FCC Plans to Handicap Verizon and AT&T

The agency is expected to impose limits on an upcoming airwave auction to help smaller carriers.

FCC Chairman Tom Wheeler gives testimony before the Financial Services and General Government Subcommittee hearing on 'Review of the President's FY2015 funding request and budget justification for the Federal Communications Commission (FCC).'on March 27, 2014 on Capitol Hill in Washington, DC. AFP PHOTO / Karen BLEIER (Photo credit should read KAREN BLEIER/AFP/Getty Images)
National Journal
Brendan Sasso
April 15, 2014, 4:08 p.m.

The Fed­er­al Com­mu­nic­a­tions Com­mis­sion plans to curb the abil­ity of Ve­r­i­zon and AT&T to buy ac­cess to air­waves in an up­com­ing auc­tion.

The goal of the re­stric­tion on the two largest cell-phone ser­vice pro­viders is to give a leg up to Sprint and T-Mo­bile and to ul­ti­mately boost com­pet­i­tion in the in­dustry. The pro­pos­al, which has not yet been fi­nal­ized, is ex­pec­ted to face fierce res­ist­ance from Ve­r­i­zon and AT&T, as well as Re­pub­lic­ans, who will ar­gue it un­fairly picks win­ners and losers.

“All who want to par­ti­cip­ate in the auc­tion will be able to bid,” FCC Chair­man Tom Wheel­er said in a state­ment. “In or­der to as­sure cov­er­age and com­pet­i­tion in rur­al Amer­ica it may be ne­ces­sary to as­sure no one can mono­pol­ize the bid­ding.”

All wire­less car­ri­ers want to buy ac­cess to more spec­trum — the ra­dio fre­quen­cies that carry wire­less sig­nals. Wire­less net­works have be­come clogged in re­cent years as con­sumers in­creas­ingly stream videos and browse the Web on their smart­phones.

Un­der a plan ap­proved by Con­gress in 2012, the FCC will pay TV sta­tions around the coun­try to give up their broad­cast li­censes. The agency will then auc­tion those li­censes to wire­less car­ri­ers to give them ac­cess to more air­waves to carry their cus­tom­ers’ traffic.

Ac­cord­ing to people briefed on the mat­ter, Wheel­er plans to push an or­der that would cap the amount of spec­trum cer­tain com­pan­ies can win through the auc­tion.

The re­stric­tions would ap­ply to any com­pany that con­trols more than one-third of the low-fre­quency spec­trum in a mar­ket, of­fi­cials said. Low-fre­quency spec­trum is the most valu­able be­cause it can carry traffic over great­er dis­tances.

Al­though the lim­it would ap­ply across the board, it would clamp down al­most ex­clus­ively on Ve­r­i­zon and AT&T, who hold the most low-fre­quency spec­trum. In a few mar­kets, it could also lim­it US Cel­lu­lar and C-Spire — small car­ri­ers that are based only in par­tic­u­lar re­gions.

An open­ing stage of the auc­tion would be open to all com­pan­ies, but once the bid­ding hits a pre­de­ter­mined threshold, the caps would kick in, the of­fi­cials ex­plained. In that second stage, up to 30 mega­hertz of spec­trum in a mar­ket would be off-lim­its to Ve­r­i­zon and AT&T (and any oth­er com­pany over the lim­it). The total amount of spec­trum avail­able in a mar­ket will de­pend on how many TV broad­casters de­cide to go off the air. 

The re­stric­tions are in line with a form­al re­com­mend­a­tion the Justice De­part­ment made last year. The de­part­ment ar­gued that without ad­equate caps, Ve­r­i­zon and AT&T could buy up enough spec­trum in the auc­tion to kill off com­pet­i­tion in the in­dustry and raise prices.

The large cell-phone car­ri­ers have an in­cent­ive to not only buy spec­trum for them­selves, but also choke off their com­pet­it­ors’ ac­cess to it, the Justice De­part­ment con­cluded in an eco­nom­ic ana­lys­is.

If a car­ri­er doesn’t have enough spec­trum, it could cause dropped calls and stalled down­loads, lead­ing cus­tom­ers to flee to com­pet­it­ors.

But Re­pub­lic­ans have pushed for an open, un­res­tric­ted auc­tion. They ar­gue that ar­ti­fi­cial caps will de­press auc­tion rev­en­ue, which the gov­ern­ment plans to use to re­duce the de­fi­cit and pay for a na­tion­wide high-speed com­mu­nic­a­tions net­work for first re­spon­ders. Sev­enty-eight House Demo­crats ex­pressed sim­il­ar con­cerns in a let­ter to the FCC last week. 

Wheel­er is ex­pec­ted to share the rules with the oth­er four FCC com­mis­sion­ers next week. The agency will then vote on the pro­pos­al at its meet­ing on May 14.

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