February 24, 2012 12:17 pm
This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com
The Federal Communications Commission (FCC) is gearing up to officiate a fight over how much spectrum a company can hold and how the government should measure that as part of its study of Verizon’s (NYSE: VZ) purchase of airwaves from Comcast (NYSE: CCS), Time Warner Cable (NYSE: TWC), and others, according to dealReporter.
It became clear this week that the federal review of Verizon’s USD 3.9bn airwave purchase is the latest front in a long telecom war that has pitted the nation’s largest mobile carriers, Verizon and AT&T (NYSE: T), against the rest of the wireless industry, which claims the top two are gobbling up more – and better – spectrum.
Sprint Nextel (NYSE: S) and T-Mobile (PINK:DTEGY) sent critical comments to the FCC this week about Verizon’s deal, calling on the FCC to rethink its so-called “spectrum screen”, a threshold the agency uses to measure if a company is collecting too much spectrum. The FCC – which has authority over the transfer of spectrum licenses – uses the screen to help it determine if a company must divest spectrum as a condition of approval.
T-Mobile urged regulators to block Verizon’s deal and called the current screen “inadequate” for measuring spectrum holdings. Regulators should consider the characteristics of a company’s spectrum holdings rather than just the amount of spectrum, according to the smallest national carrier.
The previous screen “is like assessing landholdings in acres only without considering the differences in land value based on location”, T-Mobile’s regulatory filing said.
Sprint stopped short of asking regulators to block the transaction. But it urged them to review it “carefully” and advocated against the traditional spectrum screen.
“The commission should consider another method of evaluating spectrum holdings, such as one based on book value,” Sprint’s filing said.
Verizon has two weeks to respond to the criticisms. It has argued that the transaction will benefit consumers and promotes the government’s goal of freeing up more spectrum for mobile broadband.
The license transfers are “in line with…the FCC’s support for secondary market transactions to ensure that existing spectrum is acquired and used by providers that can use it efficiently to serve customers,” a Verizon spokesperson said in a statement.
Jeffrey Silva, a telecom analyst at Medley Global Advisors, said it is not yet clear how the FCC will approach the spectrum screen in the Verizon transaction, but the agency has previously shown it appreciates that not all spectrum is exactly equal.
“If you look at the [FCC] wireless competition reports and other indications, it’s clear that the agency differentiates between spectrum below 1 GHz and above 1 GHz. The reason they do that is in part because the propagation below 1 GHZ is a lot better,” Silva said.
David Kaut, a telecom analyst at Stifel Nicolaus, said earlier this month that it is possible Verizon could see mandated divestitures under the traditional spectrum screen.
“There are a few markets where the spectrum screen could be triggered, and if the FCC lowers the screen, there could be a few more. Verizon may have to divest in those markets,” he said.
The deal also faces criticism from DirecTV (NASDAQ: DTV), wireless carrier MetroPCS (NYSE: PCS), watchdog groups, and the telecom union Communications Workers of America.
The battleground opens up just days after Congress passed spectrum auction legislation, which will allow wireless companies to buy television airwaves in a few years. The fight over the legislation focused on the same issue: are the top two wireless companies buying up all the best spectrum?
That is a concern for Democratic members of the FCC, who fought AT&T’s failed bid for T-Mobile last year. And during debate on the spectrum bill, the FCC asked Congress to disregard requests from Verizon and AT&T that the spectrum bill explicitly prevent regulators from excluding them from future auctions.
Congress wound up narrowing the FCC’s authority to regulate spectrum holdings during the auctions. It said the FCC has to open a formal rulemaking if it decides to apply rules limiting who can bid in its auctions.
But the shot at FCC authority will not prevent the agency from applying whatever spectrum screen it sees fit in the review of Verizon’s purchase as the legislation only applies to auctions—not transactions, according to industry sources.
The “spectrum screen” is no stranger to controversy.
It became contentious during AT&T’s failed bid to acquire T-Mobile and its successful purchase of Qualcomm (NASDAQ: QCOM) airwaves. At the time, the agency considered lowering the screen to account for changes in the amount of spectrum available for mobile broadband, prompting backlash from AT&T and calls for the commission to formalize its standard in an open proceeding.
AT&T Chief Executive Randall Stephenson voiced frustration with the FCC’s approach to the spectrum screen during the company’s quarterly earnings call last month.
“It might have been nice to have known they were going to change the spectrum screens ahead of time, but that is what it is,” Stephenson said.
For more information or to inquire about a trial please email firstname.lastname@example.org or call Europe/EEMEA: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.