Sprint and T-Mobile received another blow late last week as the Federal Communications Commission made it clear that it would not be supportive of joint bids during next year's spectrum auction.

In an official blog post, Wireless Telecommunications Bureau Chief Roger Sherman explained how the FCC is doing its best to promote the entry of smaller businesses into the U.S. mobile market. At the moment, there are only four major national carriers in the United States: Verizon, AT&T, Sprint and T-Mobile with Verizon and AT&T ruling around 70 percent of the market. Sprint and T-Mobile are in the midst of proposing a merger, but due to regulatory hurdles, the two are also reportedly planning a $10 billion coalition for next year's spectrum auction.

The auction is especially important because it contains low frequency spectra necessary for carriers to expand effectively. In the past, these spectra have typically gone to Verizon and AT&T because of their deep pockets. Although the FCC has proposed some rules to help smaller companies compete on their own, the new rules would also prevent Sprint and T-Mobile from forming a clear team in the auction.

Without ever mentioning Sprint or T-Mobile by name, Sherman addressed the FCC's goal to promote smaller businesses:

"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. It also asks questions about such arrangements between providers of different sizes."

It is unclear whether any of the rules concerning the spectrum auction will stand in 2015, considering they are mostly based off "current market conditions." Those conditions are most likely to change, especially given the looming question of a merger between Sprint and T-Mobile.

Sprint and its parent company SoftBank Corp. have been making an aggressive argument for acquiring T-Mobile since the beginning of the year. SoftBank Chief Executive and Sprint Chairman Masayoshi Son, in particular, has been adamant about the advantages of scale.

"I brought the network war and price war [to Japan]. I'd like to bring that to the States," Masayoshi Son said to industry officials in March. "I would like to provide an alternative to the oligopolistic situation that two-thirds of American households can only get access to one or two providers. I'd like to be a third alternative with 10 times the speed and lower price."

However, the FCC and the Department of Justice are wary of further market consolidation. Reducing the number of national carriers from four to three, they say, could end up harming consumers with higher prices. Approval from both agencies is required for the deal to go through. Many believe that the regulatory scrutiny will be too much for Sprint and T-Mobile to handle.

Further exacerbating the issue is the fact French telecomm company Iliad made a $15 billion bid last week for T-Mobile. Although nowhere near the $32 billion Sprint is reportedly prepared to offer, the Iliad deal comes with the ease of not having U.S. lawmakers breathing down its neck. It's unlikely Iliad will win out, but it shows that Sprint is running out of time to make its case. Without a merger, and without a coalition, it may be incredibly hard for the No. 3 and No. 4 carriers to snag meaningful amounts of airwaves next year.

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