OP-ED CONTRIBUTOR

When Multi-Billion-Dollar Companies Beg for Government Handouts

T-Mobile’s CEO John Legere is a smooth salesman. His latest pitch is to get the Federal Communications Commission (FCC) to award his company—and a select group of multi-billion-dollar “reserve-eligible bidders” such as DISH and Sprint—valuable spectrum at a steep discount from market prices. And he wants taxpayers, to pick up the shortfall.

Where does he get such chutzpah? Mr. Legere’s carefully crafted messaging and accompanying video neglect to mention the fact that the FCC has already set aside up to 30 MHz of “low-band” broadcast spectrum in every local market for select companies. And the FCC plans to include only the best spectrum in that exclusive block.

Mr. Legere would have you believe that’s the only spectrum available to his company, when in reality T-Mobile and the other reserve-eligible bidders are free to bid on every block of spectrum in the auction.

Apparently, that’s not enough.

T-Mobile and its lobbyists from the Competitive Carriers Association (CCA) and Public Knowledge are asking for an even bigger handout—they want the first 40 MHz of broadcaster spectrum free from head-to-head bidding competition from fellow national carriers AT&T and Verizon. T-Mobile likely fears that it will be outbid for the 2 x 10 block by DISH or Sprint, and be forced to settle for the remaining 2 x 5 block (which could be paired with its existing 2 x 5 block of low-band spectrum). Mr. Legere is using AT&T and Verizon as scapegoats, when DISH, a potential merger partner, and Sprint, a fellow member of CCA, are the primary obstacles.

To support its lobbying efforts, CCA retained auction expert Peter Cramton, who argues in a white paper that the low-band spectrum at auction is special, and that CCA’s members are impaired in their ability to compete without it. He writes, “Unable to employ spectrum to expand capacity (with low-band spectrum), would-be rivals are forced to either operate with higher costs relative to the dominant carriers, reduce the quality of their service offerings, or both.” But there are no facts to back this up. In fact, with minimal low-band spectrum holdings, Sprint boasts that its three bands of different spectrum will help the company deliver a better experience over time.

The claim that T-Mobile would incur higher operating costs without additional low-band spectrum is made without any citation to engineering or cost studies. It is an open question whether T-Mobile would incur higher costs to deploy its entire high-band spectrum compared to building out newly acquired low-band spectrum.

And if quality of service were really threatened, as the paper asserts, wouldn’t one expect to see a withering away of Sprint’s and T-Mobile’s subscriber bases?

According to a May 2015 study by Recon Analytics, T-Mobile captured 70.2 percent of the growth in new wireless subscribers in 2014, twice as much as AT&T and Verizon Wireless combined, and 99.7 percent of the growth in the first quarter of 2015. This impressive capture rate of new subscribers by a carrier that generally lacks low-band spectrum is inconsistent with any claims of impairment.

Two factors weigh against increasing the reserve. First, as noted above, the FCC’s current plan already allocates the initial blocks of prime spectrum to the reserve. This provides eligible companies with a measure of security over the supply of spectrum in the auction, while providing reserve-ineligible bidders with a level of uncertainty that their competitors wouldn’t have.

A successful auction requires broadcasters to believe there is sufficient financial incentive to put their spectrum assets up for bid.  Further restricting access to unimpaired spectrum could discourage their participation and hamper the ability of all wireless companies to keep pace with consumers’ fast-rising mobile data demand.

Second, unforeseen circumstances can occur in any spectrum auction, which could raise the cost to taxpayers of increasing the reserve. Sprint recently questioned about whether it will participate in the auction at all, while DISH and T-Mobile could potentially be mid-merger when the auction bell rings.

CCA’s own paper concedes that “the FCC has established a balanced approach for the 600 MHz auction that allows AT&T and Verizon to win the substantial low-band spectrum they need, yet prevents them from foreclosing the disruptive competition that competitive carriers bring.”  This issue was exhaustedly debated before the FCC settled the issue in May and nothing has changed since then, aside from even more traffic moving over mobile networks. A successful incentive auction is extremely important for wireless customers of companies large and small, for U.S. taxpayers and for our nation’s continued mobile innovation leadership.

Disrupting the rules now with further concessions to T-Mobile serves no public benefit.

 

Hal Singer is a senior fellow at the Progressive Policy Institute, a principal at Economists Inc. and co-author of the recent paper “Bringing Sanity Back to the Spectrum Debate,” which was commissioned by Mobile Future.

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