Wireless Competition Hangs Over Spectrum Auction

Even for an agency like the Federal Communications Commission, which specializes in the complicated and arcane world of telecom policy, next year’s planned spectrum auction is a doozy.

The FCC faces a tall order in planning and implementing the “reverse” auction that many have called the most complex undertaking the commission has ever attempted. The agency must develop a plan to encourage television broadcasters to relinquish their airwaves for sale so they can then be repackaged and sold to wireless providers to meet the soaring consumer demand for mobile broadband. There are many moving parts, and there is no way to know how many TV stations will choose to participate, or how much spectrum will be freed up for auction.

But for members of Congress, the debate surrounding the auction boils down to one simple question: Is there enough competition in the national wireless market?

For those who say yes — including many Republicans — the auction is an opportunity to optimize the use of spectrum, a valuable resource, while raising billions of dollars for the federal government to build the national interoperable public safety network dubbed FirstNet and to reduce the budget deficit.

For those more concerned about the state of the wireless market, which includes the Obama administration and many Democratic lawmakers, the auction is a chance to boost smaller wireless carriers so they can better compete against the two largest national providers, Verizon and AT&T. Some Democrats have urged the FCC to take steps, including limiting bidding eligibility, to ensure that those two giants don’t buy up all of the most-desirable spectrum at the auction.

“What this presents is an enormous opportunity to promote a competitive wireless landscape where carriers of all sizes, not just some, have an opportunity to bid competitively for licensed spectrum,” Rep. Anna G. Eshoo of California, the senior Democrat on the House Energy and Commerce Subcommittee on Communications and Technology, told CQ Roll Call recently.

Any electronic device that sends or receives signals to transmit sound, video or data uses electromagnetic spectrum, or airwaves. Not all spectrum is created equal; particular bands have properties that inform what they are used for. The lower-frequency bands can cover greater distances and travel through walls, trees and other barriers, making them well-suited to long-range uses like TV broadcasting. The bands below 1 gigahertz are considered the most valuable, or “beachfront,” spectrum and are desirable for a number of purposes.

Eshoo said Verizon and AT&T control 86 percent of the “beachfront” spectrum in the nation’s 10 largest markets, and she is adamant that smaller carriers need access to low-frequency spectrum to compete.

The Justice Department said as much in an ex parte filing earlier this year, when it recommended that the FCC set aside some low-frequency airwaves at the auction for the smaller wireless carriers, which include T-Mobile USA, Sprint and others.

“The department concludes that rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers,” the DOJ said in its filing.

The Justice Department’s recommendation drew a rebuke from Republicans on the Energy and Commerce Committee. Chairman Fred Upton, R-Mich., and five of his colleagues wrote back arguing that any limitations on bidding would only reduce the amount of revenue generated by the auction.

They also noted that Japanese telecom giant SoftBank is in the process of acquiring Sprint, which would likely give the third-place national wireless carrier more resources at its disposal by the time of the auction. Upton and his colleagues doubled down at an oversight hearing on the auction in July.

“The FCC must not pick winners and losers by excluding certain parties from the auction or constraining parties’ ability to bid,” Upton said. “Doing so would not only reduce revenues but also violate the statute.”

Communications and Technology Subcommittee Chairman Greg Walden, R-Ore., likewise argued for the FCC to let the market work its will.

“Let me be clear: It would be folly, at best, for the FCC to think that it could know better than a true market-based auction the maximum amount the auction could raise,” Walden said.

Republican Michael P. O’Rielly, whom President Barack Obama has nominated to serve as an FCC commissioner, said during his Senate confirmation hearing in September that the agency’s past attempts to “micro-manage spectrum auctions” were “problematic.”

One argument against limiting the bidders is that doing so will only cost the government revenue, as there is nothing to prevent a smaller company from winning spectrum at auction and then turning around and selling it to Verizon or AT&T for a profit. O’Rielly said previous auction winners have done exactly that.

The GOP’s position received a boost last month, when the Progressive Policy Institute, a think tank with centrist Democratic roots, released a report that downplayed the necessity of preserving smaller wireless carriers.

In the PPI report, authors David Balto and Hal Singer argued that the goal of spectrum policy should be better communications networks, not simply more competition in the market. The study suggests that large national wireless carriers may be able to achieve economies of scale that allow them to use spectrum more efficiently than chopping it up among a range of smaller carriers.

“Promoting the livelihood of specific wireless carriers is not an appropriate basis for a regulator to intervene in an input market such as spectrum,” the report states. “Moreover, as wireless customers demand more of their wireless networks, the social benefits of preserving smaller carriers through any programs (including spectrum policy) are increasingly hard to fathom.”

Eshoo wouldn’t specify what mechanism the FCC should use to ensure that smaller carriers have a shot at buying beachfront spectrum, instead referring back to the language of the DOJ filing and the statute authorizing the auction, which was tacked onto the payroll-tax-cut extension (PL 112-96) that Congress cleared in February 2012.

Apart from expressly banning AT&T and Verizon from bidding, the FCC has other options, such as limiting the number of licenses that one company can hold in the 600 megahertz band, which will be the focus of the auction.

“We need to create a lot more competition, there are a lot more carriers eager to participate,” Eshoo said. “That’s what I want to see.”

As crunch time approaches, look for more lawmakers to weigh in from both sides to try to persuade the FCC to set up the spectrum auction to their liking.

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