The FCC has rejected a request by T-Mobile US (NYSE:TMUS) to reserve additional spectrum for smaller carriers in the 2016 spectrum auction, when setting out the bidding procedures.
The FCC has reaffirmed its decision to establish a market-based reserve of up to 30 MHz of spectrum at next year’s auction of 600 MHz broadcast TV spectrum in order to promote competition in the wireless space. Non-nationwide providers and nationwide providers with less than a third of available high-quality, low-band spectrum will be eligible for this reserve.
Number three wireless carrier T-Mobile has battled for more than a year to boost the reserve to 40 MHz. Largest players AT&T and Verizon, which hold 70% of low-band spectrum, argued against increasing it.
The FCC said its spectrum reserve policies are designed to strike a balance among objectives including making additional low-band spectrum available to multiple providers, ensuring all bidders have an opportunity to acquire 600 MHz airwaves and ensuring competitive bidding.
“The reserve is designed to protect against excessive concentration in holdings of low-band spectrum, while also promoting competition by bidders for both unreserved and reserved spectrum.”
FCC chair Tom Wheeler noted that the incentive auction offers one of the last opportunities for operators to acquire a significant amount of low-band spectrum, which travels farther than other types and penetrates buildings better.
Wheeler said the 30 MHz reserve will ensure multiple providers have the chance to acquire some.
He noted that the rules are spectrum holding-based, rather than company-based, meaning a company’s eligibility is determined by its low-band holdings in each market and not by its overall size.
Commissioner Ajit Pai said in his own statement that he does not support increasing spectrum reserves and therefore agrees with the order.
He is, however, against setting aside spectrum for certain bidders in general.
“Our record … as well as domestic and international experience show that spectrum reserves do not produce long-term benefits for wireless competition,” he contended. “Set-asides also impose severe costs, including significant delays in the deployment of spectrum for consumers’ benefit and substantially less revenue for critical national priorities.”
Bidding procedures outlined
In a separate statement, the FCC said it has established the bidding procedures for next year’s auction, set to begin on 29 March.
While the final order has yet to be released, the commission said it had determined how much spectrum would be auctioned, enabling market forces to determine the highest and best use of spectrum on a near-nationwide basis. The process also lowers the average ‘impairment threshold’ (the maximum percentage of the population that new wireless licensees cannot serve) by as much as half.
The commission also affirmed the proposed average price and spectrum benchmarks of US$1.25 and 700 MHz respectively.
Using these figures, New Street Research analyst Jonathan Chaplin calculated total proceeds of US$16bn across the top 40 markets, covering 182 million people.
“If more spectrum is auctioned, the gross proceeds must be greater than US$16bn (but price per MHz-POP can come down),” he said.
However, if there is insufficient demand to clear 70 MHz at US$1.25, the amount of spectrum auctioned would be reduced until there is enough demand at that price, he added.
Chaplin noted that the reserve price is the same as the final price for 700 MHz spectrum in the 2008 auction – the highest amount previously bid for low-band spectrum. In the last three major auctions, the final bids were between two and five times the reserve price for 2016, he added.
“More importantly, Dish’s mid-band spectrum is more valuable to AT&T and Verizon than the 600 MHz being auctioned – and these two carriers will likely drive most of the demand for marginal spectrum,” he said, noting that mid-band spectrum is better than low-band for reducing network congestion in dense markets.
Dish’s spectrum currently has a market value of US$1.24 per MHz-POP, he said.
He believes the high reserve price could be “a modest negative” for auction participants, especially incumbent AT&T, which has committed to bidding US$9bn in the auction.
Chaplin predicts that the FCC will release the final rules within the next week.
