Fighting for the future of wireless competition

On Thursday, the Federal Communications Commission (FCC) will vote on a plan to conduct an “incentive auction,” that will pay television broadcasters to give up some of their existing wireless capacity so the FCC can auction it to wireless companies for mobile broadband. As part of this decision, the FCC will consider whether – as suggested by the Department of Justice Antitrust Division among others -- to adopt rules that keep AT&T and Verizon from strangling competition.

Spectrum auctions, spectrum squatting, and the road to duopoly

Federal law requires that anyone offering a wireless service more powerful than WiFi have a license from the FCC. The FCC distributes these licenses (shorthanded as “spectrum licenses” or just “spectrum”) through auctions. The system protects users from interfering with each other, but it also places a natural limit on how many providers we can have at any time.

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Unfortunately, this makes it possible for a sufficiently large company (or companies) to block competition by buying up enough licenses to keep rivals from offering a reliable network – especially as the growth of smartphones and tablets keeps putting more demand on the network. This strategy – called ‘foreclosure’ by the Department of Justice or ‘spectrum squatting’ by the wireless industry – has proved very effective for the two largest carriers in the past. Instead of focusing on building better networks or offering better prices to compete for customers, AT&T and Verizon have focused on buying up the most valuable “beachfront” low-band spectrum that penetrates inside buildings better and travels further than high-band frequencies and keeping those low-band licenses out of the hands of competitors.

In the last major auction in 2008, AT&T and Verizon bid a combined $16 billion to dominate the auction and shut out rivals. Since the 2008 auction, AT&T and Verizon have both spent billions of dollars strategically buying out their smaller rivals, and refusing to enter into roaming agreements (agreements to share spectrum in regions where one does not have enough coverage) with anyone else. Data kept growing as a bigger and more important part of the wireless market, but spectrum squatting by the two biggest carriers effectively prevented anyone else from building a mobile network that could compete.

This vicious cycle sliding toward an AT&T/Verizon duopoly continued until the federal government blocked AT&T’s bid to take over T-Mobile in 2011, and forced Verizon to sell off some spectrum licenses to rivals in 2012.

Once the government blocked AT&T and Verizon from monopolizing the spectrum license market, competition started to return to the actual wireless market. In the last two years we have seen competing carriers – particularly T-Mobile – invest billions of dollars in their networks and offer consumers innovative new packages and pricing plans. Consumers have responded enthusiastically, forcing AT&T and Verizon to offer their own lower priced plans.

Let the real market decide

Looking at this history, the FCC has proposed setting aside 30 MHz as a ‘reserve’ for competing carriers. AT&T and Verizon will be able to bid on the ‘unreserved’ spectrum, which will at least equal and most likely exceed the amount of reserved spectrum. This follows the example of Canada’s recent very successful auction of similar spectrum, which raised more than twice the anticipated revenue while introducing new wireless competitors in the market.

AT&T and Verizon have launched a frantic last minute campaign to eliminate the reserve and retain the right to once again foreclose competition by buying up the licenses. In a nice spot of Orwellian messaging, supporters of AT&T and Verizon accuse the FCC of ‘acting like a cartel’ and ‘picking winners and losers’ by refusing to let AT&T and Verizon monopolize the spectrum.

But the proposed spectrum reserve lets consumers, rather than the government spectrum auction, ‘pick winners and losers.’ Eliminating the reserve would convert the auction of spectrum licenses into an auction for a government-sanctioned duopoly. If we really “want the market to decide” -- the actual wireless market where customers choose the carrier that provides the best prices and the best service – then the FCC needs to keep the spectrum reserve when it votes on Thursday.

Feld is Public Knowledge's senior vice president. Formerly he worked as senior vice president of the Media Access Project, advocating for the public interest in media, telecommunications and technology policy for almost 10 years.

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