FCC Ban on Joint Sprint, T-Mobile Spectrum Bid Casts Shadow Over Merger

NEWS ANALYSIS: FCC official opposition to a joint Sprint, T-Mobile bid for surplus television spectrum could foreshadow the agency's posture on the two companies' efforts to merge.

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In what may be the first of many blows to plans by T-Mobile and Sprint to merge, the Federal Communications Commission is saying that it is probably going to oppose the current plans by the two wireless providers to buy more spectrum together.

In addition, in an official FCC blog entry, Roger C. Sherman, the FCC's Wireless Telecommunications Bureau Chief said that the Commission is circulating a Notice of Proposed Rulemaking that would prevent joint ventures, such as the one proposed by T-Mobile and Sprint, from bidding in the next spectrum auction.

While neither company has actually announced their plans, press reports in the The Wall Street Journal and other sources say that the two companies are putting together a $10 billion fund to bid for spectrum recovered from television broadcasters at an auction in 2015.

"Considering the significant challenges new entrants face in building wireless networks, we can and should provide smaller businesses—including enterprises owned by women and minorities—a better on-ramp into the wireless business," Sherman said in his blog entry.

Specifically addressing the planned joint venture by Sprint and T-Mobile, Sherman said, "If two of the largest companies are able to bid as one combined entity in the auction, their combined resources may have the effect of suppressing meaningful competition. Therefore, the item tentatively concludes that joint bidding arrangements between nationwide providers should not be allowed."

Sherman said that the FCC's desire is to eliminate barriers to entry by small companies. "Thus, the NPRM being circulated today proposes to update our rules in a way that recognizes—and confronts—the challenges new entrants face in entering the wireless industry," Sherman explained, noting that by making a way for small businesses to compete means that the FCC needs to change its rules.

"Challenges like raising funds to compete in an auction, finding a revenue stream to support business expansion, or developing a business model based on market needs rather than regulatory mandates. Perhaps most importantly, the NPRM recognizes the challenge of entering into a marketplace in which more than 95 percent of existing customers are served by the top four providers," Sherman wrote.

Sherman said that the NPRM will also examine the prospects of allowing combined bids from entities of different sizes. He said that the ultimate goal was to put "common sense" rules in place before the next spectrum auction.

The obvious question that follows is whether this is a warning shot across the bow for any potential merger between T-Mobile and Sprint. It might be just that Sherman mentions the current trend toward consolidation in the wireless industry as something to be guarded against. He even warned against attempts by large wireless companies to take advantage of the process. He wrote that the FCC will be on the lookout for such things and will enforce rules vigorously.

While the current plans by Sprint and T-Mobile fall well short of being a merger, it's entirely possible that it's being viewed by the two companies as a trial balloon that they can float and see if anyone tries to shoot it down.

But it isn't necessarily an anti-merger move by the FCC. Farpoint Group principal analyst Craig Mathias says that historically there have always been set-asides for small business. But Mathias wonders, "why do they care who owns the spectrum?"

But apparently with the new chairman Tom Wheeler in office the agency does care. Sherman said in his blog that one goal was "to provide innovative, smaller companies the opportunity to build wireless businesses that can spur additional investment and bring more choices to consumers."

The idea to stand in the way of consolidation does have some history behind it. When the FCC and the Department of Justice refused to allow AT&T to acquire T-Mobile in 2011, the primary reason was to avoid consolidation and to foster competition in the wireless industry.

In the years since that merger was denied, the competition that the FCC wanted has arrived in spades as T-Mobile has taken on the rest of the industry with its "UnCarrier" moves.

Those moves have resulted in T-Mobile adding millions of new customers at the expense of its larger rivals. Right now, it seems that if T-Mobile continues its growth and Sprint continues its decline, it will be T-Mobile that's the third largest carrier in the U.S., with Sprint slipping down to fourth. If current trends continue that switch in position could happen as early as late April 2015.

Perhaps what the FCC isn't saying is that T-Mobile doesn't appear to need Sprint's help to compete. On the other hand, perhaps Sprint needs T-Mobile if it's going to survive as a viable entity. But if that happens, would T-Mobile still be the UnCarrier?

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...