T-Mobile Disputes Phoenix Spectrum Report, Backs DOJ Advice

T-Mobile continues to press for spectrum auction rules that put limits in place. It has filed a report with the FCC, disputing claims of a rival report.

T-Mobile filed a report with the FCC July 8, as part of its continued efforts to press the Federal Communications Commission (FCC) to conduct its upcoming spectrum auctions with purchase limits in place.

The purpose of the limits would be to prevent deep-pocketed Verizon Wireless and AT&T from walking away with the choicest offerings—in this case, the kind of low-frequency-spectrum that's best at penetrating buildings and so offering great cellular coverage.

The nation's fourth-largest carrier, which on May 1 concluded its acquisition of MetroPCS, the nation's fifth-largest carrier, commissioned the report from economist Jonathan Baker, who disputes the claims made by a May report from the Phoenix Center, which disputes recommendations made by the Department of Justice. (DOJ).

Baker is a professor at American University's Washington College of Law and previously was the chief economist at the FCC and the director of the Bureau of Economics at the Federal Trade Commission (FTC). The Phoenix Center is a nonprofit, nonpartisan think tank in Washington, D.C.

In an April filing with the FCC, the DOJ concluded that auction rules that ensure that smaller nationwide networks are able to acquire low-frequency spectrum "could improve the competitive dynamic among nationwide carriers and benefit consumers." It also feared the larger carriers could buy spectrum "solely to keep it from rivals."

The Phoenix report argues that more competitors may lead to "higher prices and lower quality" and that the DOJ is effectively seeking to let the government, not the markets, select "deserving entities for spectrum licenses in a process disguised as an 'auction' among pre-selected winners."

Baker argues that the Phoenix paper is a "flawed economic model based on erroneous assumptions," it was constructed to ignore the consumer benefits that come from competition, and it wrongly claims that big companies would receive big benefits from spectrum acquisitions and small companies would reap small benefits.

To this last point, T-Mobile wrote in a letter to FCC Secretary Marlene Dortch that accompanied the filing: "This ignores the evidence suggesting that smaller carriers can use incremental spectrum more efficiently than larger providers. It also ignores the fact that the upcoming incentive auction will make available low-band spectrum that would be expected to increase production efficiency more for small providers that currently lack such spectrum than for large ones."

Baker concludes that by assuming, as the Phoenix report does, that consumers wouldn't benefit from large providers being prevented from blocking the purchases of smaller providers, and that any spectrum acquisition would lower costs or improve service quality more for larger carriers than smaller callers, "the Phoenix report reaches the preordained conclusion that any additional spectrum should be allocated to larger firms," writes Baker.

This, Baker added, "does not illuminate the question now before the FCC of how to specify rules governing its upcoming incentive auctions."

In June, T-Mobile took another tack, proposing a Dynamic Market Rule for the auction.

By the terms of the DMR, limits would initially be put in place, but should revenue targets not be cleared—another concern of those arguing against putting limits in place—the limits would be gradually lifted.

Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research, said during a conference call to introduce the DMR that it could enable the auction to potentially make even more money than an auction without rules—since the smaller carriers won't pay the entry fee and show up, if they think they'll leave empty handed—and would serve as "almost an insurance plan for the FCC to make sure they don't get it wrong."

The FCC is currently being headed by Acting Chair Mignon Clyburn, while the Senate works to confirm Tom Wheeler, a telecom insider and lobbyist nominated by President Obama. It's expected that the FCC won't decide the rules for the auction until the next chairman is in place.