Antitrust Division: Rules on Spectrum Access Will Promote Consumer Welfare

Antitrust Division: Rules on Spectrum Access Will Promote Consumer Welfare

By Susan Winchurch, J.D.

The Department’s Antitrust Division says it is going to bat for smaller wireless carriers, suggesting in an April 11, 2013, filing with the Federal Communications Commission (FCC) that new rules should be developed to ensure smaller carriers, such as Sprint® and T-Mobile®, wider access to the public airwaves, known in the industry as “spectrum.”

In September 2014, the FCC plans to hold an auction of wireless spectrum that the agency anticipates reclaiming from television broadcasters. Carriers competing for spectrum will include Verizon®, AT&T®, Sprint, and T-Mobile. In its April 11 comments to the FCC, the Department called spectrum “a critically scarce resource,” and suggested the application of “rules, weights, or caps” on the acquisition of spectrum, and particularly low-frequency spectrum, to “ensure that the two smaller nationwide carriers are not foreclosed from access.”

Low-frequency spectrum is particularly important, the Department explained, because it facilitates wider coverage in rural areas and building interiors.

“[T]he Department concludes that rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers,” the Department said in the statement signed by William J. Baer, the assistant attorney general who oversees the Antitrust Division.

On Tuesday, April 16, Baer underscored the Department’s support for limiting the larger carriers’ ability to dominate the airwaves. Testifying before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, he said that rules ensuring access for smaller nationwide networks “could improve the competitive dynamic among nationwide carriers and benefit consumers.”

The Department provided the statement in response to an FCC Notice of Proposed Rulemaking, published in the Federal Register on October 9, 2012. The Notice sought comments to assist the FCC in a comprehensive review of its policies governing mobile spectrum holdings. In its statement, the Department said that its principal concern “is that the acquisitions of spectrum, whether at auction or through subsequent transactions, should not be used to create or enhance market power.”

Without controls, the Department warned, carriers might be tempted to acquire spectrum simply to squelch competition: “Namely, the more concentrated a wireless market is, the more likely a carrier will find it profitable to acquire spectrum with the aim of raising competitors’ costs. This could take the shape, for example, of pursuing spectrum in order to prevent its use by a competitor, independent of how efficiently the carrier uses the spectrum. Indeed, a carrier may even have incentives to acquire spectrum and not use it at all. The result is that spectrum may not be put to its most efficient use, which harms all consumers of wireless services and can have an exclusionary effect on the carrier’s competitors.”

The Department suggested that, were it not for the disproportionate market power of the larger providers, the auction would provide a sufficient market-based mechanism to guarantee competition.

“When market power is not an issue, the best way to pursue this goal in allocating new resources is typically to auction them off, on the theory that the highest bidder, i.e., the one with the highest private value, will also generate the greatest benefits to consumers,” the Department said in its statement.

But if the larger providers have the means to edge out their competition simply by buying up spectrum, those providers, rather than the consumer, will reap the benefit of the auction process, because “the private value for incumbents in a given locale includes not only the revenue from use of the spectrum but also any benefits gained by preventing rivals from improving their services and thereby eroding the incumbents’ existing businesses,” the Department said.