FCC’s Wheeler Plans Incentive Auction, Reservation of Low-Band Spectrum

The Federal Communications Commission is moving forward with a plan to hold a highly anticipated “incentive auction” in 2015 that will open up low-band spectrum for wireless providers and give broadcasters an opportunity to relinquish airwaves for a portion of the proceeds.  

The groundbreaking auction will mark the first one since roughly $19.5 billion was raised in an auction of 700 MHz spectrum. That was in 2008 when the iPhone was a baby and before tablet computers flooded the American market.

Spectrum Crucial for Wireless Industry

The spectrum is important to wireless carriers because it can travel longer distances and better penetrate buildings and other obstacles than higher-band spectrum, resulting in lower costs to deploy it, according to Sprint, T-Mobile USA and others in an FCC filing.

“The broadcast TV incentive auction is one of the most significant proceedings in terms of the future of the mobile broadband industry and in terms of maintaining our global leadership in the mobile Internet,” said Scott Bergman, vice president of regulatory affairs with CTIA-The Wireless Association, in a phone interview.

Although less than 5 percent of the world’s population resides in the United States, the country is home to more than 325 million wireless subscribers and nearly half of subscribers on LTE, a high-speed mobile technology, Bergmann said. Informa Telecoms & Media previously forecast the number of LTE subscriptions in the United States would soar from 89.8 million at the end of 2013 to 242.1 million at the end of 2018.

FCC Chairman Circulates Proposal

Last week, FCC Chairman Tom Wheeler circulated a proposed order to his colleagues that would lay out the terms of the auction, which is expected to be held in the summer of 2015.

Wheeler’s proposal includes plans to reserve a portion of low-band spectrum for mobile-phone providers that lack such capacity. That is good news for Sprint, T-Mobile USA and smaller wireless providers that compete with AT&T and Verizon Wireless.

As part of the auction, FCC also will make available nationwide spectrum for unlicensed use, such as Wi-Fi, Wheeler noted in an April 18 blog.

The FCC is expected to vote on an order governing the auction during its May 15 meeting.

In an April 17 letter to Rep. John Barrow (D-Ga.), Wheeler said AT&T and Verizon Wireless control a combined share of nearly two-thirds of the low-band spectrum licenses. By comparison, the other national wireless providers control a combined share of 10 percent, he said.

Wheeler noted wireless providers holding more low-band spectrum provide greater rural coverage.

Wireless Providers Weigh In

AT&T previously told the FCC that restrictions on bidding could dissuade it from participating in the auction.

“By precluding AT&T and Verizon from even bidding for certain blocks, the proposal would essentially create a set aside that eliminates real bidding competition for the benefit of the favored non-restricted companies,” Joan Marsh, AT&T vice president-federal regulatory, wrote in an April 16 letter to FCC. “The restrictions would put AT&T in an untenable and unacceptable position. AT&T could either participate in the auction, accepting that it will likely obtain only a fragmented and inefficient 600MHz footprint, or it can choose to withhold its capital for other investments and sit out of the auction entirely.”

An FCC official addressed arguments about imposing conditions on the auction.  

“When he (Wheeler) proposes reasonable rules of the road to prevent a single company to run the table at the incentive auction, he is speaking on behalf of consumers and competition,” the FCC official said. “Companies are free to advocate the views that are in their best interest, but the public interest is not measured against the business model of one or two companies; it is measured against the ability of the market to deliver the benefits of competition to Americans in urban, suburban and rural America alike.”

T-Mobile USA and Verizon Wireless also have haggled over the incentive auction.  

In an FCC filing April 11, T-Mobile USA sought to rebut Verizon’s claim that T-Mobile USA doesn’t need additional low-band spectrum simply because it has applied to purchase certain 700 MHz A Block spectrum licenses from Verizon.

“As Verizon well knows, the spectrum that T-Mobile has sought to acquire covers only half the population of the United States and represents only about 4 percent of nationwide low-band spectrum,” Trey Hanbury, counsel to T-Mobile USA, wrote.

Spectrum Contingent on Broadcasters’ Participation

Bergmann of CTIA said the spectrum auction is exceedingly important to a U.S. wireless industry that invested more than $34 billion last year in networks and towers.

Bergmann said the wireless industry invests billions of dollars purchasing and building out facilities to support new spectrum.

“That investment facilitates innovation that happens across the whole wireless ecosystem,” he said. “It allows the innovation of new devices, of new operating systems, the applications and that’s what spectrum allows, facilitates.”

Of the 3000 MHz of spectrum in the United States that is ideal for mobile broadband deployment, only 500 MHz is licensed for commercial broadband use, he said. Bergmann said more than 60 percent of the spectrum is allocated to the government while 300 MHz is used for over-the-air broadcast, a business whose viewership has been precipitously declining thanks to cable and satellite TV and Internet alternatives like Netflix and Hulu.

The National Association of Broadcasters (NAB) has raised concerns over the effect of the FCC’s auction on broadcasters’ rights. In an April 4 FCC filing, NAB said the agency has proposed changes to a methodology governing preservation of coverage areas and populations served by broadcast stations. The FCC has proposed a different methodology in its TVStudy than the one provided for under a 2012 law known as the Spectrum Act, according to NAB.

“OET’s proposal to adopt a novel methodology for predicting coverage and interference in the incentive auction proceeding is representative of a troubling trend of misuse of delegated authority within the Commission,” NAB argued in the filing.

Through its written order, the FCC will likely attempt to address broadcasters’ concerns because the success of the auction is largely dependent on their willingness to participate. Wheeler said last week that broadcasters’ voluntary participation in the auction doesn’t mean they will have to exit the TV business.

“New channel-sharing technologies offer broadcasters a once-in-a-lifetime opportunity for an infusion of cash to expand their business model and explore new innovations, while continuing to provide their traditional services to consumers,” he wrote in his blog. “We will ensure that broadcasters have all of the information they need to make informed business decisions about whether and how to participate.”

Proceeds from the auction won’t go entirely to broadcasters. Part of the funds will support the construction of a nationwide public safety broadband network known as FirstNet (First Responder Network Authority) and next-generation 911 research, Bergmann said. Money also will be earmarked for the Treasury Department to reduce the national deficit, he said.

The Middle Class Tax Relief and Job Creation Act of 2012 created FirstNet as an independent agency within the National Telecommunications and Information Administration (NTIA), which is an agency within the U.S. Department of Commerce that advises President Obama on telecommunications and information policy issues.

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