The Competition Conundrum: Can Competition Be Bad News for the Spectrum Crunch?

by Latoya Livingston on August 26, 2012

Part III of a three-part series.

As the nation races toward the looming spectrum crunch, experts on all sides of the industry have debated alternative solutions.  But as the deadline draws near, it is becoming clear that the rhetoric must end and something needs to be done soon.  According to some, the solution is to stop attempting to create artificial competition and allow the two largest carriers to buy the spectrum they need.  Others believe it is important to foster competition no matter what.

So what’s so wrong with helping the little guy?

Proponents of an unrestricted spectrum auction point to three likely effects of limiting either all or a subset of incumbent service providers’ eligibility for license auctions by stating that:

  1. It will likely reduce the government’s auction revenues;
  2. It will distort competition; or
  3. It will harm consumer welfare.

One can, and will, take issue with at least two of these three conclusions.  First, it is not the FCC’s job to ensure that the Treasury Department gets the most money that it can as a result of the spectrum auctions.  On its own website, the FCC enumerates the areas in which the agency seeks to capitalize on its competencies, such as “[promoting] competition, innovation, and investment in broadband services and facilities” and “[revising] media regulations so that new technologies flourish alongside diversity and localism.”

Nowhere in its statement of purpose does the FCC list ensuring the most revenue for the Treasury Department as a role of its work.  Yes, reducing the deficit can be a positive byproduct of a healthy bidding process, but it should not be considered a more important goal than enhancing the wireless broadband experience for consumers and fostering a competitive communications industry.

Secondly, the FCC must, at times, distort competition to ensure that the aforementioned goal is being achieved.  Despite what many might want to believe, the U.S. economy can only be properly and fairly managed if competition is distorted at times.  Without distortions, women and minorities would never have been able to overcome systemic boulders put in their path to success.  Without distorting competition, they could never have reaped the benefits of such opportunity-creating policies like the FCC’s former Tax Certificate Program.  Without distortions, the wireless communications industry will truly turn into a duopoly.  While imposing heavy conditions on these upcoming auctions may not be what is best in the long run for consumers, the use of measures that promote diversity and competition should never be uniformly dismissed.

But the third premise can and will likely come into fruition unless more spectrum becomes available for wireless providers.  In his May 2012 paper “An Economic Analysis of Auction Set-Asides,” Michael Katz wrote, “… restricting incumbent wireless service providers’ access to spectrum would have the effect of driving up their costs, which would harm consumers through a resulting combination of higher prices, lower service quality, and diminished innovation.”

Truer words have never been spoken in regard to spectrum.  We are in a time where industry experts are decrying the legacy systems as being broken.  The government and private industry have the desire to use broadband to better the lives of Americans, but they are trapped in bureaucratic mazes that slow up or stop even the most straightforward transaction.  All the while, Americans thirst for innovation in the broadband sphere.  Yes, diversity of license ownership is needed.  Yes, even if potential entrants were very capable firms, incumbents would outbid them. That is a likely fact.  But few, if any, industry experts can agree on a middle-ground where the need for more spectrum for consumers is in direct opposition to the need for competition.

It’s Circular

In its July filing opposing the proposed Verizon/T-Mobile spectrum swap, Public Knowledge acknowledged that the proposed swap “leaves both parties better off, giving Verizon a definitive edge in its quest to build a comprehensive nationwide LTE network, and providing T-Mobile with the path to LTE… [such that] other regional carriers could end up picking up licenses as well as an outgrowth.”  However, the organization offered the caveat that “while these are good things they do not satisfy the Commission’s requirement that it promote the public interest – the Commission’s broader aim should be to promote competition generally, and not just a few competitors.”

If that be the case, how are large corporations ever going to receive the spectrum they need now to serve their consumer bases in the future?  It’s imperative that we find a middle ground in solving this problem.  If minorities, women, and small businesses are left behind as we address the spectrum crunch, they will continue to trail and fall behind big companies in the future.  However, we cannot afford to wait while this problem is sorted out – the spectrum crunch is upon us. We need to find a middle ground soon, within the next year, and start building up and out as quickly as possible.

Americans cannot wait for the spectrum auctions or for the Department of Defense to inventory and release its spectrum, both of which would likely take at least five more years to get into the hands of providers.   Why should fallow spectrum lay dormant until industry experts discover some utopian middle-ground that can satisfy the economic interests of the large carriers with the needs of the smaller carriers?

Secondary market transactions have been touted as the best means that we currently have available of reallocating fallow spectrum to efficient use.  Industry insiders, the government, and communications companies should only restrict these transactions when there is a real danger to the public interest, and not use the FCC process to create unnecessary roadblocks that serve no other purpose than to promote their narrow view of how the industry should work.

Yes, protecting competition tends to be best for consumers.  If the spectrum crunch is looming, and we need more spectrum now, common sense tells us that industry insiders, communications companies, and the government have to come together.  They must find a solution that can foster consumer choice while promoting the efficient and increased access to spectrum to all wireless providers.  If they fail at this charge, we will all be left in the digital dust.

    • Latoya LivingstonLatoya Livingston is a Washington-D.C.-based attorney with years of legal experience working in the private and public sector. Currently, Attorney Livingston serves as a Senior Attorney and the Earle K. Moore Fellow at MMTC.

 

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