The Federal Communications Commission’s wireless bureau chief has some questions for Verizon. Specifically, they want to know why Verizon went to all that trouble bidding on spectrum in the 700MHz block only to consider putting it up for sale contingent on the closing of a deal to buy AWS band spectrum from Spectrum, Co.

Business plans change, FCC. It sounds like Verizon has weighed the cost of having the terms reduced on their 700 MHz band holdings post sale vs. holding the frequencies and not providing additional services. If they can provide better quality service in the AWS band (both bands support 3G and 4G services, then so what?

Verizon has until 22 May 2012 to respond to the FCC’s query.

DISH Network’s Charlie Ergen would like to see the Federal Communications Commission approve the use of the company’s satellite spectrum for terrestrial mobile broadband. Unfortunately the FCC is also considering rules for the use of satellite spectrum for the entire satellite sector.

I guess I can see the FCC’s dilemma. Cut DISH a waiver now, and the FCC would have to justify why other satellite company’s and wireless carriers couldn’t get the same exception. The rule would be gutted before it was even released in final form.

On the other hand, wait until a final rule is issued and add to the delay in getting spectrum into the hands of wireless carriers who need it in order to meet well documented consumer demand.

Hate to say it, but I have to side with the FCC on this one. Cutting DISH a waive now will only create regulatory gridlock down the road.

I’m digging Holman Jenkins’ column in The Wall Street Journal about the allocation of spectrum. Mr. Jenkins makes the argument that politics should not be used to allocate a valuable resource like spectrum. The economics says that the resource should go to the entity that wants to put it to best use and is willing to pay for it. Groups like Free Press and Public Knowledge are too busy with their quixotic quests to realize that society, particularly the underserved, benefit when firms with the scale and willingness to use spectrum receive it.

Not only do the Don Quixote groups not advocate for the underserved, they advocate for an allocation system based on inefficiency. The FCC is allowing itself to be persuaded by a decision matrix not based on hearings. I get tired of notices of rulemaking that come out of nowhere; with just one more step to go before showing up as a final rule. Sure the FCC allows the public to comment, but public comment does not bring the rigorous economic and policy analysis necessary for determining the efficacy and feasibility of proposed rules or other actions that impact how spectrum will be allocated.

Instead the FCC relies on a behind the door, ex-parte approach of arm twisting and brow beating to help guide its policy meetings. They may as well make their decisions at some alumni picnic. The FCC-Free Press-Public Knowledge Triumverate doesn’t seek optimality. It doesn’t care about getting the most out of the use of spectrum. It’s focused too much on keeping the reins on all participants in the wireless broadband sector.

We have heard over and over again how regulatory uncertainty can impede decision making on the part of business. The same holds true for the communications industry. In an article published in the National Review Online, Kevin Hassett provided an example of the dampening effect on growth ill-advised policy can have.

Mr. Hassett referred to the Federal Communications Commission’s finding that transferring licenses from T-Mobile was not in the public interest and that such a transfer would have a negative impact on competition. What Mr. Hassett points out is that decisions like the one by the FCC would have a negative impact on the nation’s growth. He wanted us to envision the collective negative impact these types of decisions would have on an industry that accounts for one-sixth of the economy.

Private investment, such as the investment that would have been initiated by the merger, is at the base of any economic recovery. As much as we may talk about government making investments, it was private investment that drove growth during six years of the Clinton Administration and five years of the Bush II Administration.

On the issue of competition, the FCC’s decision to deny the license transfers was based in part on giving smaller carriers the opportunity to either enter or, in the case of Sprint, stay in the market. Smaller, regional carriers don’t have the economies of scale or other capital necessary to provide the same level of national output of wireless services, even with access to additional spectrum. Just ask T-Mobile.

If smaller carriers are not increasing their services, and AT&T and Verizon are not allowed to increase their services due to a lack of spectrum, these carriers will raise their rates in order to regulate the increase in consumer demand for wireless services. Reduced output and increased prices are characteristics of a monopoly, the very scenario the FCC allegedly wanted to avoid. Consumers get shafted on both ends.

This is the irony of over regulation. Not only is capital investment impeded, but the regulatory agency creates a non-competitive market.

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.