Federal Communications Commission chairman Tom Wheeler posted the following statement today in a blog post:
“Getting the Incentive Auction right will revolutionize how spectrum is allocated. By marrying the economics of demand (think wireless providers) with the economics of current spectrum holders (think television broadcasters), the Incentive Auction will allow market forces to determine the highest and best use of spectrum.”
According to Chairman Wheeler’s demand and supply model, when assessing competition and market demand, the market is between wireless providers and television broadcasters. The auction is designed to make a market between participants within each group.
Chairman Wheeler also appears to lay the groundwork for the argument that since AT&T and Verizon hold a large amount of low-frequency spectrum ( the quality that best serves long distances and penetrates buildings), there may be some adverse impact on smaller carriers. In his words:
“A legacy of earlier spectrum assignments, however, is that two national carriers control the vast majority of low-band spectrum. As a result, rural consumers are denied the competition and choice that would be available if more wireless competitors also had access to low-band spectrum.
Low-band physics also makes this slice of spectrum essential in urban areas, since it permeates into buildings better than does high-band spectrum. With more and more Americans opting for wireless-only connectivity, they should not run the risk of being unable to place a 911 call from the interior of a building just because their wireless company has the wrong spectrum.
While many factors go into determining the quality of wireless service, access to a sufficient amount of low-band spectrum is a threshold requirement for extending and improving service in both rural and urban areas.”
Yes, AT&T and Verizon are the “Monsters of the Cellular Midway.” According to data from the FCC, AT&T has 32.54% of market share based on reported connections while Verizon has 29.12% of connections. Sprint comes in at 17.44% while T-Mobile brings up the oligopoly rear at 10.26%. But does the size of a wireless carrier or even the services it provides means that it is the one driving demand for spectrum? I argue no.
The wireless carrier isn’t the one making the call. The consumer is. The carrier, as it’s function implies, is just an intermediary that offers a set of technologies that allows a consumer to abandon two tin cans and a wire and use digital and wireless technology to make a call way beyond his front yard. The consumer is driving demand for spectrum. The carrier is merely his agent, an agent that promises his client to get his call to where he wants it with the best technology around. The carrier shouldn’t be penalized because it was successful in aggregating the largest number of consumers into its portfolio.
The carrier shouldn’t be punished because it out-marketed and out-hustled a bunch of other players. That’s synonymous to punishing a business for leveraging its capital and providing investors the best returns by providing consumers with the best service.
With its spectrum policy what the FCC should be doing is allowing a wireless carrier, no matter its size, to plan new service offerings without the uncertainty of allocation rules that would hinder organic growth and innovation. Recognizing that consumers drive spectrum demand would help the FCC stay focused on providing a regulatory framework that encourages innovation. When it comes to spectrum, it’s about consumer demand and a regulatory bottleneck that needs to be, at a minimum, widened, and in the ideal, straight up broken.