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.

Government Needs to Fast Track Efforts to Increase, Improve Wireless Infrastructure

The Small Business & Entrepreneurship Council (SBE Council) is urging the Federal Communications Commission (FCC) and all government entities that have a hand in our nation’s wireless infrastructure to accelerate and improve efforts that will get spectrum to the providers that need this resource. The advocacy and research organization says that in addition to more quickly conducting spectrum auctions, the federal government must modernize and streamline the way it reviews mergers, acquisitions and other initiatives in the telecommunications industry to help providers allocate and direct spectrum to where it is most needed, and where it can be used most efficiently.

"Few have benefitted more from the mobile technology revolution than entrepreneurs and their employees, 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 government needs to let the market allocate such spectrum to its best uses,” said SBE Council chief economist Raymond Keating.

According to SBE Council, U.S. small business owners have become increasingly dependent on broadband tools and mobile devices to compete more effectively, so keeping these resources reliable and affordable while encouraging innovation in this space is critical to their survival and growth.  Several studies the group has published over the past year point to an explosion in the small business community’s adoption of broadband and mobile apps, for example, which is good news when it comes to helping these firms cut costs, operate more competitively and grow revenues.  SBE Council President & CEO Karen Kerrigan said the federal government through its training programs is aggressively promoting the use of such technologies, but it also needs to better support providers in their efforts to deliver first-class, robust service to small business consumers.

“Unfortunately, the federal government is undermining private sector initiatives to make universal broadband a reality. At the same time, innovation is harmed, which is an area where the U.S. leads the world.  The Obama Administration must show leadership in streamlining the bureaucracy, and educating archaic thinkers at the FCC who appear out-of-touch with markets, the tempo of competition and the needs of the marketplace,” said Kerrigan.

The FCC has been moving at a snail’s pace when it comes to making spectrum available through auction, and it teamed up with the Department of Justice to kill the AT&T/T-Mobile deal last year.  Currently, they are overly-scrutinizing a Verizon Wireless agreement with the cable companies to buy more spectrum (while selling off other spectrum), which should be a simple and seamless approval, according to SBE Council.

“Quite simply, these unnecessary regulatory delays mean delays in much-needed investment that benefit consumers, again, including small businesses. Verizon's agreement to buy AWS spectrum from Time Warner Cable, Bright House Networks, Comcast and Cox Communications should be an easy approval for the FCC,” observed Keating.

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

Regulations and the FCC: A Commissioner's Wisdom

To be generous, it's rare when a regulator understands the ills of regulation.

But that is the case with FCC Commissioner Robert McDowell. His job is, in essence, to be a regulator. Yet, he possesses a strong understanding of both the economics and the history of regulation gone awry.

McDowell was on Capitol Hill on March 19 testifying before the House Subcommittee on Financial Services and General Government. And part of his testimony focused on spectrum policy, given that Congress passed legislation in February that puts television broadcast spectrum up for auction. There has been considerable debate over how this auction should be handled, with some advocating that the FCC micro manage the auction by effectively picking winners and losers.

McDowell countered such regulatory activism in his testimony. He stated:

"Meanwhile, a debate continues over whether or how the FCC should shape the outcome of this process. History has proven that regulators' attempts to over-engineer spectrum auctions often result in harmful, unintended consequences. Thus, I hope all of us can apply the lessons learned from the Commission's past missteps as we implement this new legislation. I am committed to working with my colleagues to ensure that our auction rules are minimal and ‘future proof,' allowing for flexible uses in the years to come as technology and markets change... I am confident that the FCC can get it right this time. And ‘getting it right' means avoiding regulatory hubris by keeping the government's hands off of the marketplace's steering wheel as much as possible."

McDowell correctly notes that regulation has consequences, and those often include consequences of the unintended variety. Especially in an industry so dynamic and innovative as telecommunications, there is simply no way for regulators to understand where the market might be headed, and therefore, it would be dangerous, not to mention arrogant, for the FCC to dictate where spectrum should be allocated, as opposed to leaving resource allocation to the market which ultimately is guided by consumers.

It is worth noting that in late March, the House voted by a 247-174 margin to reform the FCC. In a letter of support sent to the House on the Federal Communications Commission Process Reform Act (H.R. 3309), SBE Council President and CEO Karen Kerrigan explained: "H.R. 3309 would bring greater transparency, consistency and effectiveness to the FCC's regulatory process. For example, it would establish and clarify procedures for when the FCC issues rulemaking notices, including citing the FCC's authority for adopting and amending a rule. Also, the economic impact of a rulemaking would need to be considered, with the FCC required to assess the presumed market failure and consumer harm, the governmental failures warranting FCC action, as well as the burden of existing regulation. For good measure, it would have to be determined that the benefits justify the costs of new regulatory action. In addition, H.R. 3309 would establish greater openness when it comes to the Commission's deliberations, agenda, meetings, and dissemination of information."

Unfortunately, the Senate appears uninterested in dealing with this legislation, while the White House stands opposed. In addition, while efforts were made to set limits on the FCC's regulatory discretion on spectrum auctions in the bill passed in February, that effort also was denied and excluded by the Senate.

So, we are left hoping that Commissioner McDowell's view prevails at the FCC, and that his optimism that the FCC will get it right is well placed.

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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.

U.S. Needs More Spectrum to Accomodate Explosive Growth in Small Business Apps Use

SBE Council's landmark study, "Saving Time and Money with Mobile Apps: A Small Business 'App'ortunity," continues to receive widespread media coverage. Recent pieces focus on the explosive growth of mobile app usage by small businesses, and how these practical and innovative tools are saving firms time and money while improving productivity.

See the recent articles here:
DIY Apps Save Small Business Time and Money, BusinessWeek
Mobile Apps Fuel Small Businesses, McClatcy/Tribune

The explosive growth in apps (and their rapid adoption by consumers) also demonstrates why the U.S. needs more spectrum to accomodate and encourage this growth. This would start with a sound and common sense approach toward spectrum auctions. Unfortunately, the FCC seems to be doing all it can to mess them up. Similar to what the Administration is doing in other sectors (i.e.: energy), the FCC wants to pick winners and losers. In this case, choosing what companies will be able to participate in the auctions. It wants to "manage the outcome" of the auctions to ensure competition. That means it could exclude the biggest players that actually have the resources to purchase this valuable spectrum. Oh, and they need the spectrum too.

The current FCC is only impeding progress, something it has been doing quite well over the past several years. It has become the single greatest barrier to building out our nation's broadband and wireless infrastructure. The FCC is hamstringing investment, innovation, job growth, U.S. competitiveness, and in the case of spectrum auctions, an inflow of revenue to the federal government. It's time for Congress to start asking questions about what purpose such a government agency serves, particularly if it believes its main job is to micromanage a successful industry whose growth and vibrancy is so critical to the entire U.S. economy.

In regard to spectrum auctions, a bill has been introduced in the House to limit the damage that the FCC can do -- thank goodness. All players should be able to bid on spectrum, and the FCC must not be allowed to discriminate against specific companies. We all know what happens when government picks winners and losers in the marketplace. Time and again, industrial policy has proven itself a failure. The economic stakes are much too high to allow the FCC to pursue and prove (yet again) the failure of such misguided policy.

The FCC is overreaching. It is putting U.S. economic and innovative strength at risk, and Congress must hold it accountable.

Karen Kerrigan, President & CEO

FCC Steps Out-of-Bounds...Again

Do the FCC and DoJ Know Better?

What’s up with President Obama’s Department of Justice and Federal Communications Commission? Why are they trying to deny consumers, businesses and the economy the potential benefits from a merger between AT&T and T-Mobile?

The quick answer is: political appointees think they know better than consumers. But there’s even more at work here.

In a free, competitive marketplace, businesses work to come up with the best business models, and goods and services at the best prices, in order to better serve customers and thereby earn profits. Consumers – including, of course, small businesses in the case of telecommunications services – decide what works and what does not in the end.

From the perspective of entrepreneurs, small businesses and their employees, since the proposed $39 billion purchase of T-Mobile USA by AT&T offers potential gains in efficiencies and costs for AT&T, that in turn would likely result in improved service, expanded offerings, and lower prices. In addition, small firms would have opportunities to play roles in expanding broadband investment and innovation, as well as from the resulting services and products given the expanded reach of broadband wireless among consumers.

Overall, if the merger works, the potential efficiencies and investment would be a plus for economic growth and job creation.

Meanwhile, concerns over the size of AT&T’s market share – a traditional worry in antitrust circles – should be alleviated given the dynamic nature and vastly expanded choices available to consumers in the telecommunications universe. Never before have individuals, families and businesses had so many options in terms of their telecommunications services, nor have such services developed so rapidly before.

Yet, for those who favor government, and view private markets and businesses with skepticism, or even hostility, letting go of old, bankrupt notions of how markets work is not easy. As a result, we’ve seen the Obama DoJ and the Obama FCC trying to impose bureaucratic thinking on the fast-moving, dynamic marketplace of the twenty-first century.

In August, the DoJ announced its decision to sue to block the deal between AT&T and T-Mobile. The DoJ assesses such deals on antitrust grounds, and believes that this would substantially reduce competition, thereby limiting choices and raising prices for consumers. That’s a bewildering conclusion if one understands the gains in service and reduction in prices experienced over the past two decades, and the innovative nature of these markets.

Meanwhile, the FCC also assesses the merger, and could oppose it if the commission deems it to be against the “public interest.” That, of course, is very vague.

But even worse, the FCC’s actions in this case have gone far beyond precedent, pointing to an aggressive, biased hostility, as opposed to at least some attempt at a more objective analysis.

For example, in late November, the FCC announced that it would seek a lengthy, unusual trial-like hearing on the merger. Such an inquiry is extremely rare.

Subsequently, AT&T announced it decisions to withdraw its FCC application pending the outcome of its court case with the DoJ. In response, the FCC surprisingly tried to assert that AT&T could only do so with FCC permission.

The FCC then came around to following its own rules and dismissing the withdrawn merger application without prejudice. However, it also decided to publicly release a draft staff report attacking the merger. This analysis was not voted on or approved by the commissioners, and it has no force in terms of the law. And as The Wall Street Journal reported: “Such documents typically don't become public until the FCC's board approves them.”

For good measure, the assertions served up in the report – such as that the largest U.S. markets would be left without competition, AT&T and its competitors would be able to hike prices without concern, and jobs necessarily would be lost – point to this being a political report, as opposed to a serious economic assessment.

The President and the FCC say they want to see mobile broadband deployed throughout the nation. Mr. Obama certainly needs the jobs that come with broadband investment for his re-election effort. Yet, the administration works to stop a merger that would help to achieve these goals.

Such anti-business, pro-regulation thinking and action is not unique in this administration. To the contrary, as exhibited in other areas like health care and energy, this is the default position of the Obama administration. The assumption is that politicians and their appointees – including at the DoJ and the FCC – supposedly know better than and can be trusted over investors, businesses and consumers in the private marketplace. The results of such an ideological bent, predictably but unfortunately, include diminished entrepreneurship, investment, growth and jobs.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

DoJ's Action Against AT&T/T-Mobile Hurts Investment, Innovation, Quality Broadband Deployment

SBE Council issued the following statement in response to yesterday's U.S. Department of Justice decision to sue to stop the proposed merger between AT&T and T-Mobile.

SBE Council Chief Economist Raymond Keating said: "The Department of Justice's decision to sue to stop this merger is a glaring example of government deciding that it knows best how the wireless market should develop. Especially given the incredible dynamism, innovation and growth in the telecommunications arena, this is absurd. It's important to keep in mind what both the Federal Communications Commission and Government Accountability Office have reported about the wireless market, that is, that wireless access has expanded and prices have fallen dramatically over the past two decades. And that occurred amidst consolidation among wireless providers. In the end, the merits and efficacy of a merger between AT&T and T-Mobile should be left for consumers - including entrepreneurs, small businesses and their employees - to decide, not government political appointees."

SBE Council President & CEO Karen Kerrigan added: "It is unfathomable that the government has decided to block a merger that would bring high speed wireless access to many areas of the country that need such a tool to compete and survive in the challenging economy. It's hard to believe that DOJ decision-makers, as well as leaders at the Federal Communications Commission, still cling to an outdated view of competition when all the evidence demonstrates that innovation, lower prices, and vast choices are flourishing. This backward thinking by DOJ, and the other private-sector micromanagers in this Administration, is killing investment, jobs and opportunities for entrepreneurs."

According to SBE Council, technology is changing rapidly, far too rapidly for DOJ lawyers to decide which business models make sense and which do not in the marketplace. Advancements are creating new opportunities for entrepreneurs and business of all types and sizes as both providers and consumers of telecommunications services.

This most recent action by the federal government sends yet another signal to American business that Washington remains hostile to businesses of all sizes.

Kerrigan in The Hill: Why Not Proceed to Spectrum Auctions?...An idea we all agree on

If you have not heard, Washington lawmakers are in the middle of trying to find a solution to the country's fiscal crisis. Options for finding new revenues and cutting spending remain divisive. Of course, simplification of the tax code should be pursued as it is an important step towards addressing our fiscal (and economic) challenges. Lowering tax rates, broadening the base and eliminating various credits and deductions will help generate new revenues, and support long-term economic growth. However, that option, although prudent and needed, will continue to take time.

There is another option for generating revenue that can be pursued immediately, and where both Republicans and Democrats agree: making more spectrum available for the booming wireless market to help spur investment and lower the deficit without raising taxes.

In a July 27 Oped in The Hill, SBE Council President & CEO Karen Kerrigan wrote that these auctions are needed to increase wireless capacity, and will help generate revenues to pay down the deficit.

She wrote: "Congress and the Federal Communications Commission (FCC) are working on proposals to implement incentive auctions which would repurpose some of the spectrum used by broadcasters to help alleviate the spectrum crunch and to support wireless broadband deployment, applications and services. An open auction of spectrum could generate $40 billion or more to the U.S. Treasury, which could and should be directed towards deficit reduction."

Indeed, many more bipartisan ideas and initiatives exist, Congress simply needs the political will and focus to pursue them. While spectrum auctions will help generate revenues, they are also necessary to keep up with the explosive demand in wireless usage. Staying ahead of demand will also help to sustain innovation and investment in this important sector.

SBE Council Staff

Houses Votes to Encourage Investment and Innovation Through Passage of H.R. Res.73

The phrase "net neutrality," as it relates to the Internet, was well chosen. After all, it sounds fair. When it comes to the Internet, shouldn't broadband providers be "neutral" on all content?

But of course, when your car is in "neutral," you don't go anywhere. Going nowhere would be the best-case scenario when it comes to net neutrality.

It must be understood that net neutrality is just a nice phrase for regulating broadband Internet services. It's about government - that is, politicians and/or their appointees - dictating operational, business model and pricing decisions to broadband providers.

And that is exactly what the Federal Communications Commission (FCC) has proposed doing. Net regulation would be bad news for investment and innovation, as government sticking its nose into the management of networks would serve as a discouragement to risk taking.

For good measure, there is the matter of the FCC not possessing the authority from Congress to regulate broadband services. It's a case of political appointees acting without the approval of elected officials.

U.S. Greg Walden (R-OR), chairman of the House Subcommittee on Communications and Technology, observed in an opening statement to a February hearing: "The Internet did not become the explosive driver of communications and economic growth it is today until we turned it over to free enterprise. Dating as far back as the 1971, the FCC has consistently treated the Internet as an unregulated information service and not as a regulated telecommunications service. Congress codified this distinction in the 1996 Telecommunications Act."

Quite simply, going against the points raised by Rep. Walden and against a D.C. Circuit Court decision, the FCC is attempting a power grab.

But the House of Representatives moved to rein in the FCC on April 8 by approving H.J. Res. 73, sponsored by Rep. Walden, which would disapprove the FCC's efforts to regulate the Internet and broadband industry practices.

Voting in favor of the measure to disapprove the FCC's actions were 240 members of the House (234 Republicans and six Democrats), with 179 (2 Republicans and 177 Democrats) then supporting the FCC's overreach.

Each member supporting H. J. Res. 73 voted for innovation and investment; for the entrepreneurs and small businesses that provide broadband content and services, and use such products; and against agency regulatory abuse and overreach.

But now it's up to the Senate to make a stand. Unfortunately, that will prove to be an uphill battle. And then, of course, there is the President, who made clear his support for regulating broadband during his campaign for the White House.

Raymond Keating, Chief Economist, SBE Council

AT&T's Acquisition of T-Mobile USA an Important and Positive Development for Consumers and U.S. Economy

Connecting all Americans to reliable, high-quality broadband remains an important national initiative – particularly for U.S. entrepreneurship and small business owners. That is why SBE Council continues to support policies that encourage investment in our nation’s broadband infrastructure and the expansion of a robust network.

As I have noted in many policy pieces and communications with President Obama and the Federal Communications Commission (FCC), private sector investment is the surest way to bring the power of broadband to every American. That investment is critical to U.S. competitiveness, where businesses and entrepreneurs are utilizing and tapping into the broadband network as it is serving as a critical platform for innovation and growth opportunities. So, efforts by our nation’s telecommunications sector that stand to improve the network and connect more Americans to broadband should be applauded by consumers, government officials and policy leaders. This weekend’s announcement that AT&T will acquire T-Mobile USA is one such development.

The acquisition means that network quality will improve for existing customers of both companies as the integration of their assets will strengthen their delivery of service. Significantly, according to a media release, “AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns.”

Of course, this means more Americans and small business owners will have access to high-quality broadband, which is a top priority for President Obama and the FCC as outlined in their National Broadband Plan. According to AT&T, the acquisition will bring advanced LTE capabilities to more than 294 million people. This is fantastic news, and of course being done without government money.

In his State of the Union speech, and in many public appearances that have followed, President Obama said he wants to make America "the best place on earth" for business. If he and his Administration are serious about this stand, they will cheer this critically important acquisition and allow it to move quickly to a close.

Karen Kerrigan, President & CEO