Small carriers: Spectrum auction rules will limit bids

U.S. Federal Communications Commission rules on a chunk of high-speed wireless spectrum to be auctioned in January may crowd out small carriers wanting to bid, representatives of small firms said Wednesday.

The FCC’s decision to require so-called open-access rules on about a third of the 62MHz of spectrum, covering the entire U.S., could discourage large carriers from bidding on that spectrum and drive them instead to auctions for spectrum covering smaller geographic areas, which are targeted toward small carriers, said Christopher Guttman-McCabe, vice president of CTIA, a trade group representing wireless carriers.

Guttman-McCabe, testifying before the U.S. House of Representatives Small Business Committee, produced a letter signed by 139 small and regional wireless carriers, urging Congress and the FCC to abandon the open-access rules. Large carriers will likely bid on the smaller licenses “rather than accept large, encumbered licenses,” the letter said.

In July, the FCC voted to require that the winning bidder of 22MHz of spectrum allow devices sold by other wireless carriers to be used on its network. In addition, the FCC prohibited the winning bidder from blocking or slowing Web and voice content not approved by it. The spectrum to be auctioned is in the 700MHz band, being abandoned by U.S. television stations as they move to all-digital broadcasts.

These open-access rules, plus network build-out requirements and leasing limitations, will make it difficult for small carriers to bid on the spectrum, said executives with two small carriers.

&p “My fear is that ;#8230; large, nationwide telecommunications carriers will be in the best positions to win many of the licenses that will soon be auctioned, and that they will once again overlook rural towns and outlying areas,” said Edward Kelly Bond, president of Public Service Communications Inc., a telecom carrier based in Reynolds, Georgia.

In addition, the FCC has prohibited winning bidders from selling the spectrum for 10 years and prohibited them from leasing more than 25 percent of the spectrum to other carriers, said Shelley Spencer, president of Wirefree Partners, based in Vero Beach, Florida.

Wirefree Partners paid US$152 million in a PCS auction in 2005 and was able to lease half of that spectrum to Sprint Nextel, Spencer said. “We should be able to wholesale, we should be able to lease,” she said. “We shouldn’t have straightjackets imposed on us that other carriers don’t have to face.”

The requirements that small business bidders hang on to spectrum for 10 years could require them to pay back-bidding discounts if they grow beyond the FCC’s definition of a small business, she added. That rule could be a “death knell” for some small carriers, she said.

The small business rules will scare investors away from small bidders, Spencer added. “How do we raise the money to participate in this auction?” she said. “The capital requirements are staggering for small businesses.”

FCC Chairman Kevin Martin said the FCC changed the auction rules for small businesses to prevent fraudulent bidders who had no intention of offering wireless service.

Representative Charlie Gonzalez, a Texas Democrat that represents the San Antonio headquarters of AT&T, agreed with Spencer and Bond. “I really don’t see the spectrum rules benefitting small businesses, as far as ownership,” he said.

Gonzalez also suggested the FCC should place a higher priority on getting larger bids for the spectrum, saying the U.S. government continues to face budget deficits. “You have a fiduciary responsibility to maximize that money,” he told Martin.

But Martin said Gonzalez can’t have it both ways. Cutting up the spectrum into small geographic areas encourages small carrier bidding, but offering nationwide spectrum would generate the most money, Martin said. “There are often competing and conflicting interests,” he said.

Martin also defended the open-access rules, saying they would allow providers of Web and wireless applications access to the network without getting permission of the carrier that owns the spectrum.

Jeffrey Black, chairman and chief strategy officer of wireless services vendor TalkPlus Inc., agreed with Martin. Wireless carriers often block small companies from offering services on their networks, he said.

“Your electric utility can’t limit your choice of a vacuum cleaner,” he added. “Let the consumer, not the carrier, decide who can offer the best and brightest applications.”

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