FCC Wants to Limit AT&T, Verizon Winnings in 600-MHz Spectrum Auction

Sprint and T-Mobile U.S. have been arguing, and AT&T has been arguing against set-aside policies for the upcoming “Incentive Auction” that aims to reallocate television broadcast spectrum for mobile purposes.

But it appears the U.S. Federal Communications Commission will use a “reserve” or set-aside approach for the auction.

Though all contestants can bid for any spectrum they desire, when a price threshold is met, AT&T and Verizon will be constrained from bidding on a few “reserved” spectrum blocks, not to exceed 30 MHz of spectrum in total.

“Reserve-eligible” bidders (primarily Sprint and T-Mobile (News - Alert) US, as a practical matter) who are still actively bidding at the trigger point will then begin bidding for reserved spectrum against only other eligible bidders.

Precisely how much spectrum might actually be offered for sale cannot yet be determined, but AT&T thinks a successful auction would free up about 84 MHz worth of total new spectrum.

There is greater uncertainty about the incentive auction. It is a two stage process, and might fail if broadcasters decide the prices they would receive for their spectrum are too low.

AT&T argues that spectrum reserve policies necessarily will affect prices for the reserved spectrum in a downward direction.

On the other hand, the reserve policies are likely to raise prices for bidders for non-reserve spectrum.

In a new study, Phoenix Center for Advanced Legal & Economic Public Policy Studies scholars analyzed data from the 2006 AWS-1 spectrum auction and found that AT&T alone accounted for nearly half of all auction proceeds, even though its winning bids were only about 10 percent of the total.

AT&T and Verizon, directly and indirectly, were responsible for about 70 percent of total auction revenues.

AT&T's efforts—whether it won or not—added a 21 percent premium to final auction prices above and beyond the revenue effects of the typical bidder, the study suggests.

In other words, if raising revenue is important, and in this case it is essential, spectrum reserves could depress bid prices, thereby reducing revenue available to encourage broadcasters to part with their spectrum.