Competitive Carriers See AT&T/Club 42 Licenses as Test of FCC Spectrum Holdings Policy

AT&T would go above that threshold in the California markets and, unlike a few other deals that have cleared the FCC, the Club 42 buy faced formal opposition. Industry officials expect the FCC to act on some pending secondary market deals before the quiet period around the TV incentive auction kicks in.

Records show AT&T has some 15 proposed low-band spectrum buys before the FCC, which would trigger enhanced scrutiny under the order, including the two most recent -- licenses from Peoples Wireless and Blanca Telephone (see 1511090046). They vary widely in size, from spectrum covering a few thousand POPs in the case of NE Colorado Cellular, to more than 1.5 million POPs.

“AT&T is continuing its effort to foreclose competition by buying up all of the available low-band spectrum through one secondary market transaction after another,” said Steve Sharkey, chief-engineering and technology policy at T-Mobile. “The FCC should set a strong precedent by enforcing its enhanced factor analysis to meaningfully protect competition by preventing further low-band spectrum concentration in the hands of dominant carriers.”

AT&T’s “continued grab of low-band spectrum has been a concern and continues to be to anyone who values wireless competition,” said Steve Berry, president of the Competitive Carriers Association. Berry said AT&T and Verizon control 73 percent of all low-band spectrum in the U.S. and that percentage is growing. “AT&T has been buying up low-band spectrum and foreclosing smaller carrier opportunities to purchase additional spectrum necessary to effectively compete in the 4G and 5G worlds,” Berry said. “The commission is right to pay added attention to further spectrum aggregation by AT&T.”

In OK'd deals, AT&T went over the one-third of low-band holdings limit only with the additional spectrum, Berry said. That isn't the case with Club 42, where AT&T is already over the limit in one of the markets, he said. “CCA has pressed the commission to review this transaction with close scrutiny, or else the enhanced factor standards will have little meaning or impact,” he said. “AT&T has played a ‘cat and mouse’ game with the FCC on triggering the enhanced factor standard, and the commission must set a strong precedent through its review of this transaction by rigorously applying the standards in a meaningful way.”

In a September blog post, Joan Marsh, AT&T vice president-federal regulatory, said there's no real argument about the merits of the Club 42 deal. “Without offering any cogent argument or justification, CCA and T-Mobile have opposed the deal, arguing that the Commission should simply prohibit any incremental low-band spectrum aggregation by AT&T and Verizon,” she wrote. “They essentially assert that low band spectrum transactions should be deemed presumptively unlawful for any company named AT&T or Verizon.” AT&T declined to comment Tuesday.

The FCC traditionally has allowed small secondary market deals like the Club 42 sale as a way to get unused or underused spectrum into play, said Roger Entner, analyst at Recon Analytics. “It is quite peculiar that a small carrier association … tries to block such a transaction,” Enter said. “Does that mean that in the future the CCA will also try block divestitures of spectrum by its own members to a large carrier? Regardless, the overarching question is if the people of San Luis Obispo and King County are better served by having less LTE coverage?”

The FCC needs to lay down a marker, said Harold Feld, senior vice president at Public Knowledge. “The test here is not simply whether or not the commission grants the application, but the analysis,” Feld said. “Inherent in the commission's decision to go with a screen rather than a cap is the likelihood that some transactions above the screen will be approved. Unsurprisingly, AT&T has started with a case they think gives them the opportunity to establish a strong precedent in their favor.”

The FCC could still approve the Club 42 deal “but do so in a way that makes clear what were the deciding factors so that in the next transaction, parties have a clear understanding of what they need to show to block or get approval for transactions where the acquirer already exceeds the screen,” Feld said.

Rural Wireless Association has long been concerned about wireless industry consolidation, said General Counsel ​Carri Bennet. “Rural wireless carriers have traditionally had three sources of revenue: (1) roaming fees from other carriers; and (2) Universal Service Fund support; and (3) subscribers on their own network,” Bennet emailed. “But rural carriers have seen their USF support slashed to 60 percent and, for many, roaming revenues have dried up as large carriers choose not to allow their subscribers to roam on rural carriers networks by blocking access to them. Subscribers are also tough to come by, given the difficulty and expense of procuring the latest handsets and declining population in some rural areas.”

The FCC in May approved the first buy of spectrum licenses where the acquiring party then exceeded the one-third threshold -- AT&T’s buy of two lower 700 MHz C block licenses from Plateau Wireless (see 1505080041). That deal was unopposed.

CCA filed an Oct. 17, 2014, petition asking that the Club 42 transaction be denied. “AT&T utterly fails to demonstrate that the increased low-band spectrum concentration flowing from the proposed transaction would be pro-competitive or in the public interest,” CCA said in the petition. AT&T and Club 42 fired back two weeks later. “Based on the case-by-case analysis of transactions introduced a decade ago and reaffirmed in the Commission’s recent Mobile Spectrum Holdings Order, this transaction plainly meets the Commission’s balancing test, and the Commission should grant the instant application promptly,” they said.