Looks like MetroPCS and T-Mobile USA are thinking of hooking up. T-Mobile and MetroPCS are allegedly in merger talks, according to Investor’s Business Daily. The transaction would see the combined company come under control of T-Mobile’s parent, Deutsche Telekom. AT&T was unsuccessful in its bid for T-Mobile, and Sprint had its eyes on MetroPCS but I guess couldn’t close the deal.

If the deal is approved, the two companies would be able to acquire spectrum from each other and have at least 42.8 million customers.

Will the Federal Communications Commission play spoiler? I don’t think so. This transaction gives the FCC an out for two reasons. First, approving the transaction will show that the FCC is willing to allow the market and not Don Quixote politics to allocate spectrum. Second, it takes the FCC off the hook for putting the number four wireless carrier in a position where it was considering saying auf wiedersehen to the American market.

Again, Sprint may be left without a date to the dance.

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.

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.

Bruce Mehlman, co-chairman of the Internet Innovation Alliance, shared some insightful thoughts yesterday prior to a discussion on Capitol Hill about the future of broadband and the Internet:

“Pro-Internet policy successes came when government removed barriers, rather than adding new ones,” said IIA Co-Chairman Bruce Mehlman. “Unfortunately those days may be ending. While there is rare bipartisan agreement that the biggest challenge to broadband-enabled growth is lack of private investment and available spectrum, there is growing disagreement on how to fix it.”

I remember 1992 vividly (which means I’m getting old if I can remember anything from 20 years ago vividly). Local telephone companies were facing competition, serious competition, for the first time. There were up to 400 long distance companies in Florida, though most were resellers. Cable companies, who were providing ILEC by-pass services, were testing technology that would allow them to challenge the local phone companies. Regulators were asking BellSouth what the hold-up was in introducing …hold your breath … here it comes …ISDN! The calls for deregulation were growing. Everyone wanted to see truly robust, innovative, and fierce competition in the telecom and advanced services markets.

Yes, there was a time that regulators backed off, and that tactic worked. You didn’t have grass roots organizations hankering to know every minute detail of how a cable company, ALEC, or ILEC ran its business. They were truly consumer oriented, concerned not only about rates, but about the delivery of services to the underserved. Even they wanted to bet on innovation delivering services.

Not today, as Mr. Mehlman correctly surmises. Today with have innovation-hindering net neutrality rules. We have grass roots organizations like Public Knowledge and Free Press actually criticizing minority groups for supporting efficiency of service delivery. These groups have prodded and cajoled the current FCC into an apparent preference for a command and control regulatory scheme. While the FCC talks “robustness” and “innovation”, its actions, supported by grass roots groups that put its consumer ancestors to shame, speak another narrative; a narrative that says that markets are inherently no good.

Bubba and 1992. Along with my slimmer figure, we miss you.