Play Fair, T-Mobile. No Spectrum Caps on Government Auction!

T-Mobile recently proposed their Dynamic Market Rule (DMR) in order to limit the amount of spectrum a carrier could win in the upcoming auction of government spectrum. While declaring that this rule would make the auction fair for smaller carriers like T-Mobile against the two major providers, Verizon and AT&T, this would be the opposite of fair. A handicap in T-Mobile’s favor would serve only T-Mobile’s interests, and not only would other companies be put at a disadvantage, but consumers and taxpayers in general would, too. 

 

The DMR would require the FCC to rig the auction so that T-Mobile has an advantage to win spectrum in the 600 MHz band for lower than market value.  Lower than market value!  That means the government will subsidize T-Mobile’s bids.  Congress directed the FCC to auction spectrum release by broadcasters in order to raise money to build a nationwide interoperable public safety network and pay down the debt.  Allowing any company to bid on spectrum at a subsidized rate will not follow the direction of Congress in pursuing those goals. 

 

Additionally, the DMR would limit carriers from buying more than 10 MHz of radio spectrum in any market. This is not just a business issue, but also a practical issue in the way that spectrum needs to be paired in order to deliver effective commercial wireless service. To maximize high-speed mobile service benefits, carriers need between 20 MHz and 40 MHz spectrum blocks for up and down links, providing a larger “wireless pipe” to process a massive amount of data in the form of e-mails, YouTube videos, etc. In fact, if you look at the suggested spectrum reallocation parings submitted by engineers, the preference is for 20 MHz paired block with at least 10 MHz up-link and 10 MHZ down-link.  These reallocations and pairings vary depending on how much spectrum broadcasters actually make available for auction.  By restricting acquisitions to 10 MHz, advancements in high-speed mobile broadband would be curbed.

 

This goes beyond big wireless companies and affects all American taxpayers. With these restrictions, auction revenues would plummet, as shown by an independent Georgetown University study. This rigged auction and, thus, reduced competition would cause a revenue loss of $12 billion—a significant amount of money that could be put to good use by the government in paying off the deficit or providing taxpayer relief. 

 

The Congressional Budget Office estimated that the broadcaster auction would “yield $6.5 billion toward deficit reduction out of a total estimated take of $24.5 billion after compensating licensees for exiting.” So with a revenue loss of $12 billion, forget about deficit reduction, and good luck building a national interoperable public safety network. 

 

Of course, the CBO numbers are based off of the assumption that 124 MHz will become available for auction.  However, experts agree that the best we can hope for is 84 MHz and there is a lot of talk of leaving unlicensed spectrum—suggested numbers range from 35 MHz to 15 MHz.  With a screen implemented, the FCC will be lucky to break even on the auction.  Revise that: taxpayers will be lucky if they aren’t paying the auction bill.

 

If the FCC supports T-Mobile’s DMR, it would make it clear to the U.S.’s over 200 million wireless users that the company prerogatives are more important than their mobile connections and their tax dollars, in addition to completely disregarding the law passed by Congress. 

 

However, Commissioner Ajit Pai has been a leading figure in the fight against spectrum caps, and he has asserted the need for “letting all the wireless players participate in the auction and letting market forces sort out who wins and who loses.” Read more about Pai’s defense of an open market auction at a recent CTIA spectrum panel here.

 

This is a matter of want versus need. Yes, every provider, including T-Mobile, would like to gain more spectrum than its competitors. However, the competitive market will help decide how much of this incredibly scarce resource each provider needs. Not to mention, in the last auction, T-Mobile and Sprint did not even participate, but now they want a leg up from the government.

 

A recent Forbes article pointed out that in supporting restrictions similar to T-Mobile’s proposal, the DOJ completely overlooked Sprint’s recent acquisition of Clearwire and the large amount of spectrum along with it (over 120 MHz). The FCC may do the same. Sprint, a company that would supposedly be disadvantaged in an unregulated spectrum auction according to T-Mobile and the DOJ, now has 178 MHz of spectrum. Much of the spectrum acquired was high-frequency (around 2.5 MHz) and thus was dismissed in DOJ’s considerations; however, both AT&T’s and Verizon’s high-frequency holdings were taken account for. As the article says, “This is Washington picking winners and losers.”

 

Not only did Sprint get a low-profile and a massive boost in spectrum holdings, but T-Mobile did too. In March, T-Mobile merged with MetroPCS and acquired its spectrum; also, last month, T-Mobile purchased $308 million worth of AWS spectrum from U.S. Cellular to help with its deployment of 4G LTE. With the proposed FCC handicaps at auction, T-Mobile will only add to its already sizeable collection of spectrum at the expense of its competitors.

 

According to AT&T’s 2012 Sustainability Report, from 2007 to 2012, mobile data traffic on the provider’s wireless network increased by 30,000 percent. The demand is clearly and overwhelmingly there, and these providers need to ensure that they can supply the proper amount of spectrum as the demand only continues to grow over the next five years. A significant amount of spectrum is absolutely needed in order to maintain that network, as well as prepare it for future technological advances. 

 

While all wireless services have seen a boom in demand, the millions upon millions of AT&T and Verizon customers cannot be expected to tolerate poor quality and outdated wireless service, all because the FCC catered to T-Mobile and other companies were unable to acquire the appropriate amount of spectrum needed from the auction. 

 

It all comes down to healthy market competition. Without it, AT&T and Verizon (and their customers) are put at an unfair disadvantage, advancements in high-speed mobile broadband cannot be executed, and the government and tax payers benefit much less from the auction itself. If the FCC does adopt T-Mobile’s Dynamic Market Rule, one company will win, and an entire nation of wireless users and taxpayers will lose.

 

It is important to keep in mind that, despite the fact that the recent PCAST report shows that the government holds around 65% of the 225-3700 MHz band, experts consider it optimistic to expect the government to auction off just 84 MHz of spectrum. Wireless carriers need to get as much of this small slice of government spectrum as they can so that consumers can truly benefit.