Final Thoughts on the FCC-DoJ’s Debacle over AT&T

When it announced its $39-billion merger agreement to buy T-Mobile, AT&T never expected an easy road to approval. But neither did the company expect to run into an ideological, pig-headed resistance that ignored reality. As opposition to the deal intensified, AT&T reportedly was willing to make considerable number of concessions to assuage the government’s antitrust concerns about market concentration.

But I believe the company thought, at the end of the day, given the growing scarcity of spectrum resources, a problem the Federal Communications Commission at least claims is a priority, there would be enough sensible minds within the bureaucracy to see past politics and ideology and truly act in the public interest.

But that was not the case. After straight-arming protests from the tech left over the Microsoft-Yahoo and Comcast-NBC Universal deals, the Obama administration was determined to make this an example of its “new” aggressiveness regarding antitrust. So the DoJ and FCC drew its line in the sand.

The problem, as I spell out in my latest commentary, is that in doing so they were forced to pretend the spectrum issue didn’t exist, when everyone knows it does. And, by framing its opposition the way it did, the FCC has set as baseline policy that increased spectrum availability is not a a high enough bar to win approval on an acquisition deal between or among wireless carriers

This has already come back to bite the government. The DoJ now has no choice but to “investigate” Verizon’s agreement to buy a chunk of spectrum held by a consortium of Comcast, Time Warner and Bright House Networks. Keep in mind that right now, this spectrum is serving no one. Verizon, with its infrastructure in place, can get it to consumers quickly, its plan being to lease it back to the cable companies so they can brand their own wireless services. Yet this scenario doesn’t jive with the central planning scenario. As the FCC makes clear in its staff report slamming the T-Mobile deal, it would rather see the cash-strapped cable companies invest billions in a wireless overbuild. So naturally, they and their like-minded friends at DoJ would rather have the cable companies sit on this spectrum rather than an allow an experienced company leverage it.

But the FCC and DoJ operate in a different world where wireless service in the U.S. is dominated by the stagnant, complacent duopoly of AT&T and Verizon. The FCC report declared outright that neither Verizon nor AT&T would ever agree to lease back spectrum so cable companies could private-label service, because that would empower new competitors. Trouble is, that’s not the world we live in. Verizon and AT&T are not the only two national competitors. And T-Mobile is not the only company that wants to cultivate the wholesale market.

We live in a world where 2+2=4. And in wireless service the math is just as basic. Each cell has 10 MHz of spectrum per downlink. 1 MHz of spectrum can accommodate about 1.4 Mb/s of bandwidth. The average YouTube video download configured for wireless needs between 768 kb/s and 1.5 Mb/s. So in one cell, which these days can be as small as a square block area, all you need are 15 users on YouTube-scattered in coffee shops, bars, offices and lofts-and you’ve exhausted the available channels. After that, any users entering the cell will have slow or timed out connections. Remember this the next time you’re standing on the corner of 14th and K during lunch hour and your call drops.

In shooting the merger down, the FCC and DoJ have declared that 2+2=5 and now demand the industry operate as if this were true. But in the real world, a world where infrastructure needs to be built, investments need to be evaluated and jobs need to be created, 2+2 will always equal 4. There are limits to regulatory coercion. You can heap rules upon rules and impose costs upon costs, but you can’t change fundamental truths about material reality.

Wireless service is going to get a lot worse before it gets better because the FCC is trying to tell us the spectrum crunch can be solved through the magic of government industrial policy; that consumers somehow will benefit when it actively prevents the a market where kept from crafting the radio environment required for optimal service in favor of…what? Neither the DoJ nor the FCC will say. It just asks for us to have faith in central planning–and the notion that 2+2=5.