The Federal Communications Commission (FCC) will reserve up to 30 MHz of spectrum in the 600 MHz auction for “providers that currently hold less than 1/3 of suitable and available low-band spectrum in a license area”. The rules favour Sprint Corp…
The Federal Communications Commission (FCC) will reserve up to 30 MHz of spectrum in the 600 MHz auction for “providers that currently hold less than 1/3 of suitable and available low-band spectrum in a license area”.
The rules favour Sprint Corp and T-Mobile US, which are short of low-band frequencies, but are not as strict as incumbents AT&T and Verizon Wireless had feared.
Should Sprint and T-Mobile consummate their courtship and agree to merge before the incentive auction, scheduled for next year, then the rules would be rewritten as they are based on the current market structure.
The incentive auction is two-sided, designed to use market forces to recover 600 MHz spectrum from broadcasters and put it into the hands of mobile operators. The low-band frequencies are considered ‘beachfront property’ by telcos as they are ideal for deploying LTE.
The proposals have been met with approval from the three largest mobile network operators. In a blog post AT&T’s external and legislative affairs SEVP, Jim Cicconi, wrote: “While we have long opposed auction restrictions and set asides, the compromise framework will give AT&T a fair shot to participate at auction for a meaningful 600 MHz footprint.”
Verizon’s SVP of public policy Craig Silliman commented that the rules will “help ensure that all carriers have the opportunity to acquire the spectrum necessary to serve their customers”.
Sprint welcomed the fact that the rules would enhance the ability of small carriers to bid on “critical low-band spectrum.” But Lawrence Krevor, VP of spectrum, legal and government affairs, criticised the regulator’s re-adjustment of the so-called “spectrum screen”, a formula designed to limit the total amount of spectrum any one company can own in a specific market.
“We are disappointed … that in revising its spectrum screen the Commission did not recognize the varying impact of commercial spectrum bands on broadband competition,” Krevor said in a statement.
“As a result, the revised spectrum screen will not help the Commission identify transactions that warrant a more detailed competitive analysis.”
Impact on formation of “super maverick”
New Street Research analyst Jonathan Chaplin wrote in a note to investors that the rules were not good news for a Sprint/T-Mobile merger.
“We believe the way the rules are set poses a serious challenge for a Sprint/T-Mobile merger (could the FCC be sending a message?),” Chaplin said.
“Sprint is at or above the screen in most markets [and] as such, a transaction with T-Mobile would trigger enhanced scrutiny and significant spectrum divestitures would likely be required.”
The proposals did not address the “fundamental scale problem that the challengers face”.
“They don’t have enough revenue to earn an adequate return on invested capital,” he concluded.
Credit Suisse analyst Joseph Mastrogiovanni highlighted comments from Commisssioner Ajit Pai, which followed quotes attributed to Commissioner Jessica Rosenworcel earlier this week which were read as positive for a Sprint/T-Mobile tie-up at the time.
“Commissioner Pai pointed out that there is language in the spectrum aggregation rules that could allow the FCC to retract the reserve rules if a major transaction among the top four carriers is announced.”
“It’s possible that Rosenworcel’s comments, which acknowledged that Sprint and T-Mobile could have trouble remaining viable, were meant to foreshadow why a spectrum reserve for 600 MHz is needed [as opposed to a merger being needed].”
However, Sprint’s share price rose 6% following the announcement as others have been relieved that the rules were not as strict as they could be. Roger Entner, analyst at Recon Analytics, was quoted by a newswire as saying that “the less stringent the rules are on spectrum, the more leeway you have to allow [a merger].”
T-Mobile’s stock went up 1.3% while AT&T and Verizon shares were largely unmoved.
