On Wednesday, the Subcommittee on Communications and Technology will conduct an oversight hearing of the implementation of spectrum auctions by the Federal Communications Commission. The subcommittee members ought to consider the fact that although the mobile wireless industry faces an acute shortage of spectrum (“broadband spectrum deficit is likely to approach 300 MHz by 2014“), the FCC risks getting distracted and mired in a pointless effort to leverage its spectrum auctioning authority to manipulate the structure of the mobile wireless industry. In mid-2011, former Commissioner Michael J. Copps warned of “darkening clouds over the state of mobile competition … we find ongoing trends of industry consolidation.” As Copps saw it, increasing concentration will lead to higher prices for consumers. His Read More ›
The hottest companies in Washington, DC right now include Netflix, Sprint and T-Mobile. What do these firms have in common? They are all marketplace losers.
A few years ago, the Supreme Court said that the Sherman Act “does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition” (see: Verizon v. Trinko, 2004). Yet this is precisely the course of action that technocrats are taking as a result of accepting invitations from Netflix to conduct a “wide-ranging antitrust investigation” of the cable industry and from Sprint and T-Mobile to find a way to block Verizon Wireless’ acquisition of additional spectrum.
Netflix built a successful mail order DVD business when it wasn’t very practical to download movies over the Internet. Fortunately for Netflix, consumers can send and receive, but they cannot rent DVDs from the Post Office. There are legal and political constraints that prevet the U.S. Postal Service from diversifying into new lines of business, and these restrictions conferred a significant degree of monopoly protection on Netflix. Incidentally, saving the Postal Service requires diversification, among other things. What was great for Netflix wasn’t so good for the postal system (upon which we all depend).
Although some advocates of network neutrality wanted to postalize broadband, the Federal Communications Commission said no. Apparently, we are going to have that debate all over again.
Cable companies obviously will not be prevented from competing against Netflix and other online video providers. But a drive to eliminate any conceivable competitive advantage that cable providers may have would ultimately lead to extensive regulation, including, most likely, infrastructure sharing rules like those the Supreme Court looked at in AT&T v. Iowa Utilities Board (1999). In his separate opinion, Justice Stephen Breyer warned that “rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms.”
The current administration promised to reinvigorate antitrust enforcement. What that means is a return to the economic stagnation of the 1970s, when antitrust forced consumers to do business with uncompetitive, inefficient firms. It is no exaggeration to speak of antitrust as a form of corporate welfare financed by hidden taxes on consumers. The reality is that government cannot create competition; it can only suppress competitors.
Congress is considering a bill which would authorize the Federal Communications Commission to reassign certain electromagnetic spectrum for mobile broadband services through “voluntary incentive auctions.” Speaking at a trade show earlier this month, FCC Chairman Julius Genachowski was critical of provisions in the “Jumpstarting Opportunity with Broadband Spectrum Act” (H.R. 3630, Title IV) limiting the FCC’s power to impose conditions on successful bidders that have nothing to do with maximizing revenue for the Treasury.
One provision would prohibit the commission from unreasonably restricting who can participate in a spectrum auction, such as large firms. Another provision in the JOBS Act would prevent the FCC from requiring a successful bidder to sell access to its network on a wholesale basis.
“It’s a mistake,” according to Genachowski, “because it preempts an expert agency process that’s fact-based, data-driven and informed by a broad range of economists, technologists and stakeholders on an open record.”
Genachowski’s old boss, former FCC Chairman Reed E. Hundt, reportedly criticized the proposals during a Capitol Hill briefing on Tuesday, as well.
He worried that the bill would allow the largest wireless carriers to buy up all of the spectrum at auction, expanding their dominance of the airwaves. He said the carriers might not even plan to use some of the spectrum but could buy it just to kill off competition.
He argued that Congress should rely on the FCC to use its technical expertise to set the conditions of the auction.
These guys apparently will never learn.
The FCC has a poor track record of trying to improve on the free market, and the Reed Hundt era is recent exhibit “A.” Seeking to promote competition in local telephone service during Hundt’s tenure in the late 1990s, the FCC required incumbent local telephone companies to provide below-cost wholesale access to their networks while preventing them from competing in the long-distance market. According to Hundt, in You Say You Want a Revolution? (2000),
The Clinton administration had the conviction that astute and sharp-edged rules could open markets to competitors … some firms would succeed, others fail. But the competition would create choice for consumers, and the diversity of the competitors would weaken the political influence of the big, established (and typically Republican-leaning) firms. The new competitive markets would stimulate investment in new technologies and lead to fair prices for consumers. All five lanes of the information highway would converge in a race to tomorrow (which we would not stop thinking and talking about).
The FCC’s “pro-competition” framework was an abject failure which led to overinvestment in the core of the network and underinvestment in the local connections at the network’s edge. According to Robert W. Crandall of the Brookings Institution,
For the most part, these policies simply transferred billions of dollars from incumbent telephone companies to fund marketing campaigns required to sell the same services under a different name [that of an unaffiliated retail competitor].
While Reed Hundt and other idealists were busy helping to precipitate an investment bubble that burst in 2000-02, meaningful voice competition was emerging, unbeknownst to the FCC, from the wireless and cable industries which are not subject to active FCC oversight.
AT&T and T-Mobile withdrew their merger application from the Federal Communications Commission Nov. 29 after it became clear that rigid ideologues at the FCC with no idea how to promote economic growth were determined to create as much trouble as possible. The companies will continue to battle the U.S. Department of Justice on behalf of their deal. They can contend with the FCC later, perhaps after the next election. The conflict with DOJ will take place in a court of law, where usually there is scrupulous regard for facts, law and procedure. By comparison, the FCC is a playground for politicians, bureaucrats and lobbyists that tends to do whatever it wants. In an unusual move, the agency released an analysis Read More ›
A Chinese American entrepreneur engineer named Henry Gao has written a Chinese book paralleling, enriching and affirming the more far reaching propositions in Telecosm.
His theme is that the history of communications networks has passed through three eras: 1) the telegraph (data with delay and buffering); 2) the public switched telephone network (PSTN for real-time two-way voice), and 3) now back to the telegraph (the data-rich Internet protocols and layers, with many asynch buffers and best efforts and lost bits).
Today under the stress of an interactive video exaflood, there is a new fork in the road. On the one hand, the industry wants to continue on its current path back to a new video best efforts telegraph–an ever more complex Internet patched and epicycled and upgraded for interactive video. This is the current choice.
Although Congress directed the FCC to allow broadcasters to offer “ancillary or supplementary services on designated frequencies as may be consistent with the public interest, convenience, and necessity,” it obviously hasn’t worked. A column by Holman W. Jenkins, Jr. offers some clues: Ask the media bankers and investors at a recent FCC roundtable. To a man and woman, they said the FCC’s stringent ownership rules have only cut broadcasters off from the capital to remake their businesses for the digital age. And now, as Jenkins further notes, it’s no secret that planning is underway at the FCC to coax broadcasters into voluntarily relinquishing some of their spectrum so it can be assigned for mobile voice and broadband services. Obviously the Read More ›
Reacting to Apple’s decision to not allow Google Voice for the iPhone, Wall Street Journal guest columnist Andy Kessler complains, It wouldn’t be so bad if we were just overpaying for our mobile plans. Americans are used to that–see mail, milk and medicine. But it’s inexcusable that new, feature-rich and productive applications like Google Voice are being held back, just to prop up AT&T while we wait for it to transition away from its legacy of voice communications. How many productive apps beyond Google Voice are waiting in the wings? So Kessler proposes a “national data plan.” Before we get to that, Kessler complains that margins in AT&T’s cellphone unit are an “embarrassingly” high 25%. He doesn’t point out that Read More ›
Communications Daily ($) cited my recent post comparing Google’s limited objectives for the 700 MHz auction with the expansive objectives it outlined to the Federal Communications Commission last summer, and it included the following reaction to my comments from Richard Whitt of Google: Whitt said in response that Haney had misread his company’s comments from last summer. “We consistently have argued that the open access license conditions adopted by the FCC would inject much-needed competition into the wireless apps and handset sectors, but would not by themselves lead to new wireless networks,” he said Monday. “Only if the commission had adopted the interconnection and resale license conditions we also had suggested — which the agency ultimately did not do — Read More ›
In 1993 Congress substituted auctions for the deplorable practice of giving away valuable spectrum to well-connected commercial entities. Lawmakers who think spectrum is a valuable public resource for which the taxpayers should be compensated need to wake up for a minute. FCC rulemaking could render the remaining assets worthless, distort wireless competition and contribute to the unfortunate perception of the FCC as a candy store. Google has made it clear that it plans to weigh in at the FCC as it determines how to re-auction the D-block from the recent 700 MHz auction, and that it wants to open the white spaces between channels 2 and 51 on the TV dial for unlicensed broadband services. Anna-Maria Kovacs, a regulatory analyst, Read More ›
This week in the Tech Policy Weekly podcast, Adam Thierer, James Gattuso, Jerry Brito, Tim Lee and I discuss FCC Chairman Kevin Martin’s reported plan to encumber a portion of the 700 MHz band with open access rules sought by Frontline Wireless LLP, Google and others. We react to a statement issued by a top executive at AT&T claiming that the draft FCC order — which none of us have seen — would “simply take one block of the upper 700 band being auctioned to allow an experiment with an alternative open-devices/open applications business model of the type proposed by Google and others,” and that “the proposal does not mandate a wholesale business model in any particular block, nor does Read More ›