Sprint recently announced plans to buy spectrum and customers from U.S. Cellular. For $480 million and the assumption of certain liabilities, the nation’s number three wireless carrier will get 585,000 customers in the states of Illinois, Indiana, Michigan, Missouri, and Ohio.

Sprint will obtain 20 MHz of spectrum in the 1900 MHz band in Chicago, South Bend, Indiana, and Champaign, Illinois. An additional 10 MHz of spectrum will be acquired in St. Louis, Missouri.

The mid 2013 closing on this deal all depends on the U.S. Department of Justice and the Federal Communications Commission. Hopefully these august agencies will recognize that this autonomous transaction spawned in the free market is the fastest and most efficient way to get spectrum into the hands of companies and customers willing to pay the premium for it.

The Hill.com today reported that T-Merger is in talks to purchase MetroPCS. According to the report the combined companies would have approximately 33 million subscribers. The company would still be in fourth place behind number three Sprint.

I don’t expect the Federal Communications Commission of the U.S. Department of Justice to do a thumbs down on this merger. Neither agency can use the anti-competitive effect argument here.

MetroPCS said in a Form 8-K filing that, “MetroPCS today confirmed that it is in discussions with Deutsche Telekom regarding an agreement to combine T-Mobile USA and MetroPCS. There can be no assurances that any transaction will result from these discussions, and the Company does not intend to comment further unless and until an agreement is reached.”

The United States Court of Appeals-Tenth Circuit yesterday issued a ruling in Qwest v. FCC, where Qwest appealed a ruling by the FCC denying a the carriers request from certain wireline and local service regulations. Qwest wanted the FCC to find that there was effective competition for certain wire centers in the Phoenix Metropolitan Statistical Area. Qwest argued that the FCC’s ruling denying forbearance from regulatory treatment was arbitrary, capricious, or an abuse of agency discretion. The primary reasoning for the FCC’s denial was that Qwest did not provide econometric data showing that wireless services provided a sufficient constraint on harmful increases in the price for wireline services.

The court also highlighted a decision by the FCC to change the analytical framework under which it would assess the level of competition in a service area when addressing the issue of forbearance. In prior proceedings, the FCC used a two-prong test for determining if forbearance was appropriate. The first prong was a market share test where the petitioning carrier makes a compelling argument that its share has fallen below some specified percentage. The second prong, a coverage test, would evidence that a competitor could reach a significant percentage of a service areas end users.

The FCC decided to abandon the two-prong test, deciding to apply a framework based on the Federal Trade Commission-Department of Justice Horizontal Merger Guidelines. This test would require the petitioner delineate the relevant product and geographic markets; identify market participants; and examine market share data.

Applying this new test, the FCC found that wireless and wireline services were not substitutes for each other (at least in Phoenix), and that Qwest produced no econometric analysis that estimated the cross-elasticity of demand between mobile wireless and wireline access services. (Insert a “WHAT?” using your best Chris Berman voice.)

In general, the court upheld the FCC’s ruling, but issued a clear warning about its policy shift. Describing the FCC’s decision to change its analytical framework as “goalpost-moving”, the court said:

“This kind of goalpost-moving does not reflect an optimal mode of administrative decision-making. And we do not foreclose the possibility that under some circumstances an agency’s shifting of the policy goalpost (e.g. evidentiary requirements for satisfying a particular statutory or regulatory standard) may lead us to conclude that the agency has acted arbitrarily or capriciously.”

My initial response to this was “regulatory uncertainty”. While I personally dislike the phrase, if ever there were an example, put in concrete by a court ruling, this would be it. While this case addressed forbearance from rules for wireline services, the same behavior could have repercussions for carriers delivering broadband services in the new world of net neutrality rules. Less than optimal regulatory decision making can, in my opinion, create volatility in the broadband access markets, especially where new net neutrality rules will be put to the test.

Volatility means unnecessary price increases that, on the one hand, will be put in place to cover increased compliance costs, while possibly impairing broadband adoption. The FCC needs to be mindful that its validity as a regulator, certainty in the investor community, and consumer welfare are dependent on a stable policymaking framework and that policy shifts should be properly telegraphed and explained.

Public Knowledge has been on a little rampage, referring to Verizon’s petition to obtain AWS licenses from SpectrumCo, LLC as synonymous to a cartel. Specifically, Public Knowledge is saying that the aggregation of spectrum on the part of Verizon, combined with joint marketing, reseller, and joint operating entity agreements entered into between Verizon and SpectrumCo would effectively result in a cartel.

Should the transfer go through, Verizon and SpectrumCo, a joint venture between Comcast, Time Warner, and Bright House, will cross-sell each others’ services.

In its ex-parte letter posted on the Federal Communications Commission’s website on 18 June 2012, Public Knowledge made its cartel claim, but doesn’t seem to provide evidence of current or projected cartel behavior. For example, a cartel is defined as a group of firms with an explicit, formal agreement to fix prices and output shares in a particular market. Public Knowledge offers no evidence supporting the particular market Verizon and Spectrum intend to carve up, the level at which prices are to eb fixed, or how shares of that undefined market are to be divided up.

Without a showing that Verizon and SpectrumCo have entered a contract, combination, or conspiracy to restrain trade, a cartel argument is a non-starter.

Besides, why even bring this allegation to the FCC? This claim should be in front of the U.S. Department of Justice.

I came across an interesting ex-parte letter to the Federal Communications Commission on the Verizon-Spectrum Co. deal. In the letter Public Knowledge is addressing the FCC’s spectrum screen, a tool the FCC uses to document where available spectrum is located. In the letter, Public Knowledge describes the screen as a tool that can help the FCC “maximize wireless competition.”

Maximize wireless competition? A government agency? The FCC?

The U.S. Department of Justice through its antitrust division may try to ensure competition by addressing market concentration, but even it cannot maximize competition. That’s not its job or the FCC’s.

To maximize competition the FCC would have to take on a command-and-control posture, telling the wireless industry how and where to price services; requiring that all participants share all market, pricing, and consumer information with each other; lower all barriers to market entry; and writing rules that keep zero economic profits at bay for a long enough to ensure that some predetermined number of competitors are in the industry before those profits are allowed to fall to zero.
That’s a tall order, Public Knowledge.