AT&T Is Playing Chicken With the FCC

Who will blink first in the battle over access to airwaves?

A cell phone tower rises above the trees in Sudbury, Massachusetts. (National Journal)

AT&T and the Federal Communications Commission are in a high-stakes standoff.

The cell-phone carrier is furious over the FCC's planned rules for an upcoming auction of airwave licenses and is threatening to sit out of the auction entirely.

An AT&T boycott could be devastating for the FCC. The federal government is depending on the auction to generate billions of dollars in revenue to build a nationwide high-speed communications network for first responders and to pay off a 2012 tax cut.

But speaking to reporters on Wednesday, FCC Chairman Tom Wheeler accused AT&T of bluffing. Wheeler said it's "hard to conceive" of the nation's second largest wireless carrier not participating in the auction.

The FCC chief noted that AT&T and other carriers have been aggressively lobbying for years to get the FCC to give them access to more spectrum — the frequencies that carry all wireless signals.

"Wireless carriers, including AT&T, have been very forceful and persuasive in making the case that the success of their ability to serve consumers — and therefore the success of their business — depends on additional spectrum," Wheeler said. "I have a hard time envisioning this once in a lifetime opportunity for this kind of beachfront spectrum being something that people throw up their hands and walk away from."

Under a plan approved by Congress in 2012, the FCC will pay TV stations around the country to give up their broadcast licenses. The agency will then auction those licenses to wireless carriers to give them access to more airwaves to carry their customers' traffic.

Wireless networks have become clogged in recent years as consumers increasingly stream videos and browse the Web on their smartphones.

But Wheeler plans to cap the amount of spectrum that AT&T and Verizon — the industry's two largest companies — can buy in the auction.

The FCC chief has warned that without caps, AT&T and Verizon could buy up all of the low-frequency spectrum, which is especially valuable because it can carry signals over longer distances.

If Sprint and T-Mobile — the smaller of the four national carriers — are boxed out of the auction, it could starve them of the spectrum they need to compete, Wheeler has claimed. Consumers would start fleeing the two smaller carriers if their networks become congested with traffic.

The death of Sprint and T-Mobile would allow Verizon and AT&T to ramp up prices.

In a filing to the FCC earlier this month, AT&T claimed the proposed limits would put the company in an "untenable and unacceptable position."

The company argued that it's only worth bidding in the auction if it can gain access to large enough blocks of spectrum to support cell-phone service.

"AT&T has never declined to participate in a major spectrum auction and certainly did not intend to do so here," Joan Marsh, an AT&T vice president, wrote.

"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."

On an earnings call on Tuesday, John Stephens, AT&T's chief financial officer, appeared to slightly walk back the company's threat. He said the company is still working with the FCC to "establish auction rules that will certainly promote a good result for AT&T but will also promote a successful result for the auction."

"So we are interested in participating," Stephens said.

The FCC is expected to vote on the restrictions on May 14. The auction is scheduled for next year.