AT&T Fearful of Market Domination by Small Rural Carriers
By: Rebecca Murphy Thompson, General Counsel, CCA
May 7. 2014
Have you ever heard of Union Wireless? Unless you’re from Wyoming, chances are probably not. According to AT&T, though, you should be concerned – very concerned – about Union Wireless.
AT&T has more than 116 million mobile subscribers, captures some 40% of all wireless revenue, and is one of the world’s largest wireless operators. Family-owned and operated Union Wireless provides wireless service throughout the state of Wyoming and in few counties in some neighboring states. The company has fewer than 500 employees and made news recently from its sponsorship of the 2014 Bridger Valley Jackalope Jump, where participants jump into freezing water to raise money for the Special Olympics.
Recently, AT&T started lobbying to have the same rules intended to curb the market dominance of AT&T apply to Union Wireless and other small carriers that serve rural communities. The crux of AT&T’s argument is that Union Wireless, which provides cellular service to towns like Medicine Bow (population 284) and Frannie, Wyoming (population 157), has as much ability to exercise anticompetitive market power as AT&T.
It’s an extraordinary claim, even by AT&T’s standards. But AT&T’s lobbying gambit is driven out of fear – fear that reasonable low-band spectrum aggregation limits currently under consideration by the Federal Communications Commission might finally create enough breathing space for competitors to challenge AT&T’s and Verizon’s national market power.
In just over a year, the FCC plans to hold a voluntary incentive auction for broadcasters to sell their 600 MHz spectrum to be repurposed for broadband use. This 600 MHz low-band spectrum is ideal for both urban and rural broadband coverage because low-band spectrum travels longer distances and penetrates buildings and other obstacles far more readily than higher-band spectrum. Using low-band spectrum results in substantially lower deployment costs, which make providing service to less densely populated areas of the country economically sustainable.
As of a year ago, AT&T and Verizon held licenses for approximately 90% of Cellular (800 MHz) spectrum and 84% of Cellular and 700 MHz bands, for a combined total of 78% of nationwide low-band spectrum. And those percentages keep growing as the largest two carriers continue to aggregate low-band spectrum resources. CCA represents more than 100 competitive carriers. Some CCA members hold low-band spectrum; others do not. Nevertheless, the amount of low-band spectrum held by CCA members is dwarfed in comparison to the low-band spectrum held by the Twin Bells, AT&T and Verizon. As a result, CCA has consistently argued for low-band spectrum aggregation limits to provide assurance that our small and rural members will not be foreclosed from this valuable 600 MHz spectrum. To expand competition in rural markets and prevent one or two carriers from running the table at the auction once certain revenue thresholds are met, the Commission is considering “reserving” a limited amount of spectrum available for bidding by carriers that possess little or no low-band spectrum. CCA enthusiastically supports the Commission’s proposal to limit the amount of spectrum any one carrier can acquire in the incentive auction. Aggregation limits help ensure that competitive carriers are not kept from accessing a resource they require to effectively compete in their home markets.
If past is prologue, foreclosure is not only a possibility, it’s a probability. AT&T single-handedly kept $2 billion in investment in low-band spectrum stranded on the sidelines for several years by derailing interoperability in the Lower 700 MHz Band, effectively prohibiting rural consumers’ access to the latest devices and fastest LTE service. It was only on the eve of Commission action under Acting Chairwoman Mignon Clyburn that AT&T acquiesced to an industry-driven solution. This costly delay to broadband deployment proves why it is so important that competitive carriers have a fair shot at entering the 600 MHz ecosystem.
The current FCC spectrum aggregation proposal would determine reserved license participation only on a local market basis and ignore the effects of national market power. Under these rules, many small and rural wireless carriers – including Union Wireless – would face limitations in their home markets even though they come nowhere close to holding national or local market power.
Under the FCC’s current proposal, Union Wireless would be kept out of reserved spectrum in a core market, while AT&T would be eligible to bid on reserved spectrum in that market. Surely the Commission does not intend to put a small, rural competitor in the same (or worse) position than a better capitalized, dominant carrier like AT&T? Doing so unnecessarily penalizes small businesses focused on providing high-quality service in their home markets, like Union Wireless, while ignoring national market power.
Adding a national eligibility requirement as a prerequisite to limiting a carrier’s eligibility to bid on reserved spectrum blocks keeps the focus on national market power, where it belongs. Focusing on national market power also recognizes that, unless we create space for companies like Union Wireless to flourish, AT&T could box out small rural competitors from the 600 MHz ecosystem any time it chooses.
This approach has a proven track record. The Department of Justice reviews national and local market effects in its antitrust analysis of mergers and acquisitions and the DoJ recommended the FCC review both national and local effects of spectrum aggregation using both a national and local standard. Regulators in Canada, meanwhile, adopted just this test in their recent successful 700 MHz auction, applying a national test of market power (a 10% share threshold) and a local trigger (a 20% threshold in a particular license area) to determine eligibility for certain blocks of spectrum.
Distinguishing a company without market power from one with enormous market power is not a double standard; it’s common sense. Well-designed limits on spectrum aggregation in the incentive auction will drive up auction revenues and promote competitive access. CCA’s proposal shows that neither of these benefits has to come at the cost of preventing small and rural carriers, like Union Wireless, from better serving their communities.