Effective or Not, Spectrum Bidder Limits Will be a Feature of U.S. 600-MHz Auctions

Spectrum bidding rules that favor smaller companies have been a feature of U.S. spectrum auctions for decades, The rules have often been contentious, as you would guess, and that hasn’t changed.

The latest disputes concern the use of “designated entity” bidding rules that allowed Dish Network--not a designated entity itself--to acquire a significant amount of mobile spectrum in the AWS-3 auction through its 85-percent control of a couple of smaller entities that do have the designation.

Basically, Dish Network worked through two smaller entities, using their status to bid, even if Dish Network owns 85 percent of each of the smaller entities.

The Federal Communications Commission also has created “set aside” rules for the planned auctions of 600-MHz spectrum sometime in 2016.

Those rules would limit the amount of spectrum AT&T or Verizon could win in the auction, reserving a major chunk of the available spectrum for “smaller” entities such as Sprint and T-Mobile US (and presumably Dish Network, again).

In late 2014, the Commission decided to set aside as much as 33 percent of spectrum for “smaller” bidders. The mechanism to be used is that, at some point in each local auction, the spectrum set aside would go into effect.

At that point, once entities owning a least 33 percent of “low-band” spectrum would be prevented from bidding for any more spectrum in those specific markets.

The FCC's threshold for setting aside spectrum in a market hasn't yet been announced, but it could include some combination of the overall bids in the market, or the price per megahertz.

The FCC's plan represents a victory for Sprint and T-Mobile, which have lobbied fiercely for limits on how much low-band spectrum AT&T and Verizon can buy at the auction.

Some question the ultimate usefulness of such policies, as spectrum rights and firms are tradeable. In the U.S. market, spectrum eventually has been consolidated by the larger providers, over time, despite any initial policies or awards that were won initially by smaller entities.

The practice enriches some smaller bidders, but does not have generally seemed to increase the amount of effective competition over time, with a couple of exceptions, namely Sprint and T-Mobile US. Some would say that is evidence of the effectiveness of set-asides.

Others argue consumer benefit is enhanced by allowing the most-efficient providers to acquire as much spectrum as the market will allow. In part, that is because larger, consolidated blocks of contiguous spectrum are more spectrum efficient than non-contiguous spectrum blocks generally held by smaller providers.

At the moment, it appears the set-asides will be a feature of the 600-MHz auction, however.