T-Mobile: Ridiculous Wireless Auction Should Scare the Hell Out of You

By Josh Long

In an era when Americans are chained around-the-clock to their smartphones and tablets, initial demand for wireless capacity far outstripped supply during a recent Federal Communications Commission auction.

Auction 97 raised an unprecedented $41.3 billion, with 31 winning bidders fetching 1,611 licenses.

Although the bids fattened the coffers of the U.S. Treasury, whether the auction for spectrum was a smashing success in the wireless industry is a matter of perspective. In recent weeks, wireless companies have accused one another of gaming or dominating the proceeding. They have called on the FCC to reform the way in which it conducts such auctions.

John Legere, president and CEO of T-Mobile US, which picked up 151 licenses, has characterized the Advanced Wireless Services (AWS)-3 auction as “a disaster for American wireless consumers.”

“Three companies alone spent an insane $42 billion between them, grabbing a ridiculous 94 percent of the spectrum sold at this auction,” Legere wrote in a Feb. 18 blog, referring to AT&T, Dish Network and Verizon Wireless. “This whole thing should scare the hell out of you and every other wireless consumer in the U.S., because there is another important auction next year, and the results have to be different if wireless competition is going to survive.”

AT&T, a T-Mobile competitor, depicted T-Mobile’s adversary as Dish Network and its affiliated entities. The Colorado-based satellite TV provider outbid T-Mobile on 132 licenses to win the rights, according to Joan Marsh, AT&T’s vice president of federal regulatory. AT&T only outbid T-Mobile on 26 licenses, she said.

“By ‘stacking’ bids on licenses, they [Dish and its affiliated companies] could place up to 3 bids on a single license … while only being at risk to have to actually purchase the license once,” Marsh wrote in a Feb. 20 FCC filing.

Dish won 702 licenses and placed $13.3 billion in bids, according to the Wall Street Journal. The company secured the bids through entities that qualified for a 25 percent discount that the FCC set aside for small businesses, the Journal reported.

T-Mobile and others have called on the FCC to set aside spectrum for competitors so the largest wireless carriers don’t hog the capacity.

AT&T said it now covers 96 percent of the U.S. population with contiguous AWS-3 spectrum. The wireless giant shelled out $18.2 billion for around 250 licenses that included a valuable chunk known as the J-block, according to an AT&T press release and FCC documents.

That’s more than the $10.4 billion spent by Verizon Wireless on 181 licenses covering 192 points of presence, or 61 percent, of the United States. The company has increased its average nationwide spectrum holdings to 116 megahertz (MHz) and now controls at least 40 MHz of AWS spectrum in 92 of the top 100 markets, according to spokesman Chuck Hamby.

“There is nothing more dangerous than …

… an auction in which the largest two carriers, who together already own 73 percent of existing low-band spectrum, walk away with the lion’s share of low-band spectrum available,” said Steven Berry, president and CEO of the Competitive Carriers Association.

Citing the need for a level playing field, T-Mobile’s Legere recommended the FCC reserve 40 MHz or half of the available spectrum in the next auction.

AT&T argued such reservations are unnecessary, citing as evidence Dish’s success in the auction. That’s not to say AT&T was complimentary of Dish’s tactics. AT&T said Dish exploited the auction process by making multiple bids with the help of affiliated entities, SNR and Northstar, over which it has a majority interest. Marsh cited 328 instances in which all three entities placed bids on a license.

“The Dish entities acting in concert triple and double bid licenses in the auction nearly 4,000 times,” she wrote in a Feb. 20 blog. “This conduct circumvented auction activity rules, masked actual demand and distorted the auction.”

Bob Toevs, a spokesman for Dish Network, which competes with a company (DirecTV) AT&T has agreed to acquire for $48.5 billion, did not immediately respond to a request for comment on AT&T’s criticism.

The AWS-3 auction was a highly anticipated event in the U.S. wireless industry. As Marsh pointed out, the last one took place in 2008, just a year after Apple unveiled a smartphone that would radically change the wireless market.

Initial demand in the AWS auction outstripped supply by four times, Marsh said. Halfway through, Verizon walked away from spectrum in certain markets due to the escalating prices, Fran Shammo, chief financial officer, said recently at a Morgan Stanley conference.

“In every purchase of spectrum up to this auction, the scale was that it was more efficient to buy spectrum than it was to build capacity …,” Shammo said. “This auction flipped that equation in certain markets.”

With the AWS-3 spectrum complete, the wireless industry is already looking ahead.

“A reinvigorated search to identify, clear and reallocate spectrum needs to begin today to meet the data demands of 2020, our connected lives and tomorrow’s 5G networks,” said Meredith Attwell Baker, a former FCC commissioner and the current president and CEO of CTIA-The Wireless Association.