Spectrum Aggregation Rules Key to Sprint, T-Mobile Going Big in Incentive Auction, UBS Says
Spectrum aggregation rules for the TV incentive auction likely are key to Sprint’s and T-Mobile’s bidding aggressively in the spectrum sale, UBS analyst John Hodulik said Monday in a research report. FCC Chairman Tom Wheeler is expected to recommend for a vote at the agency’s May 15 open meeting a two-step process under which AT&T and Verizon could see bidding restrictions in many markets (CD April 21 p1). Industry and public interest groups, meanwhile, continue to weigh in on the auction, in FCC meetings, and the Phoenix Center is releasing a report warning that restricting the top-two carriers from bidding would hurt the auction.
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The upcoming AWS-3 and incentive auctions together could see $30 billion-$40 billion in bids, predicted Hodulik. “The key for T-Mobile and Sprint’s ability to secure a substantial amount of low-band spectrum (i.e. more than 5x5 [MHz]) will be the FCC’s willingness to put limits on the purchases of AT&T and Verizon, which control 75 percent of the low-band spectrum in the top 100 markets,” he said. Hodulik said only Verizon of the four major national carriers would be able to fund its spectrum purchases out of operating cash flow.
AT&T and Verizon are slated to hold investor calls this week, AT&T on Tuesday and Verizon on Thursday, where analysts will have a chance to ask about their respective stances on the incentive auction. AT&T warned last week it might sit out the auction if the FCC restricts bidding (CD April 17 p1).
The Phoenix Center is to release a white paper Tuesday that warns that restricting bidding by AT&T and Verizon would hurt auction proceeds. Proponents of restrictions rely on a “revenue enhancement hypothesis,” to argue that “participation by the more successful carriers will allegedly discourage bidding by smaller firms and thus reduce total auction revenues,” the paper said. It examined how participation by AT&T and Verizon affected the 2006 AWS-1 auction. “We find no evidence that AT&T and Verizon reduced the number of bidders for licenses,” the center said. “We find no evidence to support the claim that lower auction revenues resulted from large firm participation. As participants, the two increased overall auction revenues, both by winning licenses and by helping to reveal the valuations of other bidders.”
"For the voluntary incentive auction to be a success, the FCC must structure its rules to maximize revenue in order to incent broadcasters to participate, pay for FirstNet, and to provide significant funds to help pay off our national debt,” said study co-author Phoenix Center President Larry Spiwak. “Restricting the participation of bidders who provided the lion’s share of total auction proceeds in the AWS-1 auction would appear to be counterproductive towards achieving these goals.”
Public Knowledge Senior Attorney John Bergmayer said he attended a meeting Thursday, along with other public interest groups, on the auction. “PK continues to maintain that the Commission should adopt a weighted screen that takes into account the different value (and encumbrances) of different frequency bands in a consistent manner, and that until it does so, (1) it should adopt a hard cap on the amount of sub-1 GHz spectrum any one carrier can control, and (2) not add any new spectrum to the screen,” PK said in a filing posted by the FCC Monday (http://bit.ly/1nD49nW). “All spectrum holdings should at some point be counted toward the screen but it is counterproductive to add to the spectrum denominator without adopting a weighting system. In any event, it is difficult for PK to see the connection between broadening the screen and the incentive auction."
The New America Foundation and PK met with Commissioner Mike O'Rielly to talk about provisions in the rules for unlicensed spectrum, the groups reported (http://bit.ly/1eXsQMt). “We expressed the grave concern in the public interest community that the incentive auction team’s reported recommendations, apparently designed solely to maximize auction revenue, represent an unbalanced and misguided approach that, if adopted, would constitute a decision to kill off the Commission’s longstanding goal -- a goal reiterated in the NPRM -- to facilitate nationwide markets for unlicensed innovation and connectivity in the low-band spectrum below 700 MHz.”
In a report released Monday, Roger Entner, lead analyst at consulting firm Recon Analytics, said the FCC is bucking an international trend if it mostly offers 5 MHz channels for sale in the AWS-3 auction (http://bit.ly/1nkB6Z9). “By embracing more narrow spectrum channels as a preferred policy, the FCC has set itself on a path that forces wireless operators to either accept slower network speeds or significantly higher capital expenditures in the US, an outcome that is out of sync with both technology [and] innovation,” said Entner, who has wireless industry clients. “This decision comes just as global trends in competing markets and America’s insatiable demand for video delivered to their mobile devices come to head.” He said many countries in Europe have offered 20 MHz or larger channels. “Why the global trend to embrace wider channels?” he asked. “It’s all about providing higher speeds at lower cost for the data hungry masses of smartphone users. The faster the network speed, the better the quality of video and data bits traversing the network. The lower the cost, the more people can actually enjoy wireless data services. And the impact that channel size has on network speed is quite direct.”