(Adds FCC statement, further details)
By Alina Selyukh
WASHINGTON, April 16 (Reuters) - AT&T Inc has threatened to sit out a major U.S. auction of airwaves if regulators reserve some of the spectrum for smaller rivals, the No. 2 wireless company said in a filing released on Wednesday.
The Federal Communications Commission recently drafted some of the rules for the complex auction scheduled for mid-2015. The auction would reshuffle the ownership of valuable frequencies between TV stations and wireless carriers clamoring for faster speeds and better services for their devices.
FCC Chairman Tom Wheeler has proposed reserving part of the spectrum in each market for wireless carriers that do not already have dominant blocks of low-frequency airwaves there, people briefed on the plan have told Reuters.
AT&T estimated that such a plan, which has not been formally proposed yet, would restrict its bidding in markets covering more than 70 percent of the U.S. population, according to Wednesday's filing by Joan Marsh, AT&T's vice president of federal regulatory.
Marsh said the rules might force AT&T to decide to spend its money elsewhere, which could undermine the FCC's congressionally mandated goal of raising enough cash from the auction to pay broadcasters for giving up airwaves, help pay for a new $7 billion public safety network and return some funds to the U.S. coffers.
"Such restrictions would put AT&T in an untenable position, forcing AT&T to reevaluate its potential participation in the auction," Marsh told Wheeler's legal advisor, Renee Gregory, in a meeting on Monday, according to the filing.
AT&T and the No. 1 carrier Verizon Communications Inc currently dominate the low-frequency airwaves, which are valued for their strength and reach. Their smaller rivals, No. 3 Sprint Corp and particularly No. 4 T-Mobile US Inc, have urged the FCC to limit how much spectrum the two biggest competitors are able to buy in the auction.
The Justice Department gave that position a boost a year ago, calling for auction rules that ensure smaller nationwide networks get some low-frequency spectrum to "improve the competitive dynamic among nationwide carriers."
Verizon did not respond to a request for comment.
Wheeler's proposal, which has yet to be reviewed by four other FCC commissioners, sets aside up to 30 megahertz (MHz) of spectrum in each market for smaller carriers after bidding reaches a threshold that will be set at a later date, sources briefed on the plan said.
The market-based threshold, for instance, could be a particular bidding price per megahertz or a point in the auction when TV stations give up enough spectrum and enough money is bid on it to deem the auction a success, said one of the sources.
The FCC chairman's office has briefed some of the stakeholders about the plan and will circulate a formal proposal among other commissioners next week. The five are expected to vote on proposed rules at their meeting on May 15.
"All who want to participate in the auction will be able to bid," Wheeler said in a statement. "In order to assure coverage and competition in rural America it may be necessary to assure no one can monopolize the bidding."
Wheeler's proposal would permit all parties to bid on paired 5-MHz blocks of airwaves until the threshold is triggered and only the companies with less than one-third of the low-band spectrum in that market are allowed to bid.
In some markets, the players facing the restriction would include smaller carriers such as U.S. Cellular Corp.
AT&T, in Wednesday's filing, expressed concerns that, in some markets, the plan to restrict up to 30 MHz could leave only one bidder with an opportunity to get a block of airwaves large enough to deploy LTE technology.
"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," Marsh added. (Reporting by Alina Selyukh; Editing by Jonathan Oatis and Andre Grenon)