James Martin/CNET

The Department of Justice said today that Sprint and T-Mobile should be given a fair chance at acquiring wireless spectrum in the Federal Communication Commission's upcoming incentive spectrum auction.

The antitrust division of the Justice Department laid out its argument in a filing to the FCC.

"The Department concludes that 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," the Justice Department said.

The FCC is currently drafting rules for an upcoming auction that will take spectrum that TV broadcasters are giving up so that wireless broadband carriers can bid on it. At the same time in a separate proceeding, the commission is looking at establishing a spectrum cap, which would limit how much spectrum a carrier can own, particularly any that is below 1GHz. This so-called low-frequency spectrum is considered valuable because it can travel long distances and penetrate through buildings.

But the Justice Department and others also believe the FCC should consider including rules for the upcoming auction that specifically deal with this issue. The spectrum that will be made available in the incentive auction is low-frequency and sits in the 600MHz frequency band.

"The Justice Department is absolutely right," Larry Krevor, vice president for Government Affairs at Sprint, said in a statement. "Ensuring that all carriers, large and small, have access to low-band spectrum would improve competition and benefit consumers. We are hopeful that the FCC will adopt policies which recognize the importance of low-band spectrum to wireless competition and the American economy as a whole."

AT&T and Verizon have argued against any sort of cap or rules that might limit their participation in the auction.

Managing a scarce resource

Similar low-band spectrum was auctioned off in 2008. AT&T and Verizon won a substantial amount of that spectrum, which sits in the 700MHz frequency. AT&T and Verizon have already been using this spectrum to build their 4G LTE networks.

Meanwhile, Sprint doesn't have much low-frequency spectrum in its portfolio. And T-Mobile has none.

As a result, T-Mobile's network is mostly deployed in dense urban areas. It is simply unable to cover rural and even some suburban markets because it lacks appropriate spectrum. And as it rolls out its 4G LTE network, the company currently has no low-frequency spectrum to expand its footprint.

In its filing, the Justice Department said it fears that allowing AT&T and Verizon to buy as much as they want in the upcoming auction will not make efficient use of the spectrum. And it will lead to less competition in the market.

"The more concentrated a wireless market is, the more likely a carrier will find it profitable to acquire spectrum with the aim of raising competitors' costs," the Justice Department said in its filing. "This could take the shape, for example, of pursuing spectrum in order to prevent its use by a competitor, independent of how efficiently the carrier uses the spectrum."

The Justice Department said that in an ideal market, where no players dominate, an auction, which allocates spectrum to the highest bidder, is a perfect way to distribute a public resource such as spectrum. But in a market that is lopsided where two players have much deeper pockets than the rest of the competitive landscape, the Justice Department thinks the FCC has a responsibility to craft rules that help ensure competition.

"Spectrum is a scarce resource and a key input for mobile wireless services," the Justice Department said. "The Commission has an opportunity through its policies on spectrum holdings to preserve and promote competition and to ensure that the largest firms do not foreclose other rivals from access to low-frequency spectrum that would allow them to improve their coverage and make them stronger, more aggressive competitors."

Neither AT&T nor Verizon commented on the news of the Justice Department's filing. But during a panel discussion at the NAB Show this week in Las Vegas, Joan Marsh, a vice president for federal regulatory affairs with AT&T, said that the fact that Sprint and T-Mobile did not get any of the 700MHz spectrum in the last auction was not because AT&T and Verizon dominated the auction and outbid them, but because they chose not to participate.

"It's like winning the lottery," she said. "You have to be in it to win it."

In fact, AT&T has argued in its own comments to the FCC that the price of the nationwide C block license in the 700MHz auction, which was won by Verizon, went for a relatively low price because of restrictions imposed by the FCC on that spectrum. When the rules were formed for that auction, Google pushed an open access provision as part of the rules. The FCC adopted it. And when the spectrum went to auction, Verizon and Google were the only two companies participating in the bidding.

Limit, but don't exclude, the big players

The reality is that smaller carriers actually need AT&T and Verizon to participate in the auction. They can't afford for them to be entirely excluded from it. Kathleen Ham, a vice president of regulatory affairs for T-Mobile, said during the panel discussion at the NAB Show this week that their participation is important, because it will ensure that a large ecosystem is built to create devices for this spectrum. But she doesn't want to see the bigger carriers walking away with the bulk of the spectrum in the auction.

Steven Berry, head of the Competitive Carrier Association, agreed in a statement: