FCC Under Pressure to Let Sprint, T-Mobile Make Joint Bid in Incentive Auction
Now that a Sprint buy of T-Mobile is off the table, the FCC is under pressure to rethink whether to impose rules that would effectively keep the two from buying spectrum together in next year’s TV incentive auction, industry officials told us. But FCC officials said they've heard nothing to indicate that Chairman Tom Wheeler would want to drop restrictions on joint spectrum purchases by the national carriers.
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Sprint and T-Mobile had reportedly considered jointly raising some $10 billion to spend in the auction (CD July 16 p19). In early August, Wheeler circulated proposed competitive bidding rules. They included a proposed conclusion that national carriers should not be permitted to form joint bidding relationships (CD Aug 4 p1), but that was before Sprint dropped the pursuit of its smaller rival (CD Aug 7 p1).
In an Aug. 1 blog post, Wireless Bureau Chief Roger Sherman warned that allowing national carriers to bid together could be anticompetitive (http://fcc.us/XpHPXD). “If two of the largest companies are able to bid as one combined entity in the auction, their combined resources may have the effect of suppressing meaningful competition,” he wrote.
"One major repercussion to the chairman’s decision to block Sprint and T-Mobile from merging is that now they can both look at the FCC’s rather weak competitive stance in the incentive auction and have a good claim that the chairman needs to revert back to his original pro-competitive auction proposal,” said a former FCC spectrum official who does not represent carriers. “If he is going to take credit for preventing them from merging on the one hand, one would think T-Mobile and Sprint have a strong case for the chairman making sure they are truly viable competitors with the Big Two."
Letting Sprint and T-Mobile bid together could raise revenue, said Public Knowledge Senior Vice President Harold Feld. “This is somewhat complicated,” he said. “The reality here creates a very peculiar dynamic. Normally, you maximize revenue by maximizing the number of bidders. But AT&T and Verizon are so far ahead of all other players, including Sprint and T-Mobile, that they can dominate the auction, essentially reducing it to a two-player auction. In this case, allowing Sprint and T-Mo to jointly bid would move the two-player auction to a higher-revenue three-player auction."
AT&T and Verizon “insisted that they needed to each be able to walk away with 20 MHz” from the auction, Feld said. “There is, at most, 30 MHz in the reserve. If 20 MHz is what it takes to be worth the price of admission to the auction, then either we need to expand the reserve to 40 MHz or let T-Mo and Sprint jointly bid."
"With a merger now off the table, it’s realistic to think the commission will be open to ways of making sure Verizon and AT&T don’t pull away from the pack,” said Paul Gallant, analyst at Guggenheim Partners. “T-Mobile has had a great year, but some investors don’t think it’s sustainable. And Sprint hasn’t yet shown it can pull off that kind of turnaround."
The Department of Justice and the FCC seem to want four national wireless competitors “regardless of how it impacts the long-term viability of the weakest players, so why would that policy suddenly change for the incentive auction, which has already been set up to source the dominant players with their own chunks of additional low band spectrum,” said BTIG analyst Walter Piecyk. “The reality is” Sprint and T-Mobile “can’t afford” to go big in the incentive auction, “which underscores why the dominant players will likely remain dominant,” he said. Piecyk said if the AWS-3 auction raises enough revenue to pay for FirstNet “it doesn’t make much sense to push forward with the incentive auction with controversial rules, lawsuits by broadcasters and balance sheet issues from half the bidders.”
"I am not really sure how Sprint’s dropping its T-Mobile bid changes anything,” said Armand Musey, managing director of Goldin Associates, a New York consulting firm with expertise in telecom and media regulation. “The merger would not have been allowed in any case.”