Monday, September 12, 2011

Are Resellers Competitive Saviors, or Lower Than Pond Scum?


            The conventional wisdom of most facilities-based carriers is that resellers wrongly extract revenues, particularly if government mandates the transaction.  Incumbent carriers complained long and hard about having to unbundle their network and lease capacity to Competitive Local Exchange Carriers (“CLECs”).  Incumbents convinced courts and the FCC that CLECs would never wean themselves off the easy money available in resale, and that resale was a wrongful taking.

            My, how times have changed.  AT&T now rhapsodizes about how wireless resellers promote competition.  There even is a nifty new acronym for wireless resale that adds gravitas: Mobile Virtual Network Operators (“NVNO”).

            Unlike their wired counterparts wireless resellers apparently serve a useful purpose, including apparently providing support for a massive $39 billion horizontal merger.  How can this be?

            First, it is important to note that wireline resale was mandated by the Telecommunications of 1996 and not something incumbent, facilities-based carriers did on their own.  Such compulsory network sharing can come across as government mandated cooperation with a rival.  But please understand that this obligation comes with the territory: telecommunications service providers, as common carriers, do have to interconnect their facilities even with competitors.  In exchange for this concession, these very same operators get public utility rights and privileges that in the wireless arena included free spectrum and a first mover, first to market opportunity.   As well all facilities-based wireless carriers benefit from below market access to rights of way and tower sites.  On balance having to facilitate a resale marketplace strikes me as a minor burden. 

            Voluntary resale shows that at least in the case of wireless facilitating this market does not harm facilities-based carriers and does not result in cannibalism.  No facilities-based carrier would permit a resale margin to exist if it did not contribute to the bottom line.  The fact that resale exists also calls into question whether facilities-based carriers face a spectrum squeeze: why provide spectrum access to a competitor if you need all of the spectrum you have and then some?

            On the matter of contributing to competition it is important to note that voluntary resale remains solely at the discretion of the facilities-based carrier. The FCC no longer mandates resale for incumbent wireless carriers, even though they nominally remain common carriers.  If resale suddenly would result in cannibalism, or create a spectrum crunch, this competition-enhancing option would evaporate overnight.

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