Category Archives: Infrastructure

FCC's Data Roaming Order: Trouble, Right here…

For Forbes.com this morning, I take a close look at last month’s controversial FCC order requiring facilities-based wireless carriers to negotiate data roaming agreements with other carriers.

There are business, technical, and legal reasons why the order stands on unsteady ground, which the article looks at in detail.

The order, by encouraging artificial competition in nationwide mobile broadband, could also undermine arguments against AT&T’s merger with T-Mobile USA.

How so?  If every regional, local, or rural carrier can offer their customers access to the nationwide coverage of Verizon, AT&T, or Sprint, on terms overseen for “commercial reasonableness” by the FCC, what’s the risk of combining AT&T and T-Mobile’s infrastructure.  Indeed, doing so would create stronger nationwide 3G and 4G networks for other carriers to use.  It’s actually pro-competitive, and a pragmatic solution to spectrum exhaustion.

The bigger question is why the FCC seems so determined to get into the business of regulating the Internet economy, when Congress has so clearly and consistently told them to stay out of it.

(The results of that wise foresight speak for themselves:  compare the health of digital life to the health of, say, wireline telephone and over-the-air TV broadcasters, which the FCC has long-regulated to within an inch of their lives, or less.)

With its historic client base rapidly disappearing, the FCC, like any good business, is looking for new markets and new clients.  But like Harold Hill, the flim-flam artist featured in Meredith Wilson’s classic “The Music Man,” it doesn’t know the territory.

Shut out of market for digital regulation by Congress (underscored repeatedly by the courts), the agency has no expertise in dealing with the business or technical dynamics of the Internet.  To paraphrase Wilson, the market is looking for mandolin picks, but the FCC keeps selling big trombones.

The result is trouble, my friends.  Right here.

The AT&T – T-Mobile Merger: Beyond the Arithmetic

Following AT&T’s announcement last month of its planned acquisition of T-Mobile USA, pundits and other oddsmakers have settled in for a long tour of duty. Speculation, much of it uninformed, is already clogging the media about the chances the $39 billion deal—larger even than last year’s merger of Comcast and NBC Universal—will be approved.

Both the size of the deal and previous consolidation in the communications industry lead some analysts and advocates to doubt the transaction will or ought to survive the regulatory process.

Though the complex review process could take a year or perhaps even longer, I’m confident that the deal will go through—as it should. To see why, one need only look to previous merger reviews by the Department of Justice and the Federal Communications Commission, both of which must approve the AT&T deal.

Critics of the deal argue principally that a reduction from four national wireless carriers to three will create grave risks to competition. But Justice and the FCC have consistently rejected such simple-minded analysis. Instead, as consent decrees for several wireless mergers over the last decade–under Democratic and Republican administrations—make clear, both agencies approach the unique economic features of mobile communications with more subtle tools.

For example, both Justice and the FCC have consistently concluded that wireless markets are essentially local. Their competitive analysis—the key in reviewing horizontal mergers of this type—therefore focuses on the choices available to consumers where they buy wireless service; typically where they live, work or shop.

In today’s dynamic mobile industry, some national wireless carriers are strong in some cities or rural areas and weak or absent from others. Beyond the national carriers, lower-priced providers including MetroPCS and Cricket, as well as established regional companies including US Cellular, are strong in local markets. The Justice-FCC market analysis will consider market structure at the local level, counting all providers who are genuinely competitive.

The discussion so far about market concentration levels—measured by the Herfindahl-Hirschman Index, or HHI—ignores the more detailed analysis that the DOJ and the FCC have performed for past mergers including Sprint-Clearwire and Verizon-Alltel (both in 2008).

HHIs are commonly used as starting screens to identify markets where anti-competitive effects might result. But the two agencies have historically concluded that anti-competitive effects will occur only where concentration is especially high–at levels of the HHI well above the published estimates for the AT&T-T-Mobile deal in most markets. In particular, the focus has historically been on local markets where the merger would result in too few remaining competitors. In those markets, local divestitures have been required.

On that analysis, AT&T probably will be required to divest some consumers in some local markets, but fewer than would result from strict application of the high-level HHI screens.

The FCC must also consider potential benefits of the deal that improve the ‘‘public interest.”  Here, the agency will take into account serious capacity constraints both AT&T and T-Mobile are already experiencing on their networks. AT&T argues the merger will allow it to optimize scarce spectrum, improve network performance and quality, and accelerate deployment of nationwide mobile broadband using LTE technology, including expansion into rural areas.

The FCC and DOJ will require evidence to support these claims, of course. But assuming AT&T can back them up, they constitute strong public interest benefits.  After all, these are all goals the FCC itself established as part of last year’s National Broadband Plan. Likewise, as part of its evaluation, the DOJ will consider these and other claimed synergies as pro-competitive efficiencies produced by the merger.

Finally, that the deal is being vigorously opposed by some competitors—notably Sprint—actually helps AT&T’s case. Antitrust enforcers are understandably skeptical of claims by competitors that a merger will hurt them. Why? If a merger leads to higher prices for consumers, competitors such as Sprint would actually benefit. So when a competitor complains a merger is anticompetitive, the agencies take that as evidence the deal will in fact produce a stronger rival. And a stronger rival is good for consumers.

In the end, Justice and the FCC will have to weigh the competitive risks of further consolidation against the benefits for American consumers of improved service and accelerated deployment of nationwide mobile broadband. If history is any guide, the merger will ultimately be approved with specific conditions, including divestitures, to ensure that local competition is preserved even as national benefits are achieved.

That, of course, assumes the agencies follow their own best practices and not naysayers who can only count down from four to three. Let’s hope they do.

Reproduced with permission from Daily Report for Executives, 69 DER B-1 (Apr. 11, 2011). Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033)

Net neutrality fight enters new stage: what's next?

On Forbes this morning, I analyze the legislative and judicial challenges to last year’s FCC Open Internet rules, the so-called net neutrality order.

Despite the urgency of Friday’s budget machinations, the House took time out to pass House Joint Resolution 37, which “disapproves” the FCC’s December rulemaking. If passed by the Senate and not vetoed by President Obama, HJR 37 would effectively nullify the net neutrality rules, and ensure the FCC cannot pass alternate versions of them absent new authority to do so from Congress.

Most commentators believe that the House action was merely symbolic. Passage in the Senate requires only a simple majority, but the neutrality fight has turned violently partisan since the mid-term elections and getting a few Democratic Senators on-board may be hard. More to the point, the White House last week pre-emptively threatened to veto the resolution.

As I’ve noted before, however, net neutrality could still become a casualty of more important compromises between the White House and Congress. Last week, Politico reported that undoing the FCC order was one of the policy riders Republicans were still pushing. Today’s draft budget bill doesn’t mention that provision, but the budget fight isn’t over.

Still, it seems more likely that the real challenges will come in the courts. On that front, the D.C. Circuit last week rejected lawsuits filed by Verizon and MetroPCS as premature (the new rules are still not published in the Federal Register, and the reasons for the delay are unclear).

The two companies will surely try again, though the dismissal of their first efforts means the case could wind up somewhere other than the D.C. Circuit. Given the strong decision against the FCC in the Comcast case last year, the general consensus is that the D.C. Circuit is the court most likely to rule against the FCC’s thin arguments for authority to issue the rules in the first place.

AT&T and T-Mobile: The Antitrust Terrorists

In the rush of ink that flowed yesterday over AT&T’s announced merger with T-Mobile USA, I posted a long piece on CNET calling for calm, reasoned analysis of the deal by regulators, chiefly the Department of Justice and the FCC.

Since the details of the deal have yet to be fleshed out, it’s hard to say much about the specifics of how customers will be affected in the short or long term.  My CNET colleague Maggie Reardon, however, does an excellent job laying out both the technical and likely regulatory issues in a piece posted today from the CTIA conference.

My point was simpler.  Within hours of the deal’s announcement, and without any relevant facts, public interest groups including the Media Access Project, Public Knowledge and Free Press had already issued press releases condemning it–Public Knowledge, in fact, called the merger “unthinkable.”

That, I’m sure, was just rhetorical excess, but it does underscore a modern tendency among some advocates to react emotionally rather than rationally to any kind of asset combination.  They assume any change in the competitive landscape that reduces competition in the literal sense (fewer competitors) is by definition an antitrust violation, and conflate that with what is in fact much more complex antitrust analysis that regulators undertake.

What will be significant in this deal, I suspect, is who takes the lead.  The Department of Justice has repeatedly indicated it believes there is robust competition in mobile services, and that an accelerated push to 4G (the point of this merger) could improve competition overall by creating a viable alternative to wireline broadband.

(See the DoJ’s letter to the FCC as part of the National Broadband Plan–which also, by the way, found robust competition in wireless, though the FCC has since back-tracked in an unconvincing manner.)

The FCC, on the other hand, has gone off the rails recently in its antitrust analyses, as evidenced by the painful, drawn-out review of Comcast’s takeover of NBC Universal and the crazy quilt of largely-unrelated conditions imposed on the deal in a nearly 300-page Order.

Worse, there’s still that nagging Paragraph 78 of the Open Internet order, where a majority of Commissioners explicitly rejected the idea that traditional antitrust measures of harm to consumers would guide their application of the net neutrality rules.   (They offered no alternative criteria, even worse.)

Left to the FCC, the AT&T/T-Mobile deal will take forever to complete, and will be left shouldering regulatory pet projects for years.  Left to the Department of Justice, something more reasonable and timely might happen.

But that’s just more thinking about the “unthinkable.”  Pardon my logic.

 

Updates to the Media Page

2011 has already been filled with important developments in the technology world, and I continue to be a regular source for journalists as well as publishing frequent editorials and analyses of my own.

I’ve just posted several new items to the Media Page of my website, including articles I’ve written for CNET News.com and for Forbes, as well as video from this week’s appearance on PBS’s “Ideas in Action.”

Some highlights:

.  Coverage of policy events at this year’s Consumer Electronics Show for both CNET News.com and the Wall Street Journal’s All Things Digital focused on coming battles in the new Congress over the FCC’s net neutrality rules, and previewed the rest of the likely tech agenda.

. Video from Larry’s appearance at the Congressional Internet Caucus’s “State of the Net 2011.”

. A controversial essay for Slate Magazine, “Doing Nothing to Save the Internet“.

. Extensive coverage of Larry’s testimony before the House Judiciary Committee on the FCC’s Open Internet order.

.Stories for both CNET News.com and Forbes analyzing the FCC’s failure to complete a crucial inventory of spectrum licenses ahead of requirements to find 300-500 Mhz. of new spectrum for mobile broadband in the next five to ten years.

Congress moves forward on spectrum…inventory

I’ve written posts today for both CNET and Forbes on legislation introduced yesterday by Senators Olympia Snowe and John Kerry that would require the FCC and NTIA to complete inventories of existing spectrum allocations.  These inventories were mandated by President Obama last June (after Congress failed to pass legislation), but got lost at the FCC in the net neutrality armageddon.

Everyone believes that without relatively quick action to make more spectrum available, the mobile Internet could seize up.  Given the White House’s showcasing of wireless as a leading source of new jobs, investment, and improved living conditions for all Americans, both Congress and President Obama, along with the FCC and just about everyone else, knows this is a crisis that must be avoided.

Indeed, the National Broadband Plan estimates conservatively that mobile users will need 300-500 mhz of new spectrum over the next 5-10 years.

The last major auction, however, conducted in 2008 for analog spectrum given up by broadcasters in the Digital TV transition, was only 62 mhz.  And that process took years.

So while auctions–perhaps of more of the over-the-air allocations–could help, it can’t be the silver bullet.  We’ll need creative solutions–including technology to make better use of existing allocations, spectrum sharing, release of government-held frequencies.

But why not start by figuring out who has spectrum now, and see if it’s really being put to the use that’s in the best interests of American consumers, who are ultimately the owners of the entire range.

You can guess why some people would prefer not to open that dialogue.

And perhaps why something so obvious as an inventory doesn’t already exist.