Explaining Wireless Spectrum Woes

     Yet again The Wall Street Journal, in an editorial and op-ed piece, uses snarkiness and mischaracterizations to refute legitimate concerns about AT&T’s acquisition of T-Mobile.  See Wall Street Journal, Review & Outlook, More Spectrum, Please--AT&T bids $39 billion to get around FCC bottlenecks, A14  (March 23, 2011); Holman W. Jenkins, Jr. AT&T’s Big Bet on Spectrum Folly, A13 (March 23, 2011).  These pieces reframe the issue from a question about market concentration into an endorsement of AT&T’s valiant “self-help” efforts to find adequate spectrum for consumers.  They glibly ignore or dismiss the proper focus on how the deal would affect consumers, competition, innovation, employment and service prices. 

     The Journal dismisses as hackneyed Gigi Sohn’s conclusion that allowing two or three ventures to control over 92% of the market reduces competition and choice, raises prices, reduces innovation and results in fewer jobs. See PBS News Hour, How Will Consumers Fare in T-Mobile, AT&T Merger? (March 22, 2011); available at: http://www.pbs.org/newshour/bb/business/jan-june11/wireless_03-22.html

     Once upon a time even the Republican Party of Teddy Roosevelt acted to prevent marketplace distortion caused by monopoly “trusts.” When a market lacks robust competition few operators do not have to spend sleepless afternoons innovating and striving to operate more efficiently.  Wireless carriers in the U.S. generate some of the world’s higher Average Revenue Per User.  These carriers do this by offering users large baskets of minutes to use making it possible to operate with vast profits and for the Journal to tout how consumers enjoy some of the lowest rates.  One can chisel down the per minute cost of service and the per text rate with high volume usage.  But such usage triggers spectrum and other infrastructure problems for which the carriers and the Journal blame the FCC.

     The truth is far more complex than simply demeaning the FCC and claiming this agency “micromanages” the marketplace.  Spectrum scarcity exists largely because other agencies of the U.S. government—primarily the defense, intelligence and homeland security agencies—hoard over 50 percent.  The second most important factor results from who makes spectrum decisions and how they do it.  Because spectrum crosses national borders, nations have to share and coordinate use.  The International Telecommunication Union, a specialized agency of the United Nations, allocates blocks of spectrum and specifies what uses are appropriate.  National regulatory authorities, like the FCC, in turn allocate spectrum largely consistent with the ITU-forged consensus. 

     Spectrum management decisions can rely on outdated assumptions about the ability of users not to interfere with each other.  For example, the ITU still has spectrum allocations that specify primary uses exclusively for land, sea or airborne use.  Technological innovations now make it possible to use a handheld device in all three locations.  But for the time being all involved government agencies, including the Departments of Commerce, Defense and State, accept the consensus even as they try to persuade nations to accept more flexible spectrum use.

     Spectrum scarcity is a real and constraining factor for wireless carriers.  But AT&T and its cheerleaders, simply use this factor, to prevent the close scrutiny needed to ensure robust competition.