FCC Bends the Rules in Pursuit of Ideological Preference

Original Article

Mobile phone service has become a key battleground in the new progressive era in which we live. A small minority of political activists claim to be worried that cell phones could become a consumer rip-off without government intervention. They are pressuring the Federal Communications Commission to torpedo a merger between AT&T and T-Mobile.

Responding to this political pressure, the FCC now emphasizes that the mobile phone industry has become more “concentrated” as a result of recent mergers, and cautiously admits the possibility that “firms may be able to exercise market power,” i.e., restrict output and raise prices.

But despite recent mergers, the prices that consumers pay for cell phone service continue to decline. In the early 1990s, cell phone service cost, on average, almost 50 cents per minute. Today, it costs less than 5 cents on average for a minute of voice use. Improving technology, not political “competition policy,” is driving these relentless price decreases.

Now, along comes the proposed merger between AT&T and T-Mobile. AT&T experienced an 8,000% increase in mobile data traffic as a result of the iPhone and other smart phones. Customers are complaining about service. And there is some bad press. The FCC realizes there is a spectrum shortage and wants to reallocate spectrum for mobile phone services, but that process usually takes 6-13 years.

Faced with this hopeless situation, AT&T tried to grab German-owned T-Mobile USA, which has a technologically compatible network but is currently out of cash. Unfortunately for AT&T and T-Mobile, the FCC is no longer grounded in reality.

Beguiled by “perfectly competitive” commodity markets in which multiple producers of identical products compete on the basis of price alone, the FCC wants to splinter the industry into more (and more easily controlled) players.

In fact, wireless providers compete not only on the basis of price but also on service quality, handsets and apps. The wireless market is not like the markets for pork bellies, frozen concentrated orange juice or other commodities. Perfectly competitive markets are rare, especially innovative ones. An “expert” agency like the FCC should realize this, but politics are politics.

When evaluating a wireless merger, the FCC utilizes a “spectrum screen.” Basically, the FCC considers whether a merged entity will control one-third or more of the available spectrum for mobile wireless services in a particular market and requires divestiture in markets in which it would exceed that threshold. The FCC describes this test, which was adopted in 2004 with bipartisan support, as “conservative,” meaning that while anything that exceeds this threshold is worthy of further analysis, anything that falls short is clearly not worthy of further study.

Recently, the FCC made an unprecedented cut in the spectrum screen. We don’t know why. Its rationale is still secret. It is contained in a draft order that is on circulation (looking for votes). We won’t get to see it until it is approved by a majority of the FCC’s commissioners.

Imagine a requirement that a firm cannot control more than 15% of a market without the government’s approval. That would be a throwback to the 1960s and the 1970s, when there were many small firms, excessive consumer prices and economic stagnation.

House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) are going to investigate this situation.

Thank heavens.

Hance Haney is a senior fellow at The Discovery Institute.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.