FCC votes to limit AT&T and Verizon in upcoming spectrum auction

Rules for the upcoming TV spectrum auction would reserve a portion of spectrum for smaller carriers if price targets are reached

The U.S. Federal Communications Commission will limit the amount of spectrum the nation's two largest mobile carriers can buy in an upcoming auction of highly sought spectrum now controlled by television stations.

The FCC voted Thursday to approve a controversial spectrum holdings plan that would cap the amount of spectrum AT&T and Verizon Wireless could acquire in the 600MHz auction by reserving about half of the available spectrum in a region for their competitors once bidding reaches a target price.

The FCC plan would set aside up to 30MHz of spectrum available in each region for smaller competitors if the bidding targets are reached during the so-called incentive auction, scheduled for mid-2015. AT&T and Verizon would still be able to bid on the unreserved spectrum. The spectrum available depends on TV stations giving up their spectrum in exchange for a portion of the auction revenues.

FCC Chairman Tom Wheeler and fellow Democrats on the commission defended the spectrum plan, saying the limits are needed to ensure a competitive mobile market in the U.S.

"Every party has a right to bid" under the rules, but multiple carriers need access to 600MHz spectrum to provide competition in rural areas, Wheeler said. "What this rule does is prevent those with current low-band spectrum from monopolizing the market in the auction," he said.

The plan doesn't name Verizon and AT&T, but the limits on bidding would only apply to the two largest U.S. carriers because of the amount of low-band spectrum they already control.

AT&T and Verizon won most of the spectrum sold by the FCC in the 2008 700MHz auction, and the upcoming auction of the TV spectrum may be the last one in several years to include coveted sub-1GHz spectrum that allows mobile signals to travel farther and penetrate buildings easier than higher band spectrum.

The commission's two Republicans blasted the spectrum plan, saying it amounts to the agency picking winners and losers in the mobile industry.

"The primary objective of today's decision seems to be the re-engineering of the wireless marketplace to reflect the commission's vision of how it should be structured," said Republican Ajit Pai. "Rather than choosing competition, we restrict it."

Instead of embracing the free market, the commission "places its faith in centralized economic planning," he added.

The limits on AT&T and Verizon participating could also doom the auction or significantly reduce the bidding, said Pai and fellow Republican Michael O'Rielly.

Congress, in the Middle Class Tax Relief and Job Creation Act of 2012, budgeted about $29 billion to be raised by the TV spectrum auction, with about two-thirds going toward a reduction of the U.S. government's budget deficit, and more than $9 billion to cover the costs of a nationwide mobile network for public safety agencies.

The limits on bidding in the auction "needlessly jeopardizes its success," Pai said. "We need to persuade bidders to bring billions of dollars to the table, and we can't afford to engage in ideologically motivated experiments."

The rule creates a "corporate welfare" for competitors to Verizon and AT&T, after those competitors made past business decisions to avoid low-band spectrum, O'Rielly said. While not mentioning Sprint and T-Mobile USA by name, O'Rielly noted that some competitors chose to sit out the 2008 700MHz auction.

The spectrum plan unfairly penalizes customers of AT&T and Verizon by limiting the spectrum those two companies can add to their networks, he added.

The plan approved Thursday would trigger an FCC review on mobile carrier sales of spectrum below 1GHz when a mobile carrier holds one-third or more of spectrum in any market.

In a related vote, the commission approved the rules for the 600MHz auction.

Pai criticized the rules as overly complicated. A long set of rules is necessary in the complicated two-sided auction, in which TV stations sell spectrum and mobile carriers buy it, because such a spectrum auction has never been previously attempted, Wheeler said.

"Nobody has ever asked that this kind of a Rubik's Cube be put together, let alone tried," he said."You can't go on the Internet and find a quick solution on how you do the [spectrum] Rubik's Cube."

While AT&T has criticized Wheeler's proposal to limit its purchase of spectrum in the auction -- at one point suggesting it might boycott the auction -- the company Thursday said the approved rules put the "auction on the path toward success."

"While we have long opposed auction restrictions and set asides, the compromise framework will give AT&T a fair shot to participate at auction for a meaningful 600MHz footprint," Jim Cicconi, AT&T's senior executive vice president of external and legislative affairs, wrote in a blog post.

The rules approved by the FCC "will give AT&T a fair opportunity to expand its LTE footprint to benefit consumers in all markets, and AT&T remains committed to auction success and anticipates that it will participate broadly," he added.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.

This story, "FCC votes to limit AT&T and Verizon in upcoming spectrum auction" was originally published by IDG News Service .

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