Sprint looks to acquire T-Mobile, but FCC blocks with new anti-hoarding ‘spectrum screen’

On Monday, the Wall Street Journal reported that the FCC has decided on how it will adjust the so-called spectrum screen, a measure that prevents the anti-competitive gobbling up of spectrum. On Wednesday, Bloomberg reported Sprint is working on financing for a summer bid on T-Mobile. However, the changes will make it extremely difficult, if not impossible for Sprint to acquire any more spectrum outside of the two upcoming auctions.

Nearly two years ago, we noted that the FCC was reviewing the current valuation of spectrum. As part of this reevaluation, the FCC began considering how to update the spectrum screen. The spectrum screen is used by the FCC as a benchmark — when an acquisition of spectrum takes a single entity over a certain threshold, the spectrum screen necessitates further scrutiny of that transaction. Depending on how much it exceeds the screen, the FCC could block a deal based on the premise that undue concentration of spectrum hampers competition, which is against the best interests of the American people. This is often referred to as “the public interest.”



The landscape has changed dramatically since then. Verizon Wireless acquired AWS spectrum from the cable companies, which is allowing Verizon to boost the capacity of its network all over the country this year. AT&T made WCS usable and bought most of the WCS licenses (except Sprint’s in the Southeast and Texas) and AT&T will finally be able use the spectrum starting late this year. Sprint acquired Clearwire and all of its 2.5GHz licenses and leases, shut down the Nextel iDEN network operating on ESMR 800MHz, and began deploying LTE on both bands. T-Mobile acquired MetroPCS and began deploying enormous LTE channels on the combined company’s AWS licenses. Dish gained AWS-4 and won all the PCS H block licenses at auction, enabling it to make a huge splash as a new LTE-Advanced cellular network operator, should it choose to do so. AT&T acquired Leap Wireless International, ending Cricket’s existence as an independent wireless carrier. T-Mobile acquired Verizon’s Lower 700MHz A block spectrum, enabling it to finally start expanding into rural areas in a much more cost efficient manner.

All of these transactions have changed the balance of spectrum, and key to this is that aside from T-Mobile’s purchase of 700MHz spectrum earlier this year, virtually all of the spectrum involved in these transactions are high band and super high band spectrum. This has obviously factored strongly into the FCC’s decision, since it decided to not implement any weighting based on whether the spectrum is low, high, or super high band. FierceWireless reported that the FCC has removed the non-auctioned Upper 700MHz D block spectrum (20MHz) and the SMR spectrum (12.5MHz). In its place, most of the 2.5GHz band (around 100 MHz), the AWS-4 band (40MHz), and PCS H (10MHz) will be counted in the screen.



The upcoming proposed changes to the spectrum screen would assuredly make it very difficult for Sprint’s attempt to rouse a deal to acquire T-Mobile US, which is currently valued at around $24 billion. Bloomberg reported on Wednesday that Sprint has lined up financing with six banks and is currently in discussions on the structure of a deal. However, the FCC is unlikely to look very favorably on such a deal, which may be why it is structured specifically to discourage further consolidation in the industry. Interestingly, the FCC will be ignoring the updated screen for the upcoming AWS-3 and 600MHz band auctions. This would incentivize Sprint, AT&T, and Verizon to go after these upcoming auctions.

It’s not surprising that the FCC is pushing so hard to “encourage” auction participation, but since it is for the benefit of improving our public safety networks and improving competition in the commercial mobile industry, this is a good thing. Hopefully, the FCC will meet its marks to fund FirstNet (the organization responsible for deploying a new national LTE-based PPDR (public protection and disaster safety) network. But the FCC is playing with fire here. Sprint has mentioned its disinterest in the auctions in the past. However, if Sprint can’t acquire T-Mobile US, it will most likely go for these auctions. Which suits the FCC just fine.