Game, Set and Match: How AT&T and Verizon Will Largely Lock Down the Third Screen

The results of the 700 MHz spectrum auction solidify the market dominance of AT&T and Verizon by locking up the best additional spectrum a competitor could access for the foreseeable future. In light of shroud of secrecy surrounding the mechanics of the auction—no doubt to maximize the one time windfall for the national treasury—we will never know what sort of premium these two carriers paid to force out even such a deep pocketed player as Google.

AT&T and Verizon now have plenty of warehoused bandwidth to add to their considerable market share. The top four cellular telephone carriers in the United States have a combined market share of 88.1 percent . See Leslie Cauley, AT&T eager to wield its iWeapon, USA TODAY May 21, 2007)(displaying statistics compiled by Forrester Research); available at: http://www.usatoday.com/tech/wireless/2007-05-21-at&t-iphone_N.htm. With Sprint/Nextel a likely acquisition target, look for the next generation network of choice to become almost as tightly controlled as when benevolent Ma Bell dominated.

Once upon a time the United States demonstrated best practices in market performance and government oversight of the ICT sector. That cannot be said now. Instead we have an acutely political FCC which panders to economic doctrine and deep pocketed advocacy of stakeholders such as AT&T and Verizon. How can this nation not suffer in the global information economy when two incumbent carrier types (telco and cable television) share a 96+ percent duopoly over broadband terrestrial networks while one of the two incumbents (telco) dominate the wireless alternative. Susan Crawford notes that AT&T and Verizon have every incentive not to make wireless a robust competitor of wireline broadband; see http://scrawford.net/blog/.

Verizon can tell us how close to a open network they will operate, but absent a third party certification process—which is what a wireless Carterfone policy would require—carriers can invoke network and “systemic” integrity to preserve walled gardens and a mutual non aggression pact with their wireline brethren.

Former FCC Chairman Reed Hundt says it succinctly:
“[The U.S.] is the last market in the world that people choose to bring a new wireless product to. Not second or third--the absolute last. Right now the policy of the FCC has been to encourage AT&T and Verizon to become the twin Bells that dominate the wireless business. They’re allowed to buy all the spectrum they can find. The antitrust laws are waived and ignored every time they appear to be a problem. The FCC is the only spectrum auction entity in the world that does not carve out spectrum for new entrants. They do it in Mexico, Canada, the U.K., China and Japan. Only here does the new entrant not get much of a chance. This is the only country in the world where the rule is the big guys can buy all of it. When you consolidate service providers, just like in the old days, when there was not two Bells like today but one, everybody knows what happens. It’s very hard for innovators to get into the market, in terms of content or software or hardware.” Reed Hundt, Interview with Ed Gubbins, Telephony Online, Feb 28, 2008; available at: http://telephonyonline.com/broadband/news/reed-hundt-auction-0228/.