FCC to consider spectrum cap: Battle pits big carriers against small

The battle between large and small wireless operators over the spectrum cap may conclude this week. The FCC could decide as early as Wednesday to remove or retain the 45 MHz limit on spectrum ownership that governs the wireless industry. The two main industry associations, the Personal Communications Industry Association and the Cellular Telecommunications Industry Association find themselves opposing each other on the issue.

"We believe the cap has facilitated the entry of new facilities-based carriers into the market," said Mary Madigan Jones, vice president of external affairs for the PCIA. The group, which represents mostly new PCS entrants, wants the cap retained. "The cap has encouraged buildout, not buyout," she said.

The PCIA fears removal of the cap would stifle competition, encouraging small players to sell out to large operators rather than incur the heavy expense of building networks. The PCIA believes that there will be a day when the cap can be removed but that today the market is too young. Some PCS licenses were only just auctioned in March and many carriers are still building out. In February, PCS operators held a mere 7.6% average market share in the top 200 metropolitan statistical areas. Even without removing the cap, consolidation can continue and is healthy, but the cap ensures that no market will have fewer than four competitors, she said.

The CTIA on the other hand, believes the cap should be eliminated and that the FCC should rely on antitrust regulations and its own license transfer review to encourage continued healthy competition. "We need to get rid of the straightjacket of the spectrum cap," said Mike Altschul, general counsel for the CTIA.

In New York City, for example, AT&T Wireless has had to scale back its marketing efforts because it is at maximum capacity on its network, he said. Consumers there would be better served by an AT&T Wireless with more spectrum.

In addition, the CTIA believes that the spectrum cap is hampering progress toward third generation networks. The move to 3G presents a significant issue to cellular operators that acquire only 10 MHz of PCS spectrum, which is where the world has agreed to operate 3G systems. That small slice of spectrum likely isn't big enough for them to offer 3G services.

While U.S. operators spend time duking out the spectrum cap battle, they are falling behind other countries, where operators have already received new spectrum to begin implementing 3G.

"Vendors are selling 3G systems in other parts of the world because in the U.S. getting the necessary spectrum turns out to be hard," Altschul said.

Rural operators generally have remained neutral on the spectrum cap issue. For example, 3 Rivers, based in Montana, doesn't expect to run into capacity challenges soon and doesn't see much competition from the big operators, said Ernie Peterson, general manager of wireless for 3 Rivers. He believes that if an operator is so successful that it needs more spectrum, the operator should be able to acquire it.