The creme de la creme of wireless spectrum for cellular carriers is pretty much anything under 1 GHz. These frequencies carry the ability to send a signal long distances, and penetrate objects much better than higher bands.
Think about how your TV antenna was capable of picking up the signal for I Love Lucy even in the concrete-surrounded basement. With an upcoming incentive auction scheduled for next year, which will reappropriate old television spectrum for cellular networks, a big chunk of that valuable spectrum is up for grabs.
To keep the playing field fair, a group of businesses including T-Mobile (NASDAQ:TMUS), Sprint (NYSE:S), and DISH Network (NASDAQ:DISH), are petitioning the government to set aside more spectrum for smaller carriers. AT&T (NYSE:T) and Verizon (NYSE:VZ) have been spending whatever's necessary to corner the market on spectrum and suppress the competition. The coalition, which calls itself Save Wireless Choice, is fighting an uphill battle with the FCC, which has already made some concessions to promote competition.
What do we want?! When do we want it?!
The biggest thing Save Wireless Choice is asking for is an increase in the reserves for smaller carriers. The FCC previously set the reserve at a maximum of 30 MHz by limiting carriers with more than 45 MHz of spectrum under 1 GHz in a specific market from bidding on available spectrum. The coalition wants to increase that reserve to a minimum of 40 MHz, and at least half of the available spectrum.
Combined, AT&T and Verizon already control 73% of the nation's available low-band spectrum, according to literature on Save Wireless Choice's website. While the current reserves may curb that percentage -- depending on how much spectrum goes up for auction -- it likely won't be enough to make a big dent in the current balance. The upcoming incentive auction is one of the last chances for carriers to buy spectrum directly from the government.
The other big demand from the coalition is for the government to forgo delaying the auction any longer. The auction has already been delayed twice, and the longer it's delayed, the better it is for AT&T and Verizon as it gives them time to line up financing.
Both companies just spent huge sums of money on the recent AWS-3 auction. AT&T's bids totaled $18.2 billion, and Verizon offered $10.4 billion to take the majority of spectrum licenses available. Both companies sold assets before and after the auction to fund their purchases. The longer the FCC delays the incentive auction, currently scheduled for next year, the more time the two larger companies have to get financing in order to maximize their potential bids.
Another factor playing into when the auction takes place is if a Republican takes the White House in 2016. A Republican president could alter the alignment of the FCC commissioners to favor big businesses like AT&T and Verizon. All five current FCC commissioners were nominated by President Barack Obama and confirmed by the Senate. Only three commissioners may be members of the same political party. Democrat Mignon Clyburn's term ends June 30, 2017.
What's the FCC to do?
While reserving more low-band spectrum for smaller carriers would certainly promote more competition among carriers, the downside is that it would prevent the FCC from maximizing its revenue in the auction. The AWS-3 auction was a huge success for the FCC, raising much more than the FCC or analysts expected largely because of AT&T and Verizon's willingness to spend.
A report from Reuters last month indicated that the FCC is still leaning toward the side of the big carriers despite the protest from T-Mobile and Save Wireless Choice. Allowing the bigger carriers to participate could allow the FCC to raise even more money than the AWS-3 auction, where it raised $45 billion. Finding a balance between raising money for the government and promoting competition in the increasingly important wireless phone market is a tough act for the FCC.
T-Mobile and Sprint, which both have had negative cash flows during the last 12 months, need all the help they can get from the FCC. AT&T and Verizon, meanwhile, just need time to restock their spending budgets. If the Save Wireless Choice coalition can convince the FCC to reverse its stance, it could have a significant impact on the industry.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple and Verizon Communications. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.