Next year, the FCC, or Federal Communications Commission, has the unenviable position of being put in charge of the low frequency spectrum auction, which will see chunks of 600 MHz spectrum that is currently used by broadcasting companies packaged up and sold off to carriers for repurposing into low frequency LTE carrier signal. The FCC must negotiate the murky waters between keeping the broadcasters happy, who have an asset that is valuable and so want the best price possible, and the carriers. The larger carriers typically have the deeper pockets, but the FCC is trying to ensure that the smaller carriers (those less able to afford the spectrum) can still obtain their fair share of spectrum. We have already seen T-Mobile US complaining about the tactics of the bigger two networks, AT&T and Verizon Wireless, and now we are seeing continuing jostling ahead of the FCC’s vote on the auction rules, which happens on the 16 July.
The auction is going to consist of two parts, the first being a “reverse auction,” whereby broadcasters agree to sell their spectrum rights but prices drop every round. At the end of a round, the FCC repacks the broadcasters based on the results, so that the broadcasters know if there is still space for their services in the TV band. Once this part is complete, there is a more traditional “forward auction” whereby carriers may big on generic blocks of spectrum. There will be a third stage, the “assignment round” whereby carriers can bid on specific spectrum bands. Following the sub-auctions, the FCC will reassign broadcasters into new channels. Currently, the FCC is planning to set aside up to 30 MHz of spectrum in a given market for those carriers currently having the rights to under 45 MHz of low band spectrum (in that market). The idea here is to give the smaller players a better opportunity to acquire low band spectrum – the two bigger market players, AT&T and Verizon, won’t be able to bid on reserved spectrum across many markets.
One of the risks to the auction process is that the auction must raise enough money to reimburse all broadcasters giving up on their spectrum and to cover their auction costs (such as repacking). If the forward auction does not cover the broadcasters’ expenses, then no licenses will be awarded. Will the smaller carriers be able or willing to pay as much as the broadcasters require to sell on their licenses? T-Mobile US is worried that a reserve will not be created until spectrum bids are already high, and that should broadcasters give up a lot of spectrum, the cost of relocating and repacking them would also be very high. This could lead to a hangover effect on the auction, whereby the carriers are simply unwilling (or unable) to pay the reserve and so the auction cannot proceed. T-Mobile is proposing a third reserve trigger consisting of an average price per MHz-POP or to cover expenses, to ensure that the smaller carriers can acquire spectrum. At the opposite end of the spectrum, AT&T is concerned that by keeping the reserve too low, the FCC could sell off 600 MHz spectrum at under half that what the recent AWS-3 spectrum sold for. AT&T believes that the current proposals allow the smaller carriers to manipulate bidding and keep the reserve prices low, whilst bidding for spectrum in the unreserved auction and pushing these prices higher.