T-Mobile US Inc. (TMUS:US) and Sprint Corp. (S:US) are pressing U.S. officials to lock in rules that would save them $2 billion or more by blocking bigger rivals from gobbling up smartphone airwaves at an auction next year.
The two carriers have boosted spending to lobby Congress by one-fifth and contacted regulators more than two dozen times this year. They’re trying to keep richer AT&T Inc. and Verizon Communications Inc. (VZ:US) from dominating a U.S. auction that may be the largest since 2008’s $19 billion airwaves sale.
“No one wants to say, ‘My gosh I didn’t get any’” of the airwaves, Steven Berry, president of the Competitive Carriers Association, which represents smaller U.S. wireless carriers including third-largest Sprint and No. 4 T-Mobile, said in an interview. “The penalty is a business reality you don’t want to face: You can’t compete.”
Market forces may change the debate surrounding an auction designed to make more airwaves available to meet growing smartphone demand. Masayoshi Son, chief executive officer of Sprint owner SoftBank Corp., is expected to make a formal bid in June or July for T-Mobile, said a person with knowledge of the situation.
Regulators are skeptical of SoftBank’s ambition to buy T-Mobile, and Son has reframed his argument to say he can improve U.S. wireless broadband availability and speed. Yesterday, T-Mobile Chief Executive Officer John Legere in an interview with Bloomberg TV called consolidation “one path forward for this company.”
Federal Communications Commission Chairman Tom Wheeler wants to limit how many airwaves can be bought by largest carrier Verizon and No. 2 AT&T (T:US), which he says hold almost two-thirds of airwaves most suitable for smartphones. The companies say restrictions will bring reduced participation with less demand, less bidding and less money from the sale.
Wheeler’s proposal has sparked resistance from members of Congress and AT&T and Verizon. The two companies have spent years lobbying against limits on auction bidding.
“It would be perverse and unjust” to adopt rules “that subsidize some large multinational companies at the expense of their competitors,” Verizon’s Kathleen Grillo, a senior vice president, and Michael Glover, deputy general counsel, told FCC officials in an April 28 meeting, according to a filing.
Sprint, its Tokyo-based parent SoftBank, and T-Mobile, controlled by Bonn-based Deutsche Telekom AG, can pay “substantial amounts” at auction, the Verizon executives said.
The restrictions, part of rules for the auction, are set for a vote May 15 at the FCC where Wheeler is part of a 3-2 Democratic majority.
Next year’s auction will distribute airwaves that carry signals far and penetrate buildings -- prized attributes as Americans rely more on mobile devices for Internet access.
President Barack Obama’s administration has pledged to dedicate more airwaves to avert wireless traffic jams that stunt innovation and commerce. Next year’s auction, part of the initiative, will repurpose for wireless use airwaves voluntarily surrendered by television broadcasters, who will be paid from the proceeds.
Under Wheeler’s proposal, the FCC could reserve airwaves for carriers that own less than one-third of the frequencies most favorable for smartphone use in some markets, said two people briefed on the chairman’s proposal who asked not to be identified because the plan hasn’t been made public.
Some airwaves would be open to all bidders in every market, Wheeler said in his April 17 letter.
Restricting bidding on half the airwaves to be offered may reduce revenue by $2.9 billion to $5.8 billion, according to an estimate published last year by Fred Campbell, a former FCC wireless bureau chief.
“If nothing else, it should lower the price for T-Mobile and Sprint, if they indeed show up,” Campbell said in an interview. “That’s the FCC plan: lower the price, make sure they have the opportunity to acquire spectrum.”
Wheeler’s plan may change before the May 15 vote, and AT&T officials including Chief Executive Officer Randall Stephenson have lobbied to alter it, according to FCC filings by the company. Wheeler’s proposal would bar AT&T from bidding in markets covering 70 percent of the U.S. population, Joan Marsh, AT&T’s vice president for federal regulatory, said in a filing.
Rules limiting airwaves might suppress competition and lower auction revenue, according to Marsh. That’s disputed by representatives of smaller carriers, including Berry, of the Washington-based Competitive Carriers Association. Reserving airwaves will lure more participants and raise revenue, he said.
Last month, 78 members of Congress wrote to Wheeler recommending “an open and free auction on equal terms” to bring in “the full market price” for the airwaves.
The April 11 letter’s signers, led by Representatives John Barrow of Georgia and Bennie Thompson of Mississippi, all received campaign contributions from AT&T or Verizon or both, according to data compiled by the Center for Responsive Politics, which researches money in politics.
Contributions had nothing to do with Barrow’s stance, spokesman Richard Carbo said in an interview. “A robust competition among buyers is important,” Carbo said. LeMia Jenkins, a spokeswoman for Thompson, didn’t immediately return a telephone call and e-mail.
Rules reserving airwaves for smaller companies might disappear if Sprint and T-Mobile propose a merger, Paul Gallant, Washington-based managing director for Guggenheim Securities, said in an April 23 note.
The bidding rules are part of a package that includes changes to how the FCC judges, or screens, whether a company holds enough airwaves to pose a threat to competition.
Sprint wants the FCC to give more weight to airwaves like those to be auctioned, and less weight to some frequencies it holds -- a proposal “unlikely” to be accepted by the FCC, Gallant said.
That would leave a Sprint and T-Mobile combination facing heightened scrutiny for possible anti-competitive impact, “a concrete signal” such a deal would “face an uphill climb” at the FCC, Gallant said.
Sprint may sell some of its airwaves to raise cash for a deal, which could give it room under FCC guidelines to receive a more favorable reception by regulators, Bloomberg Industries analyst John Butler said in a note yesterday.
While Overland Park, Kansas-based Sprint and T-Mobile increased lobbying, their spending remains less than half the levels of AT&T or Verizon, according to filings with the U.S. Senate.
T-Mobile, based in Bellevue, Washington, spent $2.1 million in the first quarter of 2014 compared with $1.8 million spent during the same time period a year earlier.
Sprint spent $1.24 million in the first quarter, compared with about $1 million during that time period in 2013.
Dallas-based AT&T spent $5 million in the first quarter, compared with $5.8 million in the first quarter of 2013. New York-based Verizon in this year’s first quarter spent $4.5 million, about the same as a year earlier.
Michael Balmoris for AT&T, John Taylor for Sprint, Timothy O’Regan for T-Mobile and Richard Young for Verizon declined to discuss lobbying expenditures.
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