(Reuters) - U.S. telecom regulators on Thursday voted to limit how much spectrum Verizon Communications Inc and AT&T Inc will be able to buy in next year's auction of highly valuable wireless airwaves.
In a 3-2 vote along party lines, the Federal Communications Commission approved a plan that would reserve part of the spectrum in each market for carriers that do not already have substantial blocks of low-frequency airwaves there, largely restricting the participation of Verizon and AT&T.
Sprint Corp and T-Mobile USA Inc had urged the FCC to ensure their two biggest rivals did not dominate the auction. FCC Chairman Tom Wheeler had agreed, saying last month that Verizon and AT&T already controlled almost two-thirds of the coveted low-frequency airwaves.
The final rules, however, represent something of a compromise that reserves some airwaves for smaller carriers while ensuring that larger providers would be able to get sizeable chunks of spectrum in the unreserved portion.
The FCC's rules are based on current market structure, meaning that if Sprint acquires T-Mobile, for example, the rules would be revisited and could be rewritten.
Sprint shares closed up 6 percent and T-Mobile shares closed up 1.3 percent on Thursday.
"Investors are responding to hope of a merger. The less stringent the rules are on spectrum, the more leeway you have to allow one. The more even the playing field for all providers, the less you are excluding a potential combination of the two," said Roger Entner of Recon Analytics.
The auction, planned for mid-2015, would be a first opportunity in years for wireless carriers to buy the low-frequency airwaves considered the beachfront property of radio spectrum for their reach and strength.
The rules set on Thursday would reserve up to 30 megahertz of spectrum in each market for bidding by non-nationwide carriers or companies with less than one-third of low-band spectrum in that market.
The reserve would kick in after the auction raises enough spectrum and revenue to help fund a new $7 billion public safety network and pay back TV stations, which would volunteer to relinquish airwaves for wireless carriers to buy in the auction.
Verizon and AT&T applauded the compromised plan and AT&T said it plans on bidding at least $9 billion for 20 MHz in the incentive auction.
Verizon and AT&T had strongly opposed the plan, arguing it was unfair, would complicate the auction and could hurt how much money the FCC ultimately raises in the sale.
The FCC also voted along party lines to expand the so-called spectrum screen, a calculation of what airwaves are usable for wireless, to include more of the airwaves currently controlled by Sprint and Dish Network Corp, among other things.
Any spectrum acquisitions involving low-frequency airwaves or deals that tip one company over one-third of the screen in a market would trigger extra scrutiny.
Reporting by Marina Lopes; Editing by Paul Simao and Dan Grebler