In wake of rejection of T-Mobile acquisition, AT&T extends its holdings in the Lower 700 MHz band, with a few strings attached.

The march toward spectrum consolidation continues. In a Christmas week action, the Commission has approved AT&T’s purchase of a potential treasure chest of spectrum from Qualcomm. How much treasure? $1.925 billion worth.

In green-lighting the deal, the FCC may have been trying to avoid accusations that it is suffocating the growth of AT&T’s wireless services. The Commission had, after all, just slammed the regulatory door on AT&T’s attempt to buy T-Mobile (that would be AT&T’s only GSM cellular competitor), saying that the transaction would not be approved without a hearing. Whatever the Commission’s motivation, though, the AT&T/Qualcomm decision was released on December 22, just in time to keep lawyers busy over the Christmas weekend. Holiday notwithstanding, the deal has already closed.

In return for its $1.9B, AT&T got access to what used to be TV Channel 55 on a nationwide basis and TV Channel 56 in New York, Boston, Philadelphia, Los Angeles, and San Francisco. Qualcomm had originally obtained some of this spectrum from Aloha Partners and the rest at an FCC auction. They used it to launch their MediaFLO mobile video service, which did not live up to expectations and was shuttered earlier this year.

The spectrum is unpaired. In other words, it does not include blocks separated by a gap that facilitates interference-free two-way traffic. AT&T plans to use it for one-way downlinking only, to deliver data-intensive services like movies and other video material requiring little or no uplink interaction. (Editorial aside: That kind of one-way heavy data dump could also be provided by broadcasters, if the FCC would only let them. A number of broadcast organizations – Sinclair Broadcast Group and, for two – have formally proposed such use. Their proposals, however, have thus far been met by nothing but stony silence, and in some cases hostility, from the FCC.)

This purchase is not AT&T’s first.

They already control former TV Channels 54 and 59 (bought  directly from Aloha Partners). With its latest acquisition, AT&T now has access to Blocks C, D and E of the “Lower 700 MHz” band. (That band consists of former TV Channels 52-69. The commercial segment has been broken up into five blocks for non-broadcast purposes, known as A, B, C, D, and E.)

In the FCC’s view, the AT&T/Qualcomm deal was different from the AT&T/T-Mobile deal.  According to the Commission, the Qualcomm deal did not put a competitor out of business, because AT&T was buying only Qualcomm’s spectrum, not Qualcomm as a company. Some sticklers might see this as a distinction without a difference: after all, if you buy all of a company’s spectrum resources, don’t you remove that company from the competitive marketplace just the same as if you bought the company itself? The FCC apparently isn’t much of a stickler this time around.

The FCC did admit that the concentration of spectrum resources might be reaching harmful levels, but it felt that the public interest could be protected through remedial conditions.  Among the conditions:

  • The new spectrum must not be “bonded” with other spectrum so as to make roaming by other carriers’ subscribers impossible;
  • Power levels must be limited to avoid interference to Lower 700 MHz frequency blocks AT&T does not control;
  • AT&T must allow other Lower 700 MHz operators to collocate on towers AT&T owns. (The precise reach of this condition isn’t clear, since we don’t know what percentage of the towers used by AT&T are owned by it and are thus subject to the condition);
  • The newly acquired frequencies may also not be used for uplink traffic – a condition that may be difficult to retain as technology evolves.

The FCC’s propensity to place conditions on large acquisitions to accomplish policy goals that would be difficult to achieve by rulemaking was subdued in this case. We know this because the Commission rejected petitions seeking additional conditions.   The FCC concluded the proposed-but-rejected conditions were not specific to this proceeding and could/should be dealt with elsewhere. (Conditions that didn’t make the cut included: requiring handset interoperability; accelerating build-out timetables; reducing early termination fees; forbidding exclusive deals with handset manufacturers (like the early iPhone); priority access for public safety users; and net neutrality.)

The FCC also brushed aside questions about changing its screening threshold. That threshold is a processing device by which the level of regulatory scrutiny given a deal depends on how much spectrum is proposed to be controlled by the buyer and which frequency bands are included. Since the Commission was approving the AT&T/Qualcomm transaction without any spectrum divestiture condition, the screen didn’t matter here.

And so the spectrum consolidation march continues. As has been the case so often in the past, marketplace forces are finding ways to rearrange resources faster than the government can keep up. Whether the incentive auction concept to knock TV off of much of its spectrum perch will be relevant by the time Congress and the FCC can figure out how to adopt and implement it, and whether the impact on competition will be acceptable policy-wise, remain to be seen.