PART III: Is Consolidation Key?
Is consolidation the key? Everyone fights the idea. They say that it’s bad for consumers because there will be a lack of competition. But will there be a viable alternative? If companies can’t afford to outbid AT&T or Verizon or quickly build out their spectrum, would they be using their spectrum most efficiently? And what happens to low income and minority consumers? Do they just get subpar service all for the sake of saying that we have a market of 6 service providers rather than of 4?
Of late, the big issue has been the Verizon/SpectrumCo deals, which would result in Verizon deal acquiring 133 Advanced Wireless Service licenses from Comcast, TimeWarner, BrightHouse, and Cox cable companies. Although Verizon/SpectrumCo aver that the spectrum transactions would not include the transfer of any other assets, facilities, or customers, they have agreed to be agents for each other’s products, and over time, the cable companies will have the right to sell Verizon Wireless service on a wholesale basis.
Everyone from T-Mobile and Metro PCS to consumer watchdog groups (the Rural Telecommunications Group, Free Press, and the New Jersey Division of Rate Counsel) have come out in opposition to the deals. Specifically, they have been pushing the Federal Communications Commission and Department of Justice to block the $3.9 billion deal on the grounds that the deal will result in Verizon having an “excessive concentration” of wireless spectrum (which is ironic, considering that Verizon made a similar argument when AT&T wanted to acquire T-Mobile a few months ago). There’s also the issue of whether the joint marketing agreements are anti-competitive, especially in small markets where customers have little to no choice between providers.
This debate will rage on over the next few months, pitting competition purists against advocates for efficient use of fallow spectrum. But where do low-income and minority customers’ interests lie? If a deal like Verizon/SpectrumCo is not the answer to the spectrum crunch, then what is?
As Dan Hays of PricewaterhouseCoopers pointed out in David Goldman’s spectrum article, “[w]ireless operators have to decide whether they spend money acquiring new spectrum or building tens of thousands of new cell sites all over the country.” Economies of scale are important, and spectrum has to be put to its most efficient use – and sometimes that means that those equipped to use it best should be given that opportunity.
In the end, the Commission has to decide what’s in the public interest, which is a lofty question, especially given the timeframe involved. People tend to forget that spectrum is a finite resource: the pie will always stay the same size, and it’s only the slices that will differ and be cut or traded. So, supply, demand, competition, and the consumer’s need for reasonable prices for services will always be at odds.
Instead of trying on merger pairings like searching for a match of one’s sock, the major providers should be more willing to use spectrum-sharing as a means to quell their spectrum needs. There is no reason that a wireless consumer should lose signal along a wide stretch of the New Jersey turnpike/I-95, or for a major wireless provider’s customers be unable to get a signal while sitting in that provider’s Washington, D.C., office (both circumstances I have personally experienced). Wireless providers must not only reel in unreasonably excessive users of their network, but they must find alternatives (maybe through spectrum or cell tower sharing) that ensure that these circumstances do not occur.
The public backlash against the AT&T/ T-Mobile merger has shown that the federal government – both the DOJ and the FCC – aren’t too receptive of consolidations between the three or four largest wireless providers and can be greatly influenced by public pressure. Will this mean that there is a likelihood of more pairings between wireless companies and cable companies? At very least, it will likely result in a situation where the once Hatfield and the McCoy-like relationship will morphed into seemingly mutually financially beneficial business partnerships with cross-marketing agreements, like the proposed SpectrumCo deals.
Where’s the competition?
Many experts suggest that the next fight will be over Dish Network and LightSquared’s spectrum…two companies that will likely fight hard to put their spectrum to their company’s own best use. Whether they can be successful in their ambitions to enter the wireless market is highly unlikely. It’s like a long distance runner joining a sprint (no pun intended) against Usain Bolt and Tyson Gay. I applaud their chutzpah, and I hope for consumers’ sakes that they can achieve something positive.
In the meantime, how long can Sprint continue to be a major player in the wireless industry? Sprint’s bet on Clearwire’s WiMax technology as opposed to the industry standard, LTE technology, means that many Sprint phones using that technology cannot benefit in the same way that it could have if the company had chosen LTE. However, Clearwire has announced that it is planning to add “LTE-Advanced ready” technology to its 4G network. Clearwire states that its network will be “LTE Advanced-ready, meaning that it will use an ultra-high-capacity spectrum configuration that is superior to the typical configuration of the slower, more capacity-constrained commercial LTE network designs in the United States today.”
This sounds very promising for Sprint 4G customers, but the announcement is premised on the fact that the implementation program for the network is subject to additional funding, reusing its all-IP network architecture, upgrading base station radios and some core network elements, and using carrier aggregation. Namely, this will be an excessively expensive project to implement. As a consumer, this new technology seems very promising, but we just have to wait and see whether it can effectively come to fruition.
Another wireless company trying to hold on to their piece of the telecom pie is T-Mobile, which just announced its plan to launch LTE service in 2013. This might come as a surprise to some who assumed its failed plan to merge with AT&T, its relatively small supply of unused airwaves, its over 800,000 subscriber losses, and its parent company’s voiced desire to leave the U.S. market. However, with the $1 billion worth of spectrum, billions in cash, and roaming agreements that it received from AT&T, and an additional $1.4 billion in investments, T-Mobile might be able to have a phoenix-like rebirth, much to the joy of wireless competition advocates and T-Mobile USA employees.
While none of this seems to provide much hope for the future, there are many proposed solutions to the looming spectrum shortage. In next week’s final installment of this spectrum series, I will discuss, analyze, and build upon the solutions that industry experts have put forth.
Latoya Livingston is a Washington, D.C.-based attorney with years of experience working in the public and private sector. Attorney Livingston joins MMTC after performing pro bono work for the organization last year.