Shoot First with Snark and Maybe Check the Facts Later: Mistruths and Market Misperception by WSJ Columnist Holman W. Jenkins

            I was doing well on my self-imposed moratorium from correcting the frequent intentional and unintended mistakes in Wall Street Journal articles on telecommunications and the Internet.

Then along came Holman Jenkins’ whoppers in the Wed. July 31, 2019 edition: Faster Wireless vs. the Swamp; https://www.wsj.com/articles/faster-wireless-vs-the-swamp-11564527042

            Mr. Jenkins recently lambasted the government’s antitrust challenge to AT&T’s acquisition of Time Warner and today he mocks any benefit derived from having 4 instead of 3 facilities-based, wireless broadband carriers.  Anyone who thinks consumers and wireless competition benefit from 4 carriers has a number “fetish.” He seems pleased by a Sprint exit, particularly given the low odds he calculates for a Charlie Ergen-managed venture to provide facilities-based competition.

            Mr. Jenkins certainly offered a correct characterization of Mr. Ergen’s slipperiness and inclination to elevate negotiating/complaining/delaying strategies over building networks.  Mr.  Ergen likely will try finding ways to collect a hefty markup on spectrum he hoarded and was soon to lose, having never migrated to actually installing facilities to provide service.  The Justice Department just gave him a 4-year extension and ample time to remain a wireless reseller, beholden to the remaining 3 carriers who actually operate physical (not virtual) networks.

            Mr. Jenkins enters the land of half-truths (or less) by implying that fixed and mobile wireless are just about to the point of interchangeability. He bolsters his argument with the false implication that Comcast and Charter are facilities-based carriers in their own right.  Not exactly.  Both carriers offer Wi-Fi hotspots which only offer islands of broadband access with no hand off capabilities.  Comcast and Charter mobile service relies on resold capacity from the 4—make that 3—national carriers. 

Comcast and Charter both operate as “Mobile Virtual Network Operators.” MVNOs “are essentially wholesalers of wireless spectrum — they buy bandwidth from carriers and then resell it to customers under new branding.” https://www.businessinsider.com/charter-spectrum-mobile-mvno-service-2018-7  As resellers, MVNOs survive in the marketplace if and only if a facilities-based carrier agrees to sell them bulk transmission capacity at a low enough price to squeeze out a profit margin.

We may reach a point where fixed and mobile network become interchangeable, but we are not there now even as consumers do abandon wireline phone service.  One should not conflate abandoning the wireline phone networks for abandoning any and all fixed wireline services.  Consumers switch from metered, throttled and not unlimited wireless service to Wi-Fi, because the latter is unmetered, unthrottled and far less likely to have a data cap at all, or one that affects incentives to use the service.  Bear in mind that most Wi-Fi networks use wired broadband for access to the Internet cloud.  The last 50 feet is wireless.

Mr. Jenkins has a penchant for righteous indignation generated by an alternative reality about current marketplace conditions.  I still cannot wrap my head around his view that 3 carriers are better than 4.  I don’t have a predisposition for any minimum or maximum number of facilities-based competitors in the wireless marketplace.  I can state with almost the same certainty as Mr. Jenkins that allowing further concentration of the wireless marketplace with 3 carriers holding a 95% national market share guarantees less competition, innovation and employment with higher subscriber prices, carrier revenues and deteriorating global leadership in next generation networks and services.

Muddy facts, reporting and analysis.

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.