Jamal Simmons’ piece in today’s The Podium raises two important issues. First, we should not take for granted how much the private sector has invested in meeting the increasing demand for broadband services. According to his piece, broadband providers have invested tens of billions of dollars last year in broadband deployment. I remember when the fiber deployments of AT&T and Verizon started up back in 2005. The companies were investing upwards of $30 billion a year to compete with entrenched cable monopolies and provide the competition not only for cable programming but higher broadband speeds.

That was private investment. No government subsidies were being provided. No universal service. Ironically the impediment to broadband deployment was onerous franchise agreements that AT&T and Verizon, new to the cable franchise game, had to face. They could have slowed down or worse yet yanked their deployment plans off the board. Instead they marched ahead with the intent of meeting consumer demand, again without subsidies.

Second, there is the issue of flow of capital. Mr. Simmons’ piece is a reminder that as regulator of commerce, the federal government should be willing to avoid applying unnecessary regulations that would discourage investment in the private sector in general and the broadband sector in particular. I saw a number of cable firms that may have ended up providing competitive broadband services had not entry fees and other franchise requirements kept them out of certain markets.

These requirements didn’t even have anything to do with consumer protection, but more so with localities extracting onerous obligations such as cable TV studios and I-Nets; items that municipalities should have funded from their own general funds. Now these same municipalities complain about a lack of competition in their local franchise areas. Go figure.

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.

Brian Chen wrote a piece on 17 April about the use of technology to increase the amount of spectrum access carriers can enjoy. He documents two sides to the spectrum debate.

One side advocates that technology can be used and is used to close any gap in the demand and supply of spectrum.

The other side advocates that deploying more smart antennas simply won’t do. Carriers will need permission to operate on more frequencies within blocks of electromagnetic waves if they are to meet the increasing consumer demand for smart phones, iPads, and apps.

Policy makers may be sending mixed signals (no pun intended) about where the priorities should be placed regarding how we carve and shell out more of the airwaves. In my opinion, the Federal Communications Commission appears to favor transferring the ability to access the airwaves from broadcasters and government agencies to wireless carriers. They don’t talk much about using technology to create more space on the access ramp to the electromagnetic highway or on the lanes within the highway itself.

While deploying antennas that mitigate interference between carriers and the bands they occupy may promote efficient use of the airways, deployment is a business judgment that should be left up to the carriers. Although wresting the monopolizing of blocks of frequencies from carriers and having carriers use technology that allows them to share the airwaves, in the end the utopia of maximized participation in the wireless market will give way to the winner being the company with the most capital, namely the large carriers.

If advocates for competition really want to see more players in the wireless market, the best bet is for the FCC to continue the policy of distributing bands of spectrum.

Law professor Susan Crawford wrote a post for Wired.com arguing that H.R. 3309 would take the FCC in the wrong direction by gutting the agency’s power. After giving a brief history of deregulatory efforts and market entry spawned after the signing of the Telecommunications Act of 1996, Professor Crawford concluded that,

“You’d think that Congress would want to have an empowered regulator able to do something to protect the country from the rational, profit- seeking depredations of our new generation of monopolists.”

According to Professor Crawford, that new generation of monopolists includes Comcast and Time Warner for high-speed internet access; and AT&T and Verizon for wireless services.

The last thing the FCC needs is any more encouragement to follow an increased interventionist scheme. Just yesterday, T-Mobile USA announced the closing of seven call centers and the layoffs of hundreds of workers. The FCC was asked to consider a projection of job losses and call center closings in its review of the request to transfer licenses from T-Mobile to AT&T.

Instead, the FCC decides to play merger expert and, along with the Department of Justice, forced AT&T and T-Mobile to abandon their merger plans. Just like its net neutrality rules, the FCC never considered market impacts of its decisions. They refuse to carryout and document a market failure analysis before implementing decisions. This is not type of agency that anyone wants to have greater regulatory control.

It should stick to its number one priority: ensuring access to public resources such as spectrum and rights-of-way.