The FCC Wants to Know: How Much Spectrum Is Too Much Spectrum?

FCC opens inquiry into whether, and how, and how much, wireless spectrum holdings should be limited.

It’s undeniable that a small handful of carriers control an overwhelming amount of mobile spectrum in the U.S. Many observers of the communications landscape believe that that intense concentration has reached alarming proportions. Unfortunately, to date federal regulators have not tended to be among those hand-wringers.

As a result, Verizon and AT&T, and to a lesser extent Sprint and T-Mobile, have increasingly gobbled up huge chunks of spectrum both through auctions and in secondary market transactions, leaving only the crumbs for smaller carriers to squabble over. Often the FCC auctions the spectrum in increments covering huge territories – Regional Economic Area Groupings (REAG) or Major Economic Areas (EA) – that span as many as ten states. Such vast areas are too big for a small or medium sized carrier to handle and usually more than even the largest carriers can hope to build out in a reasonable timeframe.   So a considerable amount of spectrum lies moldering in the larders of the largest carriers for a rainy day while smaller carriers cannot fulfill their customers’ basic needs.

Now the FCC has decided to take a fresh look at its policy on mobile spectrum holdings. In a Notice of Proposed Rulemaking released in September (and published in the Federal Register in early October) , the FCC has opened a far-ranging and much needed inquiry into all aspects of the spectrum accumulation issue.

As telecom veterans know, the FCC has historically tried to impose hard and fast, “bright line” limits on the amount of spectrum that can be held by wireless carriers either nationally or in a given market. In ancient times, for example, mobile communications spectrum was divided between wireline cellular carriers with one block on one side of an impenetrable wall and non-wirelines with another block on the other side. And never the twain could meet. 

Such efforts to artificially restrain spectrum agglomerations have always ultimately fallen by the wayside, victim to various pressures that overcame the agency’s misgivings about spectrum concentration, For example, the pressure to allow operators to take advantage of economies of scale, or the pressure to let market forces function without interference (Of course, those market forces often promote consolidation, since smaller carriers can’t seem to resist the temptation to sell out to bigger carriers offering large amounts of money.).

The most recent iteration of the FCC’s attempt to control, or at least impede, wireless spectrum concentration is the so-called “spectrum screen.” Under the screen, the FCC raises its regulatory eyebrow if a single carrier proposes to control more than a third of the total mobile terrestrial spectrum available for licensing. The limit is not really a limit – it only calls for heightened scrutiny by the agency – but it is intended to serve as a sort of soft and spongy line that could normally be crossed only for good cause. 

The quantum of spectrum included in the screen process has necessarily been adjusted over the years as new spectrum resources (AWS, BRS, 700 MHz) have been added into the mobile mix. So while the screen offers some guidance, potential spectrum acquirers may still not know what the applicable limit really is. And as we are taught in Economics 101, markets hate uncertainty. The uncertainty is especially troubling in the auction context because an auction winner who crosses the invisible line by successfully bidding on too much spectrum would theoretically be subject to post-auction penalties disqualifying it from acquiring the licenses on the block. This can only discourage auction participation by the big money players most likely to be affected.

Accordingly, the FCC is considering whether it should return to a “bright line” spectrum limit so everyone might know up front what level of spectrum concentration is or is not acceptable. There’s certainly something to be said for that, but the hard part is actually drawing the lines. Once the FCC decides it wants to move to a “bright line” process (which is not a foregone conclusion. although the FCC seems to be leaning in that direction), it will have to decide the following:

  • What spectrum bands should be included in the analysis? The regular cellular, PCS and AWS bands are easy, but what about mobile satellite spectrum? What about BRS which is not generally available everywhere? What about EBS, which is supposed to be primarily educational but is widely used for commercial broadband?   What about WCS, which will probably be used for broadband but has never been put into commercial operation? The larger the amount of spectrum that is put into the denominator of the spectrum fraction, the greater the numerator holding of any individual carrier can be without exceeding the permissible limit. So clear identification of the universe of included spectrum is important.
  • What geographic market should be used to measure the holdings? Should spectrum concentration be considered on a national basis or a local one? And if local, should the relevant market be Cellular Market Areas (usually a few contiguous counties) or MEAs or EAs that embrace larger areas?
  • What quantum of spectrum should be deemed OK?   Is the current limit – a third of the available spectrum in a given market – the right amount? Some observers feel that one-fourth or even one-fifth of the available spectrum would better preserve the ability of multiple carriers to compete.
  • Are all spectrum bands created equal? Many objectors to recent high profile mergers or acquisitions have argued that spectrum below 2 GHz or 1 GHz is inherently more useful for mobile applications due to its propagation characteristics. If that’s the case, shouldn’t the Commission “weight” those holdings more heavily in assessing how much spectrum is too much?
  • Should leased spectrum be treated differently from owned spectrum?

It should be noted that the FCC does not propose to re-visit spectrum acquisitions that have already occurred, so current spectrum holders can breathe easy.   In the meantime, interested parties have until November 28, 2012 to submit comments on the important issues presented; reply comments can be submitted through January 7, 2013.