May 1, 2013 11:12 AM

What's the [Low] Frequency, Kenneth? The Government's Uniquely "Consumerless" Concept of Competition

Has anyone else noticed how nutty the news stories have become about the FCC and DoJ fight to promote wireless competition?  Here are some examples: this and this, but I'll summarize for you.  First we have the DoJ "letter" to the FCC; a letter which I think the FCC probably sent the DoJ along with a self-addressed, stamped envelope a few months ago.

I mean, seriously, how could two separate agencies--both independently, and within six months of each other--come up with the same notion that the next available spectrum to be auctioned would be put to its best use by Sprint and T-Mobile (who had not even bid on spectrum the last time it was available) because of its radio frequency characteristics?  That last part was highlighted because it's like the peanuts on top of the walnuts on top of the almonds in this all-nut sundae of a theory.

Like most tin foil hat theories, this one has a small kernel of logic.  For a smaller carrier, especially a new entrant, low-frequency spectrum provides a lot more value per cell site--and requires a lot less cell sites--for a carrier to achieve adequate coverage. But do the FCC and DoJ want to promote smaller carriers or new entrants?  Of course not; that might provide consumers with some value.  And since the FCC/DOJ believe that only national firms count toward improving competition in the marketplace - new entrants as envisioned by these agencies would fail to meet that goal.

The DoJ and the FCC didn't have this theory of theirs until they also seemed to arrive at the conclusion--as near as I can tell, sometime during their analysis of the proposed AT&T/T-Mobile merger--that mobile wireless competition is best measured by market share on a national level.  And, with a market artificially defined as "national", despite the fact that consumers make choices locally, a "market" could only be truly competitive if each firm's share (of customers, of spectrum, of cool new handsets, and crunchy nut confections) is roughly equal.

Does anybody recognize the problem with this raison d'etre?  Does the conclusion at the end of the last paragraph sound a little like the description of a commodity market?  Yeah, it kind've does, doesn't it?  Are wireless services a commodity market?  Well, the AT&T iPhone crowd from 2007 didn't seem to think so; nor did the Verizon Droid evangelizers from 2009.  So, let's just say no; wireless is not a commodity market.  Like with cars, people seem to take a certain personal pride in their selected combination of network and handset.  

Why would anyone expect that differentiated product markets would result in competitors having a roughly equal share of sales?  After all, some people like (and can afford) fancy overpriced compact cars, while others need pimped-out, baller SUVs because . . . that's just how they roll.  So isn't it nice that we have BMWs and Escalades?  Do they have the same market share?  Yeah, probably, but that's beside the point.

The problem with the government's idea of what competition should look like is that it starts from a lot of flawed premises--all of which come from the same flawed premise: consumer preferences don't count.  The relevant geographic market is national, not because this is the way consumers actually purchase wireless service, but because this is the way the government likes to look at it.

To the government, market shares are only unequal because firms have unequal amounts of low frequency spectrum, and not the other way around.  They don't seem to understand that AT&T and Verizon have customers that, for the most part, have chosen not to buy service from at least 3 other firms.  Now that's competition.  

Why doesn't the government just reconcile itself to the reality of consumer driven competition and "wreckanize" that the consequences of choice can produce distinct winners and losers?  Yogi Berra told us a long time ago:  "If the people don't want to come out to the ballpark, nobody's going to stop them."  Why do the DoJ and the FCC keep trying?

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