Thursday, May 15, 2014

New FCC Rules Help Independent Sprint and T-Mobile US, But Promise More Scrutiny of Any Sprint Effort to Acquire T-Mobile US

New rules adopted by the Federal Communications Commission are going to help Sprint and T-Mobile US in upcoming auctions of 600-MHz spectrum, but also will make it more difficult for Sprint to acquire T-Mobile US.

At its May 15, 2014 meeting, the FCC voted to restrict the amount of spectrum Verizon Communications and AT&T will be able to buy in the 2015 auction of spectrum in the 600-MHz band that formerly was used for TV broadcasting.

Assuming 85 MHz to 100 MHz eventually is freed up for reallocation, no more than 30 MHz might be reserved for smaller bidders, including Sprint and T-Mobile US.

On the other hand, the Commission also adopted rules that will make it harder for Sprint to acquire T-Mobile US.

The Commission changed its “spectrum screen” rules used to evaluate mergers and acquisitions in the U.S. mobile business, with the biggest impact on Sprint.

The FCC has indicated it will add about 101 megahertz of Clearwire spectrum to Sprint’s total spectrum holdings, for purposes of determining Sprint’s spectrum position in specific markets.

In some cases, that will trigger a review in which higher acquisition or merger scrutiny occurs, because Sprint will have 33 percent or more of the available mobile broadband spectrum in some markets.

On the other hand, the Commission also now makes a distinction between “lower band” (below 1 GHZ) spectrum and “higher band” spectrum (above 1 GHZ) ownership when evaluating potential mobile mergers or acquisitions.

Potential deals by firms with more than a third of total spectrum in the lower bands (AT&T and Verizon, primarily) will face higher merger or acquisition scrutiny.

But Sprint and T-Mobile US, after the 600-MHz auctions, might also  find themselves with combined lower-frequency holdings that trigger more scrutiny, in some markets.

On the other hand, in the future, if Dish Network were to try to acquire T-Mobile US, Dish would likely benefit, since Dish owns no spectrum in the lower frequencies, and even with T-Mobile US assets would be unlikely to trigger the more-intense regulatory review.

The spectrum screen is the way the Federal Communications Commission accounts for existing spectrum market share when creating bidding rules. Up to this point, much former Clearwire spectrum has not been counted against Sprint’s total spectrum holdings.

The new screen would mean Sprint exceeds a threshold of about a third of all spectrum in specific markets. That means Sprint would face new and higher scrutiny if it were to try and acquire T-Mobile US, especially after a successful 600-MHz auction.

“If a proposed transaction would result in a wireless provider holding approximately one third or more of available spectrum licenses in a given market, that transaction will continue to trigger a more detailed, case-by-case competitive analysis by the Commission,” the FCC said.

That rule change does not affect Sprint’s ability to bid on the set-aside 600-MHz spectrum, though.

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