AT&T is warning it may have no choice but to pull out of a major government auction of the airwaves if the Federal Communications Commission doesn't change some of the rules.
On the one hand, the prospect of an AT&T boycott should have regulators worried — the FCC stands to lose millions if not billions of dollars in revenue from AT&T if it backs out — but it's hard to see how AT&T could justify passing up a rare opportunity to purchase some of the most valuable aerial real estate in the industry.
Radio spectrum is finite. As the invisible stuff that carries cellphone calls, TV signals and satellite transmissions over the air, spectrum is high in demand among businesses. The upcoming auction would transfer spectrum currently used by TV stations to the government, which will then sell the reclaimed spectrum to wireless carriers.
At issue here are the limits the FCC is considering applying to large wireless carriers in an effort to make sure smaller companies, such as Sprint and T-Mobile, get a fair chance in the auction. Under this plan, the FCC would set aside a portion of the airwaves that AT&T and Verizon won't be allowed to buy.
AT&T naturally dislikes the idea. In a letter to the FCC, AT&T's head of federal regulatory issues, Joan Marsh, wrote that the spectrum caps would "put AT&T in an untenable position, forcing AT&T to reevaluate its potential participation in the auction."
"AT&T has never declined to participate in a major spectrum auction and certainly did not intend to do so here,” Marsh added. “But if the restrictions as proposed are adopted, AT&T will need to seriously consider whether its capital and resources are directed toward other spectrum opportunities that will better enable AT&T to continue to support high quality LTE network deployments to serve its customers.”
Withdrawing from the auction would deal a huge blow to the FCC, which needs to raise enough money from the auction to pay for, among other things, a congressionally-mandated next-gen wireless network dedicated to first responders. That system alone is expected to cost $7 billion.
If AT&T is threatening to sit out the auction, it's a good bet Verizon — which also opposes the caps — could do the same. A spokesperson for the company did not respond to a request for comment Wednesday.
But Verizon has the luxury of being the second mover: It can afford to wait and see how AT&T's message is received. In some ways, the threat of a threat from Verizon may be even more fearsome to the FCC than actually making one, analysts said.
Jeff Silva, a former telecom policy analyst at Medley Global Advisors, said following through on the warning would be hard to explain to investors.
"They have to think long and hard whether it's in their corporate interest," Silva said. "This is the last big auction for a long, long time. There's nothing on the drawing board that's anywhere comparable to what they're going to be doing in the incentive auction."