that will be difficult and inefficient to implement, they unfairly foist impairments on the bidders facing the biggest auction restrictions, they tip the auction too far in favor of reserve-eligible bidders and they create significant opportunities for gaming,” she said.

The FCC should keep things simple as it finalizes the auction rules, Verizon said. Various parties want the FCC to increase the amount of spectrum set aside for competitive carriers, eliminate the proposed price trigger, “relegate” Verizon and AT&T to bidding on just the most-impaired licenses and ensure “favored bidders can artificially drive up the prices paid by their rivals for unreserved spectrum,” Verizon said. “The Commission should reject these proposals out of hand, particularly in light of the results in the recent AWS-3 auction, which prove that competitors that want and bid for spectrum can win it,” Verizon said. “The commenters seeking a more aggressive set-aside ignore the intense competition currently taking place among all of the players in the wireless industry,” Verizon said of various proposed changes to the auction rules. “Sprint and T-Mobile both have plenty of spectrum to compete aggressively, as their CEOs regularly acknowledge to Wall Street investors.”

But the Competitive Carriers Association, which represents competitors to AT&T and Verizon, said to guarantee a successful auction the FCC should strengthen the rules to assure that competitors can buy unimpaired spectrum in every market. CCA urged the FCC to allow up to 40 MHz of spectrum be set aside for competitors in every market and make other changes to its proposed rules with an eye on a more competitive wireless market after the auction is finished. “Without a spectrum reserve, the largest two carriers who already possess most of the available low-band spectrum would prevent their competitors from also obtaining low-band spectrum at the 600 MHz incentive auction,” CCA said. CCA also said the auction must happen in early 2016, as proposed.

T-Mobile made many of the same arguments. “Commenters widely recognize that foreclosure of non-dominant providers is a costly consequence of the exceptionally high concentration of low-band spectrum and agree that a spectrum reserve offers an effective mechanism to promote facilities-based competition,” the carrier said. The FCC should also reject demands that the most impaired spectrum be part of the reserve spectrum, T-Mobile said. “After giving away billions of dollars worth of spectrum to the dominant carriers prior to the advent of spectrum auctions, limiting competitive carriers’ low-band spectrum opportunity to the dominant carriers’ cast offs would defeat the purpose of the reserve.”

The Administrative Procedure Act mandates that the FCC, “at a minimum,” provide additional information and clarity to potential buyers concerning impairment of 600 MHz licenses, CTIA said. CTIA also stressed the importance of minimizing impairment to spectrum bought by carriers in the auction. “While some impairment in the 600 MHz band may be inevitable, the Commission should strive to keep it to a minimum,” CTIA said. “This proceeding demonstrates how truly difficult it will be to accommodate market variability. A clear, easily understood framework for addressing impairments will be essential.”

NAB Counters CCA Arguments

NAB attacked the CCA’s defense of dynamic reserve pricing (DRP) and accused the FCC of having an “inappropriate preoccupation with making sure that broadcasters do not receive ‘too much’ money in the auction.” The FCC isn’t buying TV stations, it's buying spectrum, NAB said. "The quest to ensure broadcasters don't get 'too much' out of the auction is irrational, will discourage participation and is untethered to the Commission’s ostensible goals of repurposing spectrum for mobile broadband,” NAB said.

CCA argued in its comments on the PN that DRP will increase participation by allowing the FCC to offer higher opening bids -- an explanation for DRP that FCC officials have also provided. That argument is “ridiculous” because DRP would allow the FCC to reduce the prices that some broadcasters receive in the auction, NAB said. CCA’s argument would require “that broadcasters are so ignorant that they would participate in an auction solely because of inflated and illusory prices, all the while not realizing that the FCC can DRP them into submission,” NAB said. If the FCC institutes DRP, it should also create something analogous on the carrier side, NAB said. “After all, the Commission should be concerned not merely with establishing a market price through competitive pricing, but with finding the highest price CCA’s members would be willing to pay,” NAB said. DRP was also attacked in reply comments from the Expanding Opportunities for Broadcasters Coalition and in joint replies from Ion, Fox, Tribune and Univision. The commission needs to make the threshold of acceptable impairment created by DRP as low as possible, the joint filing said.

The FCC should lower the prices between rounds of the reverse auction in smaller increments, the broadcaster joint comments said. “A fixed one percent decrement would simplify the bidding process and facilitate informed decision making,” the joint filing said. The FCC has proposed a drop of between 3 percent and 10 percent between rounds, but “decrements of that magnitude will put broadcasters in the position of having to accept substantially lower prices in each round,” the broadcasters said. The FCC should adopt a pricing scheme that weights interference over population, as suggested by the EOBC, said a group of licensees that own 140 “auction-eligible television stations” called the Broadcasters for Fair Auction Pricing.

The FCC should do away with a discount on the price for the spectrum freed up when broadcasters move to VHF from UHF, NAB said. There’s no support in the Spectrum Act for such a discount, NAB said. “Why should a broadcaster receive less money if it was relinquishing the same about of UHF spectrum? Where in the Spectrum Act does it suggest that, if a broadcaster ends up with some or all of its 6 MHz that it should be compensated at a lower level?” NAB said, saying the discount is “unlawful.”