Competitive Carriers Say They're Making Headway Convincing FCC To Change Incentive Auction Trigger
Members of the SaveWirelessChoice Coalition urged the FCC via a call with reporters Monday to address the two-step “trigger” under which “reserve” spectrum would be set aside for carriers without significant low-band spectrum in a market in the TV incentive auction. Under FCC rules approved in May 2014 (see 1405160030), the first trigger occurs when auction proceeds in the top 40 partial economic areas exceed an average price of $1.25 per MHz/POP. The second occurs when the auction raises enough money to reimburse all broadcasters for the spectrum they surrender and cover other remaining auction expenses, including repacking.
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Former Rep. Henry Waxman, D-Calif., now a consultant to T-Mobile and the coalition, said when Congress approved the spectrum law setting up the auction it wanted to ensure that competitive carriers would have a fair shot at buying 600 MHz spectrum. “Unfortunately the incentive auction does not begin with the reserve in place, but rather depends on the auction meeting two triggers,” Waxman said. “It looks like these two triggers may allow the dominant parties to outmaneuver the possibility of competition” and make the reserve “nonexistent when the auction is all said and done.”
“This is the last great hope for low-band spectrum,” said Chip Pickering, CEO of Comptel and former Republican representative from Mississippi. “This is the last, best chance to achieve major public policy and competitive economic objectives.”
Steve Sharkey, senior director-engineering and technology policy at T-Mobile, said the coalition's arguments are gaining traction at the FCC. “In meetings with the staff they recognize that the gaming opportunities are real and that there is a real risk here,” Sharkey said. But staffers also complain that the software program to make the auction work is complex, Sharkey said. “They’ve been concerned that tinkering with that at this point is a problem,” he said. But there's still time to address the trigger, he said: “Ultimately sound policy has got to determine the auction structure.”
Economists agree “this is a real problem” and could result “in an auction in which very little spectrum goes to competitive carriers, if any,” said Larry Krevor, Sprint vice president-legal and government affairs. “Since we have demonstrated it, it only makes sense for the commission to go ahead and do the work to fix it. If it takes a couple of weeks to do that, well then it will take a couple of weeks."
“The problem is we set this up before the AWS-3 auction,” said Harold Feld, senior vice president at Public Knowledge. The big concern when the trigger was approved was whether the FCC would raise enough to pay for FirstNet, he said. “There was a lot of concern that maybe the closing price would be relatively low.” After the success of the AWS-3 auction, it appears bidders will “blow past $1.25 in the top markets relatively quickly” at prices that will pay the costs of the auction.
The problem is that unless competitive carriers know early there will be reserve spectrum, AT&T and Verizon can “game” the auction, Feld said. The two can “stretch this out” and “hack” the rules so by the time competitive carriers know for sure there's a reserve they “are not in a position to take advantage of it or are not in as good of position to take advantage of it,” he said. “It would be very, very unfortunate, to put it mildly, if we went to all this trouble to have a reserve and then the reserve was not able to actually work effectively.”
“This is just another page from the same government handout playbook,” a Mobile Future representative said in response to the coalition. “T-Mobile, Sprint and Dish [Network] continue to concoct various schemes by which the FCC would give them cheap spectrum. They already got a set-aside of the best spectrum, a benefit that is unprecedented in FCC auction history, but that’s no longer enough. Now they want to avoid having to pay their share of clearing and relocating broadcasters off the spectrum.” If the auction doesn’t provide enough money to pay broadcasters “the incentive auction will fail to achieve its central purpose, which is to deliver new spectrum allocations to meet the nation’s mobile broadband needs,” Mobile Future said.
Verizon offered a similar critique of the coalition and its members. “They demanded and got a set-aside of three licenses, which allows them to win licenses of valuable spectrum at below-market prices without having to compete against Verizon or AT&T in most markets,” a Verizon spokesman said. “And they got the FCC to set aside the best licenses in the auction. All the FCC asked was that they pay at least a minimum amount for those licenses, and that they pay a fair share of the costs of clearing broadcasters from the spectrum.”
AT&T filed a letter at the FCC Monday disputing recent T-Mobile arguments proposing changes to the incentive auction rules (see 1507060068). “The Commission has already adopted an unprecedented auction framework to give T-Mobile special treatment in the auction by creating a protected reserve auction that, by design, will allow T-Mobile to purchase large amounts of 600 MHz spectrum free from auction competition at the expense of taxpayers (auction revenues will be lower) and rivals (mainly AT&T and Verizon),” AT&T said in the filing in docket 12-268.
“CCA members are most in need of the critical low-band spectrum to be sold in the upcoming incentive auction, which is why the Commission created the spectrum reserve,” said Steve Berry, president of the Competitive Carriers Association. “Unfortunately, CCA and others have shown the FCC that, as currently constructed, the spectrum reserve may come into effect too late in the auction, or worse, never at all.”