Verizon Spectrum Proposal, Its Opposition, the FCC and Markets

It’s troubling and disconcerting to see leading businesses send flip-flopping messages to policymakers on major issues that affect the economy, including small businesses.

Consider the reaction to a proposed deal for Verizon Wireless to purchase wireless spectrum licenses from a group of cable companies.

As The Wall Street Journal reported in early December 2011, “The sellers—Comcast Corp., Time Warner Cable Inc. and Bright House Networks—acquired the spectrum in a government auction in 2006 and now will turn it over to the country's biggest wireless carrier at more than a 50% markup. While cable companies have dabbled with wireless, the spectrum has largely sat around unused, prompting years of speculation about the industry's intentions.” For good measure, “In an important twist to the deal, Verizon Wireless and the cable companies agreed to sell one another's products—a rare cooperative arrangement for two industries that compete fiercely for telephone, television and broadband customers.”

It’s hard to see how this could be anything but positive for consumers given that unused spectrum will now be used.

Keep in mind the need for expanded and improved allocation of spectrum, and how vital that is for the U.S. AT&T CEO Randall Stephenson made key points at a June 6 Telecommunications Industry association event. As Cnet.com reported, “He said that other countries, much smaller than the U.S., have made getting more spectrum into the pipeline a priority. For example, Japan is working to get an additional 400MHz of spectrum in the hands of wireless operators. Germany recently auctioned off 350MHz. The U.K. and France have 310MHz and 250MHz respectively of spectrum earmarked for public use. ‘By 2013 demand [for wireless data services in the U.S.] will outstrip supply,’ he said. ‘This isn't a problem that is six to eight years from now. It's happening now.’”

But other Verizon competitors apparently don’t see the need in the same way, namely, Sprint, MetroPCS and T-Mobile.

Most striking in its opposition to the Verizon deal with cable firms is T-Mobile. When pushing to be sold to AT&T, T-Mobile obviously argued that the merger’s resulting increase in market share and spectrum control would be beneficial for consumers. Now, after the AT&T and T-Mobile merger was killed by the federal government, according to T-Mobile, Verizon looking to purchase this spectrum is a negative, bad for competition and “against the public interest.”

For good measure, there have been reports that T-Mobile and MetroPCS are considering a merger. If that comes about, it’s pretty obvious that T-Mobile and MetroPCS will be arguing vigorously that such a merging of spectrum will be just great for all concerned.

Of course, Sprint would be in the same contradictory position in the case of it trying to purchase spectrum or merge with another provider.

In the end, there’s no doubt that moving spectrum off the sidelines and onto the field of play would be positive for consumers. And rather than listening to the too-often shifting and contradictory declarations of competitors claiming otherwise, the FCC’s lone focus should be on the consumer, including entrepreneurs, small businesses and their employees.

After all, few have benefited more from the mobile technology revolution than small firms, with tremendous gains in efficiency and the ability to better serve customers. But as demand for spectrum rises, and with a spectrum crunch on the horizon, providers desperately need increased availability, and the government needs to let the market allocate such spectrum to its best uses.

Quite simply, unnecessary regulatory interference hurts innovation and investment. Government delays in approving this and similar spectrum deals mean delays in benefits for consumers, again, including small businesses. Approving Verizon’s agreement to buy AWS spectrum from Time Warner Cable, Bright House Networks, Comcast and Cox Communications should be a no-brainer for the FCC.

The FCC needs to put aside complaints from other firms in the industry looking to use government to hinder competitors; move away from a distrust of the workings of the market; and allow market participants to allocate spectrum in the robustly competitive telecommunications industry. Market participants should be free to invest, innovate, and compete, with consumers, not politicians or their appointees, deciding that works best in the end.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

Telecom Price Controls, Again?

It never ceases to amaze how often economic common sense is ignored by those in government. The Federal Communications Commission (FCC) is back to considering the idea of imposing price controls on special access lines, which are high capacity lines provided by incumbent carriers to businesses and other telecommunications firms.

Some might have thought that this issue was laid to rest with a Clinton-era FCC order and with the vast expansion in competition and choices. But apparently not.

When have price controls ever worked?  Well, never. Government setting prices means government limiting returns. It should be obvious that would be a big negative for innovation, investment and service.

As a quick refresher, in 1991, the FCC imposed price caps on these special access services, but as technology advanced, it became obvious that competition could flourish. So, a 1999 order allowed for price deregulation in metropolitan statistical areas (MSAs) given that the incumbents could point to competitive triggers being met.

And in fact, competition clearly has flourished, including from cable companies, fiber to the home, along with all kinds of wireless services.

Unfortunately, if the FCC goes ahead with price controls, the result would be to reduce incentives for innovating and investing. That, of course, would be in direct conflict with the stated objectives of the Obama administration to expand the reach of high-speed services.

The problem was neatly summed up in the following from a June 5 PCWorld.com article:

“Randolph May, president of free market think thank the Free State Foundation, called efforts to regulate special access ‘wrong headed.’ Other companies are building networks to compete with the large special access providers, he said. ‘Competitors have been seizing, and continue to seize, opportunities to enter the “special access” market segment and build out new network facilities -- even though they are clever enough not to market their competitive services under the 'special access' moniker,’ May wrote in an email. ‘If the FCC were to reverse course and require the incumbent providers to reduce the rates for their special access services, the incentive for competitors to continue investing in the build-out of new facilities would be suppressed.’”

As for entrepreneurs and small businesses, they probably gain more than others by investment and innovation in high-speed telecommunications services. Small firms wind up better able to expand markets, service customers, find employees, and work with partners. Indeed, the telecommunications revolution has been transformative for entrepreneurs. So, why go back to stifling regulation?

The FCC’s August 1999 order opened: “Today the Commission adopted an Order that allows competition, rather than regulation, to determine prices for interstate access services, thus providing customers more choices among services, carriers, and rates. The Order gives the nation's largest telephone companies progressively greater flexibility in setting interstate access rates as competition develops, gradually replacing regulation with competition as the primary means of setting prices… These reforms will enable those companies to compete more efficiently, and customers of interstate access service should benefit from increased choices among carriers and lower overall rates.”

That’s exactly what’s happened. The FCC should let its 1999 wisdom stand.

Raymond J. Keating

Chief Economist

Small Business & Entrepreneurship Council