Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Justice Department Calls for Greater Access to Low-Frequency Spectrum for Smaller Nationwide Wireless Networks in Comments to FCC, (Apr 16, 2013)

By Tobias J. Gillett, J.D., LL.M.

The Federal Communications Commission should adopt rules ensuring that small nationwide wireless networks have greater access to low-frequency spectrum to spur competition among nationwide carriers, according to comments submitted by the Department of Justice Antitrust Division to the FCC. The Antitrust Division submitted its views in response to an FCC notice requesting comments on its comprehensive review of its policies governing mobile spectrum holdings.

In its submission, the Division noted that it has considered the preservation of competition in the telecommunications industry to be "a key priority," and that it has recently evaluated a series of telecommunications mergers, including its 2011 review of the proposed merger between AT&T Inc. and T-Mobile USA, Inc. and its 2012 review of Verizon’s acquisition of spectrum from four cable companies.

The Department of Justice noted that it and the FCC could promote competition "in a variety of ways, including: (a) merger enforcement; (b) prohibitions or prosecutions of business practices that thwart innovation; (c) distribution or allocation of public assets (such as spectrum); and (d) other public policies that affirmatively lower entry barriers facing new entrants and new technologies." Its present comments focused on "the importance of spectrum to competition and innovation in the wireless industry and the factors the Department considers to be important in assessing the competitive effects of transactions in wireless markets."

The comments observed that maintaining rivalry between competitors in the mobile markets and limiting their market power can enable competitive forces to benefit consumers. Therefore, a principal concern of the Department was "that acquisitions of spectrum, whether at auction or through subsequent transactions, should not be used to create or enhance market power."

Spectrum in part determines the capacity of wireless carriers, and those carriers must obtain more spectrum or make more efficient use of the spectrum they possess in order to respond to consumer demand. However, this situation can provide an incentive to carriers to acquire spectrum in order to foreclose competitors’ access to it and thereby raise their costs, the Department noted.

In evaluating the competitive effect of a transaction, the Department will "assess each carrier’s ability to compete, including its capacity to meet consumer demand," the comments explained. This requires an analysis of the characteristics of the spectrum the carriers seek to acquire. Low-frequency spectrum "has superior propagation characteristics permitting better coverage in both rural areas and buildings," the Department noted, although high-frequency spectrum may be just as effective in dense urban areas. The demands of particular networking equipment and consumer devices may also determine the value of specific blocks of spectrum.

The comments noted that the two leading carriers currently possess the vast majority of low-frequency spectrum, while the other nationwide carriers possess almost none. Therefore, the FCC may be able to improve the ability of other carriers to compete, particularly in rural areas, "by preventing the leading carriers from foreclosing other carriers from access to low frequency spectrum," the Department contended.

However, the comments noted that owning large quantities of spectrum can provide a carrier with cost efficiencies, although these efficiencies may become more limited as the carrier owns larger and larger blocks of spectrum. Future aggregation technology may also permit wireless carriers to achieve efficiencies currently only possible with large blocks of contiguous spectrum through pairing small blocks of spectrum presently dedicated to older technologies with relatively small blocks of newly-allocated spectrum.

Therefore, the comments urged the FCC to "weigh the risk of consumer harm from an input foreclosure strategy," and to balance those risks against potential economies of scale. The analysis should take into account "alternative means for carriers to use their existing spectrum resources."

The comments then proceeded to address the appropriate market analysis for evaluating wireless spectrum holdings, in particular whether the FCC "should modify the relevant market definition to reflect differentiated service offerings, devices, and contract features." The comments stated that the Department believes that transactions should typically be reviewed through "a thorough, case-by-case analysis of the competitive effects of each transaction."

The Department noted that it has previously recommended the use of a method of analysis similar to the one set forth in the Department’s Horizontal Merger Guidelines. This approach requires a consideration of all factors relevant to the parties’ ability to exercise market power in any relevant market, with the "touchstone" of the analysis being "the functional experience from the perspective of the customer," including the degree to which consumers see services as substitutes for each other.

In many wireless transactions, the comments explained, the Department has conducted a "fact-specific, market-by-market analysis" to determine geographic areas of concern. This can require an analysis of the effects on both local markets and broader regional or nationwide markets. Although the Department has previously defined "mobile wireless telecommunications services" as a relevant product market, product market definitions remain "dynamic." The analysis may also require an analysis of distinct sets of customers, such as business or government customers.

However, the comments then proceeded to address the FCC’s request for comments on whether a case-by-case analysis would afford "auction participants sufficient certainty to determine whether they would be allowed to hold a given license post-auction." The comments noted that applying a case-by-case analysis to every bidder’s acquisition of spectrum in a large auction could strain FCC resources and unduly delay the allocation of the spectrum. Moreover, the Department considered predictability to be "especially important" in spectrum auctions.

Therefore, the Department recommended that the FCC should adopt "a set of well-defined rules for spectrum acquisitions in auctions." Such rules could provide greater certainty to participants and could "prevent foreclosure of entry or expansion." The FCC could apply different rules, weights, or caps to different kinds of spectrum frequency. These rules could ensure that smaller carriers would have access to more spectrum, and in particular more low-frequency spectrum.

The comments closed by stating that the Department "strongly support[ed]" the FCC’s effort to design spectrum aggregation rules that promote competition and innovation in telecommunication markets, and that it "commend[ed] the FCC in taking on this comprehensive review of its mobile spectrum holdings policies as it also moves to reallocate a considerable array of spectrum to make it available for mobile wireless services."

News: Antitrust AntitrustDivisionNews