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Administrative pricing for spectrum not a good idea

The Digital Policy Institute at Ball State University just completed a webinar on the broadcast television reverse spectrum auction that the Federal Communications Commission will hopefully have rules promulgated for. Wireless carriers have been on edge about the uncertainty surrounding the rulemaking for the auctions. The scuttlebutt out of the webinar is that former acting chairman Mignon Clyburn was able to get out a draft order that is currently being circulated. It is speculated that Ms. Clyburn intended to have rules drafted by the end of the year and ready for 2014. Again, this is all speculation, but would add to her legacy if it were true.

Meanwhile, carriers have been expressing concerns about the latest proposal by T-Mobile to score television stations on a market-by-market basis. The scoring would take into account relative values of low-band and high-band spectrum and the population covered.

Scoring a television station market as low means less revenue for that station from the auction. If the revenue is lower than what the station determines is the value for its license, there may be a disincentive to participate in the auction. Result: less access to needed spectrum as consumers drive continued demand for mobile devices.

This restriction is as bad as limiting how much spectrum AT&T and Verizon can bid for. It amounts to “administrative pricing”, a term that came out of today’s webinar. Should an administrative agency determine what the value or price is for a swath of spectrum or should that be left up to a market-based auction process as intended by Congress? Even with a nine percent approval rating, Congress has this one right.

Administrative pricing means further delay to get to a conclusion on price that will not reflect the actual market participant’s desires; their ability and willingness to demand and supply licenses. How long would we have to wait on an order from the FCC that declares the appropriate value of spectrum while technology and mobile device demand drives up the value of the spectrum? Let’s not pretend that there is anything dynamic about FCC decision making. It is mostly static and does not blend well with the dynamism that we see in a competitive wireless market.

Administrative pricing should be avoided.

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The FCC needs to relieve itself of self-importance mindset

Last Tuesday, Federal Communications Commission acting chairman Mignon Clyburn delivered remarks at the Competitive Carriers Association annual convention in Las Vegas, Nevada. Ms. Clyburn laid out some social policy goals for mobile communications for the commission post the 700 MHz interoperability solution committed to by AT&T over a week ago. Among the goals are:

1. Promoting competition
2. Empowering consumers
3. Unleashing spectrum
4. Spurring investment

Ms. Clyburn took the mantle from her predecessor, Julius Genachowski, crediting the FCC with market powers the FCC simply does not have and shouldn’t admit to having even if it did. I made reference to this in a tweet a couple nights ago: the Genachowski Syndrome. Let’s take, for example, the FCC’s promotion of competition in mobile services.

The type of competition the FCC refers to is the layman’s version of competition where each firm in the market is concerned about what the other one is doing. Sure in the real world T-Mobile is aware that Verizon and AT&T are the big dogs in the wireless market, but T-Mobile’s primary concern, as it is with any firm in a competitive market, is with the desires and demands of the consumer. If this were not the case then T-Mobile would not have successfully carved out a niche in the pre-paid wireless market. It would have paralyzed itself wondering what Verizon or AT&T’s next moves were, finding itself counting Euros instead of dollars. The FCC had nothing to do with T-Mobile carving out this niche. This had more to do with T-Mobile reading the demographics of the nation and where the economy was going.

In a competitive market, the market the FCC allegedly wants to promote, there would be free mobility of the resources wireless carriers need in order to produce their services. For mobile carriers that includes spectrum, access to towers, and public rights-of-way. Guess who provides bottlenecks that restrict access to these resources. To steal a phrase, it’s not that complicated. Local governments seek to extract tribute from carriers via franchise fees, rights-of-way permits, and zoning delays for towers. Meanwhile, the FCC and the U.S. Department of Justice scare investors with proposals to cap access to spectrum auctions.

And can we really say that the FCC’s 2011 rules mandating data roaming helped promote a competitive market? Roamers aren’t looking for new services or new service providers when trying to make a call outside of their carrier’s network. The expect their carrier to connect their calls no matter where they are. The FCC’s roaming rules only made it okay for a consumer to stay with a regional carrier when instead the consumer should have been exposed to the consequences of being with a lower tier carrier.

The lower tier carrier shouldn’t take all the blame. Some of the blame falls on larger carriers for not marketing a brand of service customers of smaller tier services would want to switch to. In addition, if competition drives innovation and infrastructure development as Ms. Clyburn alludes to, then why promote roaming, a policy that disincentivizes carriers from building national networks?

Bottom line, mandating roaming is not a public policy that promotes competition and the FCC should stop confusing being around during innovation with actually influencing competition.

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FCC’s broadband policy: “Miami Vice” surrealism vs. “Southland” gritty reality

Today the American Enterprise Institute held a forum on capital and broadband deployment. Among the takeaways from the panel discussions were the need for agencies such as the Federal Communications Commission to make decisions that would help grow the economy; that regulations, particularly any policies promoting unbundling, would only constrain investment; that government should stop subsidizing private companies that serve areas where competition exists; and that the Internet has thrived without regulation.

In all the arguments drove home the point that the FCC is conflicted with social policy cognitive dissonance. The FCC utters a preference for market place competition for broadband services and light touch regulation for the Internet along with a host of consumer protections, but its actions cause a drag on the market for services, negatively impacting consumer welfare by failing to allow broadband carriers a full transition to Internet protocol services, even in the face of consumer demand for advanced broadband services.

Its contemplation of capping access by AT&T and Verizon to the reverse auction for broadcast spectrum is another example of cognitive dissonance, claiming a market-based method for reallocating spectrum while considering keeping two efficient players out of the market for spectrum; two players serving a majority of broadband consumers, who, if the Department of Justice had its way, would risk reduced quality of wireless broadband access.

As Steve Pociask and Barry Umansky argued in a recent article for The Hill, the FCC can’t have it both ways. We can’t tout the proliferation of wireless devices, app development, and IP technology while asking broadband providers to continue maintaining a legacy network. It is like comparing the 1980s surrealism of “Miami Vice” with the gritty reality of “Southland”.

It’s time for us to move into the 21st century.

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Sprint goes after spectrum from U.S. Cellular

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.

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T-Mobile finds a merger partner

Posted October 2nd, 2012 in Department of Justice, FCC, Government Regulation and tagged , by Alton Drew

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.”