May 15 (Bloomberg) -- Regulators set limits on bidding by AT&T Inc. and Verizon Communications Inc. for airwaves to feed the booming smartphone market in a U.S. auction next year.
The Federal Communications Commission today, on a pair of 3-2 votes, decided to reserve some frequencies for competitors of the two largest U.S. wireless providers at a sale that could be the biggest since 2008.
The restrictions are designed to ensure small carriers can get airwaves to compete in rural areas and to prevent any company from dominating the auction.
“We want to make sure there is competition to fulfill a mandate of Congress,” FCC Chairman Tom Wheeler said today after the Democratic-led party-line vote. Rules passed today keep companies “from monopolizing the market in the auction,” he said.
The FCC plans to sell airwaves voluntarily given up by television stations so the frequencies can be used to accommodate the growing number of smartphones, tablets and other wireless-data devices. The airwaves travel far and penetrate buildings -- prized attributes as Americans increasingly rely on mobile devices for Internet access.
Before voting the agency eased barriers to big carriers bidding on wide swaths of airwaves useful for carrying advanced Web traffic for videos and other purposes.
“The framework adopted today will give AT&T a fair opportunity” to offer advanced mobile services in more places, Jim Cicconi, senior executive vice president of external and legislative affairs, said in an e-mail. AT&T “anticipates that it will participate broadly” in the auction, Cicconi said. Earlier the second-largest wireless carrier by customers said it may not participate.
AT&T and Verizon in filings said restrictions will unfairly favor Sprint Corp., the third-largest U.S. carrier, and No. 4 T-Mobile US Inc.
The FCC “should not be subsidizing well-funded companies who are more than capable of competing without special favors or privileges from the U.S.,” Jonathan Spalter, chairman of Mobile Future, a Washington-based trade group partly funded by the largest carriers, said in an e-mail after today’s vote.
An FCC auction in 2008 drew bids totaling more than $19 billion, with more than 80 percent coming from AT&T and Verizon. The two carriers hold almost two-thirds of a type of airwaves particularly suited for smartphones, and the other national carriers hold about 10 percent, according to Wheeler.
Republican FCC commissioners voted against the auction rules today, saying limits on some companies punish them for participating in past sales and will reduce the amount of revenue raised. Congress authorized the auction to raise money for an emergency-communications network for first responders, compensate broadcasters that vacate spectrum and to add to the U.S. Treasury.
“It would have been easy in my view to establish auction rules that would maximized net revenues,” said Commissioner Ajit Pai, the senior Republican, who said the measure fails to comply with the legislation.
President Barack Obama’s administration has pledged to dedicate more airwaves to avert wireless traffic jams that stunt innovation and commerce. Next year’s auction is part of the initiative.
The FCC also voted 3-2 to modify a formula it uses to judge whether companies hold enough frequencies to threaten competition. The change brings Sprint closer to a threshold that would make it harder to get FCC clearance for a deal, Paul Gallant, Washington-based managing director for Guggenheim Securities, said in an note last month.
Masayoshi Son, chief executive officer of Sprint owner SoftBank Corp., is expected to make a formal bid for T-Mobile, according to a person with knowledge of the situation.
The change won’t help the FCC identify problematic airwaves accumulations because the agency isn’t taking into account how airwaves differ in value, Lawrence Krevor, Sprint vice president, legal and government affairs, said in an e-mail.
AT&T’s Cicconi said the FCC has “rationalized” how it surveys airwaves by deciding to count “the full array of spectrum actually in use by wireless carriers today.”
Sprint may sell some airwaves to raise cash for a deal, which could give it room under FCC guidelines to receive a more favorable reception by regulators, Bloomberg Industries analyst John Butler said in a note.
The Justice Department in a filing yesterday at the FCC said it opposes a reduction in the number of competitors in the wireless industry.
“The department believes it is essential to maintain vigilance against any lessening of the intensity of competitive forces, or reduction in the number of effective competitors,” William Baer, the top antitrust official, said in the filing.
The auction could sell access to as many as 120 megahertz of airwaves, or almost one-fourth the amount sought by Obama, according an FCC plan published in 2010. The 2008 auction sold access to 62 megahertz. The agency won’t know how many frequencies are available until TV stations decide whether to relinquish their airwaves.
To contact the editors responsible for this story: Bernard Kohn at firstname.lastname@example.org Elizabeth Wasserman, Steve Geimann