print logo
RSS FEED

Obama Administration Snatching Defeat from the Jaws of Victory

Wednesday, December 7, 2011

Regulators are blind to the realities of network growth and spectrum; the latest move on the AT&T-T-Mobile wireless merger is a job and innovation killer.

A week ago on Cyber Monday, the most searched item on eBay was the iPad. The second most searched item? The iPhone 4S. The third? The iPod Touch. Over at PayPal, mobile payments were up 552 percent from last year.

As millions were using mobile devices to buy yet more mobile devices, however, the Federal Communications Commission was making it more difficult to expand wireless capacity and coverage.

On Thanksgiving Eve, the FCC surprised everyone. It hadn’t yet completed its investigation into the proposed $39-billion AT&T-T-Mobile wireless merger, and the parties had not had a chance to discuss or rebut the agency’s initial findings. Yet the FCC preempted the normal process by announcing it would send the case to an administrative law judge—essentially a vote of no-confidence in the deal.

FCC Chairman Julius Genachowski called AT&T CEO Randall Stephenson, who, on Thanksgiving Day, had to tell investors he was setting aside $4 billion in case Washington blocked the deal.

The only conclusion to be drawn is that the FCC wants someone else to get T-Mobile’s assets and will decide who that someone is. Central planning at its finest.

Then, in the wake of Cyber Monday’s mobile tsunami, the FCC released its unpolished findings as a “staff report”—109 pages of conjecture that the merger will stifle competition and raise prices. This, despite voluminous real-world evidence that communications prices continue to plummet while choice in digital devices and Internet content proliferates.

The deal is already being scrutinized by the Department of Justice, which sued to block the merger last summer. The fact that telecom mergers and acquisitions must negotiate two levels of federal scrutiny, at the Department of Justice and the FCC, is already an extra burden on the Internet industry. But when one agency on this dual track games the system by trying to influence the other track—maybe because the FCC felt AT&T had a good chance of winning its antitrust case—the obstacles to promising economic activity multiply.

To his credit, FCC Chairman Julius Genachowski has trumpeted the urgent need for more wireless spectrum to help accommodate surging wireless usage and spur the next wave of mobile innovation. U.S. mobile data traffic is growing more than 100 percent per year. But, inexplicably, the FCC staff report barely mentions spectrum at all.

The FCC preempted the normal process by announcing it would send the case to an administrative law judge—essentially a vote of no-confidence in the deal.

AT&T’s acquisition of T-Mobile is all about spectrum. AT&T doesn’t have nearly enough of it to meet the needs of its growing business. T-Mobile doesn’t have enough spectrum to turn around its severely declining business, let alone compete in the fourth-generation (4G) mobile marketplace. Its parent company, Deutsche Telekom, repeatedly said it wouldn’t invest for the next generation and desperately sought a buyer. Best of all, AT&T and T-Mobile’s existing spectrum positions and network technologies are perfectly suited for a seamless merger. The result would be better mobile call quality, broader coverage, and a quicker deployment of the fastest kinds of 4G data services.

Only in Washington could such an ideal marriage look bad. The chief challenge of the U.S. wireless industry is not competition. Prices are dropping and consumers are gobbling up mobile devices and services. The big obstacles are capacity and coverage. But even if we grant the FCC’s old-school priority of a kind of perfect competition in a mature industry, its case still makes no sense. Deutsche Telekom is getting out of the business. If T-Mobile is not a viable competitor, then how does AT&T’s acquisition of it “reduce competition”? Moreover, as spectrum-hobbled companies, AT&T and T-Mobile couldn’t effectively compete in 4G services with more spectrum-rich Verizon and Sprint-Clearwire. The only conclusion to be drawn is that the FCC wants someone else to get T-Mobile’s assets and will decide who that someone is. Central planning at its finest.

The need for more spectrum is eclipsed only by the even more urgent need to revive growth in the U.S. economy. AT&T is America’s single largest investor in any industry, no less in one of the nation’s most crucial assets—our digital infrastructure. Narrowly defined, the T-Mobile merger could spur more than $8 billion in additional network investment. But it’s also likely to create cascading innovations in mobile devices and Internet services.

At PayPal, mobile payments were up 552 percent from last year.

Granting itself new authority beyond the furthest reaches of communications law, the FCC questions AT&T’s estimates of the merger’s effect on jobs and claims this is a legitimate reason to block the transaction. But the net effects on the quantity and quality of U.S. jobs resulting from a leap to 4G wireless are beyond anyone’s capacity to estimate with precision. Regardless, only a heretofore unknown Federal Jobs Commission could doubt that a broader, faster, more robust digital infrastructure will spur long-term growth of quality jobs.

In a new report, “Into the Exacloud,” we find a possible recent acceleration in U.S. network traffic growth—perhaps reaching 12.6 exabytes per month in February 2011. We also show that cloud computing will increase the already heavy burden on wireless networks. Cisco’s new Cloud Index estimates global cloud traffic will grow twelve-fold by 2015, reaching 1,600 exabytes, or 1.6 zettabytes.

The FCC “staff report” may be blind to the realities of network growth and spectrum, but the real world is not. Verizon just said it would pay $3.6 billion for spectrum held by a consortium of cable companies—furthering its spectrum lead and rendering all the more irrational the FCC’s attempt to cap AT&T’s wireless capacity.

Mobile, cloud, apps—these are the healthy, hyper-growth arenas of an otherwise struggling U.S. economy. Why would the FCC want to snatch defeat from the jaws of victory?

Bret Swanson is president of the technology research firm Entropy Economics LLC.

FURTHER READING: Blake Hurst explains “Why I’m ‘Ginned Up’ about Regulation.” Eleanor Bartow writes “States’ Wrongs.” Nick Schulz contributes “AT&T/T-Mobile Merger: The Department of Justice's Dropped Call” and “Why Putting the 'T' In T-Mobile Is Good for Consumers.”

Image by Darren Wamboldt | Bergman Group

Most Viewed Articles

How to Fairly Tax Families By Sita Nataraj Slavov 04/14/2014
Based on fairness concerns, there’s a strong case for making the tax system more marriage neutral ...
Absurdities at the IRS By Aparna Mathur 04/13/2014
Under tax law, stolen property, bribes, kickbacks, and income from other illegal activities must be ...
U.S. Leadership Rating Rises. Huh? By James K. Glassman 04/16/2014
The objective of foreign policy is to secure the defined interests of the United States. It may ...
The Death of Money By James Rickards 04/09/2014
The prospect of the dollar failing, and the international monetary system with it, looks increasingly ...
Dr. Murray's Guide to Getting Ahead By Stan A. Veuger 04/10/2014
Charles Murray’s new book addresses topics ranging from the specifics of day-to-day workplace ...
 
AEI