FCC Setting Rules for Spectrum Deals
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Federal Communications Commission (FCC) is setting up to review the spectrum purchase by the wireless carriers. The acquisition efforts by the telecom biggies have made the FCC gear up and decide on rules regarding how much spectrum a carrier should be allowed to hold. This is to ensure that anti-competitive concerns are minimized and that smaller players do not get adversely affected. The amount of information flowing on the wireless network is rising at an unbelievable pace. Ever since Apple (NASDAQ: AAPL) released its iPhone, the wireless data demand spiked like never before, forcing carriers to ask for more spectrum. The soaring data demand from customers has been stressing the current spectrum capacity of wireless carriers, which are fiercely hunting to add extra airwaves by way of consolidation.
The Federal regulators are scheduled to hold a meeting this month and work on a new set of rules for the airwave transfer between carriers.
What could be the implication?
The rules set by the FCC would have a direct impact on the industry biggies Verizon (NYSE: VZ) and AT&T (NYSE: T) as well as smaller players that depend on FCC’s approval to buy frequencies. Another issue that will be dealt with is whether the lower frequency should be treated in the same manner as airwaves in the higher band. The former is more valuable as it is better suited for data transmission on consumer wireless devices. The spectrum screen by the FCC for reviewing airwave transactions is particularly critical for Verizon and AT&T, which could get a blow if deals are restricted in the face of maintaining healthy competition. In fact, Sprint (NYSE: S) appreciates FCC’s move to re-examine spectrum bands and its usefulness to carriers. Both the industry giants have been criticized by smaller rivals, including Sprint, T-Mobile and regional carrier MetroPCS (NYSE: TMUS) for warehousing spectrum. Also their access to spectrum band below the 1GHz is highly envied.
In the 28 September meeting, a vote is expected to take place and if approved by all the members of FCC it would be carried forward to the public and companies at large for their input and suggestion. This would be done so that the FCC incorporates them before it decides on whether or not to apply standard spectrum screens for all deals. As a general procedure, the FCC restricts carriers from holding a third of the commercial spectrum available in the market. The FCC further scrutinizes and reviews deals which involve spectrum transfer beyond the normal limit. It may additionally ask the carrier to sell some of its frequency so that it gets transferred to competitors.
The ‘National Duopoly’ concern
In all this, Verizon should thank its stars considering that the FCC came up with the screening proposal after approving its $3.9 billion deal for the purchase of 20MHz of AWS spectrum from Comcast, Time Warner and other cable companies. As part of the entire transaction, Verizon entered into related contingent spectrum deals with T-Mobile and Leap Wireless. While Verizon smartly managed to win the cable deal, AT&T’s $39 billion T-Mobile deal fell through. The second largest wireless provider has proposed a number of airwave transactions which are subjected to FCC’s scrutiny. The regulator should get ready to hear criticism from opponents while it reviews AT&T’s spectrum acquisition proposals, particularly as the telecom giant is targeting dozens of small deals that would combine to give it access to huge spectrum bands.
The approval of spectrum deals proposed by the two biggies would bring prime spectrum in major US markets into their hands. The regulators are surely in a fix considering the amount of power the top carriers would get in such a case.
The bottom-line
Presently the FCC deals with the spectrum transfer proposals individually and there are no specific standards followed. The regulators do not follow precedents as what’s applicable to one deal may be forbidden for another transaction. So to avoid such irregularity and confusion the FCC is gearing up to review the entire process and set a standard that would apply for both big and small deals. This would not only reduce nitpicks from wireless carriers regarding inconsistent regulations, but simultaneously strengthen rules put forward by opponents who criticize big deals to protect market competition.
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