Big guys got next: Rule changes put large carriers on small players' wireless court

Move over, small fries; it's time to let the big boys play.

That seems to be the recent message from Washington, where the FCC has changed the focus of a spectrum reauction, and legislators are lobbying for large wireless carriers' access to the spectrum needed to offer third generation wireless services.

Among the many recent rule changes to the C and F Block reauction, the most significant is a stipulation allowing large companies to bid on all but three 10 MHz C Block licenses. Most industry observers agree that the rule change likely will result in higher bids and virtually all open-bid spectrum being awarded to large carriers.

The decision was not well received by National Telephone Cooperative Association CEO Michael Brunner, who expressed concern that small carriers' access to spectrum will be jeopardized.

"Congress mandated that the commission provide ample opportunity for small players to participate in the race for PCS spectrum," Brunner said. "But by allowing large carriers into the C [and] F Block auctions, they are defeating that goal from the start."

But that goal was contrary to the desires of large wireless carriers, which lobbied for the opportunity to bid in the C and F Block auctions as the amount of available U.S. spectrum dwindles. Spectrum scarcity is particularly important with the uncertainty surrounding the much-delayed 700 MHz auction and as carriers try to secure enough spectrum for 3G services.

"They probably look at the C and F Blocks as a means to build up capacity and give them flexibility... so they would not have to participate in the 700 MHz auction if they didn't want to," said Eugene Signorini, wireless analyst for The Yankee Group.

After so many "entrepreneur" operators failed to use their licenses - indeed, much of the spectrum being reauctioned was awarded in 1996 to NextWave, which later went bank-rupt - the pressure to allow all carriers to bid on the bandwidth increased.

Leap Wireless, one of the "entrepreneur" operators that successfully bid in the last reauction, did not believe a rule change was needed, said Dan Pegg, senior vice president of Leap Wireless.

"We were very disappointed to see the F Block being given over to the large companies in total," Pegg said. "But seeing as how [FCC officials]... felt there was a need for a compromise, we can live with what they've done."

While large carriers gained access to the reauction, the rule changes did not represent a full victory for them. The FCC's spectrum cap, which prohibits a carrier from owning more than 45 MHz of spectrum in a given market, will be observed in the reauction, which could restrict large carriers' bidding strategies.

"The decision [to change the reauction rules] is a step in the right direction," said Verizon Wireless President and CEO Denny Strigl. "But we believe the FCC should have gone farther by... removing the arbitrary and outdated spectrum cap."

This sentiment is gathering momentum in Washington. The FCC already lifted the spectrum cap for the 700 MHz auction, and a bill to lift it for all auctions starting next year has been introduced by Rep. Cliff Stearns, R-Fla.

Originally established to prevent large companies from eliminating competition by dominating spectrum, the caps are no longer needed, said Rep. Rick Boucher, D-Va., a cosponsor of Stearns' bill.

"In my opinion, they should be obliterated entirely," Boucher said. "Spectrum caps no longer serve any purpose, in that... we have multiple wireless vendors in every market."

Indeed, the cap inhibits carriers' ability to offer advanced wireless services, Stearns told the House Telecommunications Sub-committee in July. As a point of comparison, Stearns noted that the U.K. and Japan allow wireless companies to own about twice as much spectrum as the U.S., and several countries do not employ any cap.

"Consumers, ultimately, are denied the benefits that arise from additional competition such as lower prices and innovative services," Stearns told the sub-committee in July.

Boucher foresees the spectrum cap forcing carriers to choose between offering existing wireless services and 3G services.

"Essentially, they are put in the position of having to make a choice of either abandoning their current cellular service and offer 3G... or not offer 3G at all," Boucher said."That appears to me to an unrealistic expectation."

But many industry observers - particularly smaller carriers - believe large carriers do not want the cap lifted to offer 3G as much as they want to warehouse spectrum assets - a strategy the cap was establish to prevent.

"There's plenty of spectrum available to realize the full potential of wireless," Pegg said. "The megacarriers simply don't need any more spectrum... if they used the new technologies."