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Our Airwaves for Sale: The Wireless Company Free-For-All

The setting was ornate, the subject esoteric, but the implications huge.

The airwaves to be auctioned next year are some of the most valuable that will ever, in the foreseeable future, be available to wireless providers.  Most of the spectrum targeted for sale is in the 600 megahertz band of frequencies — what wireless carriers call “beachfront property.”

The frequencies are currently occupied by television broadcasters. The FCC will ask them to give up their airwaves voluntarily and if they don’t, some may be moved to another part of the spectrum. The FCC plans to share the proceeds of the auction with those television stations that choose to sell their licenses.

The 600 megahertz band is the kind of airwaves that wireless companies want and need. It travels farther than frequencies above 1,000 megahertz, can penetrate buildings, navigate hilly terrain and more easily go through vegetation, all of which makes it less likely to lose a connection compared with those traveling on higher bands. It’s also cheaper to operate because it requires fewer towers.

As of August 2012, Verizon and AT&T together owned 74 percent of the low-band airwaves, according to calculations using the FCC’s most recent annual report on the competitiveness of the mobile wireless market. Sprint controlled 12 percent, and T-Mobile owned just 0.2 percent.

Most of T-Mobile’s and Sprint’s frequencies are in the higher bands. AT&T and Verizon argue that the high-band spectrum is equally good because it can carry more data, a characteristic that is desirable in urban areas where demand for wireless data is greatest.

Corporate accountants, however, put a higher value on the lower frequencies. Verizon says in its company filings that its frequencies are worth $75.7 billion, second only to the combined value of all of its plants, properties and equipment.

AT&T reports its licenses are worth $56.4 billion. Sprint owns more spectrum than any carrier but it is almost all above 1,000 megahertz. The company priced its spectrum at $41.8 billion. T-Mobile, which has about half the spectrum Verizon has, reported its wireless licenses are worth $18.1 billion.

Verizon and AT&T have used their low-band spectrum to build networks that cover much of the United States, allowing them to attract more customers. Verizon has about 119 million subscriptions, or about 35 percent of all U.S. wireless subscribers, and AT&T has 32 percent, according to the latest report by Strategy Analytics, a technology consulting firm.

Sprint and T-Mobile, whose networks are spotty by comparison, trail a distant third and fourth with 16 percent and 13 percent of the market, respectively, according to the report.

Competition or revenue?

When Congress ordered the FCC in 2012 to hold the spectrum auction, the goals were to increase the frequencies available to wireless carriers, raise money to build a nationwide emergency radio network and pay down the national debt.

The agency now is writing the auction rules to balance the need to raise money with the desire to maintain competition.

Verizon and AT&T argue that capping what they can buy will lower the price paid for the spectrum, cutting the revenue to the government, or worse, cause the auction to fail altogether.

Sprint and T-Mobile argue caps will allow them and other carriers to obtain low-band frequencies needed to compete against their two bigger rivals. The competition will lower prices and encourage the carriers to develop advanced technologies to decrease costs and improve services.

They also argue limits will encourage more bidders, because companies will believe they have a chance of submitting winning bids if AT&T and Verizon cannot bid in every market. More bidders, they argue, means more revenue for the government.

The Justice Department agrees with Sprint and T-Mobile.

In a filing with the FCC in April that drew sharp criticism from supporters of an open auction, the department’s antitrust division argued “rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers.”

Lobbying war

Those opposing arguments are at the center of the lobbying war.

AT&T and Verizon operate some of the most powerful influence operations in Washington.

AT&T Services, Inc.Verizon Communications Inc.T-Mobile USA, Inc.Sprint Corporation20092010201120122013$0$3,000,000$6,000,000$9,000,000$12,000,000$15,000,000$18,000,000$21,000,000

Source: Center for Responsive Politics

Last year AT&T doled out $15.9 million for lobbying on a range of issues, according to the Center for Responsive Politics, which tracks lobbying spending. AT&T spent the 11th largest amount of all companies that year, while Verizon ranked 18th.

T-Mobile has increased its lobbying 74 percent in the past three years since its purchase by AT&T was blocked, but at $5.2 million it remains far behind AT&T and Verizon. Sprint spent even less, $2.8 million in 2013.

The spending pays for lobbyists to visit members of Congress, or to urge them to call or write the agency. Sen. Chuck Schumer, D-N.Y., who sits on the Judiciary Committee, sent a letter Nov. 20 to FCC Chairman Tom Wheeler to urge Wheeler not to institute spectrum limits.

Schumer wrote that the caps “would simply … reduce the amount of spectrum offered for auction as well as the revenue that would be generated in return” as broadcasters would choose not to put up their frequencies for sale for fear that they wouldn’t be able to get the high price that the big carriers could offer — an argument found in FCC filings submitted by AT&T, Verizon and their hired economists.

AT&T’s and Verizon’s political action committees gave Schumer a combined $18,000 between 2009 and 2013, compared with $10,000 from Sprint and T-Mobile PACs during the same period, according to CRP.

Six Republican House lawmakers — including Fred Upton, R-Mich., chairman of the Energy and Commerce Committee, which oversees the FCC, and Greg Walden, R-Ore., chairman of the committee’s communications and technology subcommittee — wrote FCC commissioners in April in response to the Justice Department’s filing, arguing that spectrum caps “will reduce the potential revenues from the auction and possibly cause the auction to fail.”

The six authors, who also included committee members Marsha Blackburn from Tennessee, Ed Whitfield from Kentucky, Billy Long from Missouri, and Robert Latta from Ohio, received among the largest campaign contributions in Congress from AT&T’s and Verizon’s PACs for the 2012 elections — a total of $107,000 from both carriers, according to CRP.

T-Mobile’s and Sprint’s PACs gave the group as a whole about half that much, a total of $42,000, according to the center.

Spokesman for Latta and Whitfield said AT&T’s and Verizon’s campaign donations didn’t influence the representatives’ positions on spectrum limits. The other members didn’t reply to requests for comment.

“AT&T and Verizon have put on a full-scale lobbying campaign and they’re spreading money all over town and writing op-eds,” said Michael Calabrese, director of the Wireless Future Project at the New America Foundation, which supports limits. “Each side is trying to pressure the FCC, sometimes with public letters, and sometimes with research, and equally often it’s with private phone calls.”

The spending also pays for lobbyists to visit the FCC, where they meet with the staff writing the auction rules and with commissioners who will ultimately vote on them.

Between October 2012, when the FCC issued its notice to develop rules for the incentive auctions, and Jan. 30, when the FCC held a public meeting to discuss its progress, the agency received more than 400 filings that include comments, papers, presentations and information about visits, Gary Epstein, head of the commission task force writing the auction rules, said at the Jan. 30 meeting.

The outpouring ranks the incentive auction among the most active issues at the FCC in years, said a senior FCC administrator. “It’s a lot,” the administrator said. “A whole lot.”

T-Mobile, which views the auction as a make-or-break event for the company, has been a fixture at the agency. 

From October 2012 through March 13, lobbyists and executives for the company visited the FCC 36 times, and submitted 20 comments, presentations, letters and research papers for a total of 56 filings, the most of any organization or company, according to data compiled by the Center for Public Integrity.

One of the biggest complaints T-Mobile gets from customers is the inability to get access deep inside buildings, which can be alleviated with low-band spectrum, said Tim O’Regan, a spokesman for T-Mobile. “Lack of low-band spectrum is the biggest challenge T-Mobile faces,” he said. “It’s critical to the future of our network and critical for the future of the company.”

AT&T and Verizon visited the FCC 15 times each during the same period, according to the Center’s analysis, ranking the carriers as the fifth most active. Sprint met with commissioners and agency staff 11 times during the same period, which ranked it tied at 11th.

It’s not the number of FCC filings “that matters most, but rather the quality and depth of a stakeholder’s conversation and advocacy with FCC staff,” said John Taylor, a Sprint spokesman.

The Expanding Opportunities for Broadcasters Coalition, a group of more than 70 television stations that support the auction, had the second most meetings with the FCC, and the National Association of Broadcasters, which may lose members if stations choose to sell their frequencies, was the third-most active group. Other organizations that have frequented the FCC’s offices in southwest D.C. the most have been the Competitive Carriers Association, a group that includes as members Sprint and T-Mobile and supports spectrum limits, and Dish Network Corp., which is considering launching its own nationwide wireless network.

Buying academic research

But tracking traditional lobbying doesn’t tell half the story of the spectrum influence game.

Wireless carriers have hired economists from some of the most prestigious universities to conduct research to support specific positions and attend FCC meetings where they can explain arcane auction theories and rebut other economists’ papers filed by their rivals.

“With this [spectrum auction], the number of factors that go into what is right and wrong is very complicated and subject to debate,” Public Knowledge’s Feld said, “so this has been an extraordinary boon to academic economists. If you do spectrum auction research, you are making a lot of money now.”

AT&T has assembled the largest team of consultants and economists, most from top universities including Yale, Columbia, and the University of Pennsylvania.

One of the key studies the company has cited during its meetings with the FCC, according to the center’s research, was conducted by Philip Haile, an economics professor at Yale University, with co-authors Maya Meidan, an economist at the consulting firm Compass Lexecon LLC, and Jonathan Orszag, also at Compass Lexecon, a former member of President Bill Clinton’s National Economic Council.

The authors conclude the government would lose up to $13.4 billion if the FCC institutes the mildest limitations and twice that if tougher restrictions are followed. In a footnote on the front page of the study, the authors disclose that the study “was supported by funding from AT&T.”

T-Mobile has the second-largest team, with Greg Rosston, deputy director of Stanford University’s Institute for Economic Policy Research and a former deputy chief economist at the FCC, figuring prominently. Rosston and another Stanford economist proposed a bidding process in which spectrum limits are sequentially eased if not enough revenue is raised under the caps. T-Mobile also paid Jonathan Baker, an economist at American University, who argued spectrum limits can increase auction revenue.

“We have retained a number of experts … to help us respond and provide expert guidance on complex issues,” said T-Mobile’s O’Regan. He declined to disclose how much T-Mobile paid the economists, saying the compensation was “consistent with what gets charged in the market and the field” for such research.

Enjoying financial support

Verizon also has paid a former FCC economist on its team, Leslie Marx, who researches auction theory at Duke University’s Fuqua School of Business. Marx concluded in her research submitted to the FCC that an auction with no limits increases revenue and the amount of spectrum applied for mobile use.

AT&T and Verizon didn’t reply to repeated requests to comment on its spending on spectrum lobbying and support of research and associations.

Sometimes relationships are less obvious. Economists at Georgetown University’s Center for Business and Public Policy Research — including a former undersecretary of commerce in the Clinton administration and a former director of the Congressional Budget Office, Congress’ economic research arm — published a study in April 2013 that found spectrum limits would result in “a less robust and competitive auction and reduce auction revenues by as much as 40 percent” and slow the transition to faster networks, all arguments that are similar to AT&T’s and Verizon’s.

The center states on its website that it “has enjoyed the financial support” of AT&T and the Verizon Foundation and more than a dozen other organizations. John Mayo, an economics professor and executive director of the center, said the financial support didn’t lead to the study or influence its conclusions. He declined to say how much AT&T and Verizon gave to the center.

Spectrum caps “is an important topic that the Center’s experts in telecommunications policy proposed would be ripe for research, ultimately leading to our study,” Mayo said in an email. “The research methods, analysis, and findings in all Center studies are designed and determined solely by the authors and are released subject to internal quality review with no external input.”

The authors state on the front page of the study that their research “is not dependent upon any of the policy positions of current, previous or prospective Center supporters.”

“You can have a peer-reviewed journal article with good data by distinguished scholars that comes to a conclusion that goes to a corporate point of view, and that’s fine,” American University’s Thurber said. “But we should clearly know that it does [support a corporate view], and then we can make a judgment about whether there is a conflict of interest.”

Sprint has been much less active. The company filed a study by two European economists who found “restrictions on the amount of sub-1 GHz spectrum operators can acquire at auction have not resulted in any reduction in auction revenue in the myriad European nations that have adopted them.”

Sprint and T-Mobile also have funded groups supporting spectrum limits. The two carriers and Dish each gave between $10,000 and $24,999 in 2013 to the New America Foundation, which has met with the FCC to argue for caps on frequencies, according to the New America Foundation website.

“As always we are aligned with the other consumer groups and we are all in a coalition with the smaller carriers,” the foundations’ Calabrese wrote in an email. The financial support from T-Mobile, Sprint and Dish, however, was “not for any research papers or anything in particular.”

Free Press, a consumer advocacy and journalism organization in Washington that supports restricting spectrum purchases and has testified before Congress, doesn’t accept money from corporations and has funded no independent research, according to the group’s website. Public Knowledge has received donations from all four carriers for an awards program, and Sprint gave money to the group to analyze FCC spectrum data to develop Public Knowledge’s position on limits, according to Feld.

But consumer groups are outgunned by AT&T and Verizon. With their big spending on traditional lobbying and funding of associations, think tanks and universities, the corporations play the influence game better than anyone else, said Kevin Werbach, who studies Internet and communications policy at the University of Pennsylvania’s Wharton School of Business.

“This is their core competency, and they have been playing this game for a long time,” Werbach said.  “These are companies that support foundations and other groups that do a lot of good work, but in the end are strategically designed to advance [AT&T’s and Verizon’s] interests.”

Two sides of Wheeler

FCC commissioners are scheduled to vote on proposed auction rules, including whether it will include limits, at its May 15 meeting. That could open another round of public comments, and at that point the lobbying “will hit its peak,” said an executive at one of the wireless carriers.

Two of the Democrats on the commission, Jessica Rosenworcel and Mignon Clyburn are likely to support limits. The two Republicans, Ajit Pai and Michael O’Rielly, are less likely to.

That leaves the affable FCC chairman, Tom Wheeler, who President Barack Obama appointed last year, to decide. Wheeler knows a lot of about lobbying, having headed up the National Cable Television Association, one of the biggest lobbying spenders in Washington, and the Cellular Telecommunications & Internet Association.

Wheeler, who wields a lot of power as chairman, hasn’t indicated how he would vote. At a speech at his alma mater, Ohio State University, he described himself both as “a rabid believer in the marketplace” and as “an unabashed supporter of competition.”

“A key goal of our spectrum allocation efforts is ensuring that multiple carriers have access to airwaves needed to operate their networks,” he then said.

It remains to be seen which Wheeler will show up to vote — the former lobbyist who fought federal regulations and whom AT&T lobbyist called “an inspired pick to lead the FCC” or the Obama appointee who believes that the wireless market needs more, not less, competition.

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