Sorry, Sprint, T-Mo. The FCC isn’t letting you collude in the upcoming spectrum auction

You can’t blame Sprint and T-Mobile for trying, but the Federal Communications Commission is heading off a potential caper involving the two ganging up in next year’s broadcast spectrum incentive auction. In a blog post, FCC Wireless Bureau Chief Roger Sherman said the commission is proposing new rules that would prevent nationwide mobile carriers from jointly participating in future auctions.
Assuming the commission adopts these rules, that would effectively kill any plans for Sprint and T-Mobile to form a separately funded joint venture to bid in the auction. Last month, the Wall Street Journal reported that such venture was in the works. From Sherman’s blog post:

“We must make sure that the biggest providers are not able to limit broad participation in the spectrum auction. As promised in the Mobile Spectrum Holdings Report and Order, we now seek comment on whether and how we should restrict the ability of wireless companies to combine their bids during an auction.
“Our goal is to promote the participation of as many parties as possible in the auction. If two of the largest companies are able to bid as one combined entity in the auction, their combined resources may have the effect of suppressing meaningful competition. Therefore, the item tentatively concludes that joint bidding arrangements between nationwide providers should not be allowed.”

If Sprint and T-Mobile do merge, they’re actually in a pretty tough spot. Such a blockbuster deal would take a year to get over any regulatory hurdles, and there’s a good chance that the FCC or the U.S. Department Justice might shoot it down completely. Meanwhile, the most significant spectrum auction of the decade is scheduled for mid-2015.
The complicated incentive auction hopes to transfer a huge chunk of the 600 MHz UHF TV airwaves over to the mobile carriers for 4G use, and the results of the auction could dictate the winners and losers’ mobile broadband strategies for years to come. Sprint and T-Mobile likely won’t know until the auction is over whether they would combine their license winnings or be forced to make do with the licenses they win individually. They can’t plan ahead.

Photo from Thinkstock/Tomasz Wyszoamirski

Photo from Thinkstock/Tomasz Wyszoamirski

The situation is even more complex now that Sprint isn’t T-Mobile’s only suitor. On Thursday French ISP Iliad revealed it has made a $15 billion bid for half of T-Mobile’s shares.
While the FCC is cracking down on the big carriers, it is also taking to steps to open up future auctions to smaller players. Sherman said the FCC wants to lift rules that today limit participation in the auction to carriers that build their own networks – a rule that is often sidestepped anyway (just ask Comcast(s cmsca)).
That could potentially open up the mobile industry to small businesses and even startups. Instead of building their own networks they could lease out their spectrum to carriers or partner with larger companies to finance new network construction.
But it also seems to me that such policies could encourage more spectrum speculation, something we’ve already had a problem with in recent years. Companies could just squat on the public airwaves, waiting for a deep-pocketed carrier to meet its asking price.