May 9, 2012 6:42 PMJohn Riggins, "I'm bored, I'm broke, and I'm back."]
One thing I've noticed during my self-imposed absence is that there really isn't much of a dialogue in the public discourse on telecom policy these days. That's not a particularly astute observation for some areas of public discourse, like politics. After all, anyone can tell you that the big political parties mischaracterize each other and talk past one another all the time. But telecom issues aren't especially political, so what's the harm in listening to what someone is saying and--if you want to respond--providing a thoughtful response?
No where was the unfortunate temptation to characterize, rather than accept and address, an opponent's arguments more on display as it was in Chairman Genachowski's remarks at the CTIA show yesterday. Rather than respond to AT&T's CEO Randall Stephenson's contention that the Commission's decision to oppose AT&T's purchase of T-Mobile had caused AT&T to increase its retail prices for wireless data, the Chairman chose to mischaracterize and dismiss Stephenson's observation. This was unfortunate, and a missed opportunity by the Chairman to validate a different view of the same spectrum shortage the Chairman has sought to publicize.
While Stephenson's statement made headlines last week in advance of the CTIA show, AT&T's Stephenson has made this same observation consistently, in both December, and over 3 months ago in a conference call with shareholders and analysts.
Chairman Genachowski, to his credit, has been one of the most vocal advocates for the need for more spectrum for the wireless industry. The Chairman has, for most of his tenure as FCC Chairman, understood that demand for wireless data services is outstripping the supply of spectrum and the ability of wireless operators to use different techniques to most efficiently use the spectrum that they have. The Chairman made all of these points in his remarks yesterday at CTIA.
Randall Stephenson, AT&T's CEO, has said nothing inconsistent with the facts the Chairman has used to argue for the need for more wireless spectrum to be brought to market. It only stands to reason that if there is insufficient spectrum (on an industry-wide basis) to satisfy the growth in aggregate demand for wireless data, then spectrum shortages will affect some firms earlier than others. The first firms to feel the spectrum crunch will necessarily be the first firms to react by managing demand (because input supplies are static). And, the only way to manage demand is through price increases. Indeed, avoiding this inevitable result of spectrum scarcity was AT&T's justification for its proposed merger with T-Mobile.
But, rather than accept the perspective of one of the industry's first firms to feel the spectrum crunch, the FCC Chairman chose to conflate the observations of AT&T's Stephenson into two arguments that Stephenson never makes. The first is that wireless competition is bad for consumers, and the second is that competition is bad for spectrum efficiency.
After reading Stephenson's observations, it makes more sense to interpret his statements as being that the "new" wireless industry is characterized by many firms lacking minimum efficient scale to meet the projected demand of their consumers. This is hardly a radical statement. Many industries demand significant scale in order to satisfy consumer demand--one reason we don't see "mom and pop" microchip manufacturers. A permanent increase in demand, which the Chairman perceives as a good thing, may well require a higher, firm-specific level of access to the vital input of spectrum.
The solution, which would best benefit consumers, would be for the Chairman to recognize that--if he is confident that more spectrum will come on the market soon--there cannot be any one static notion of how many firms should be in the market. In a world where spectrum can be expanded, so can the number of competitors. Any backward-looking concept of how competition should look reflects nothing more than an irrational time bias. In other words, if adequate spectrum (to support more firms in the market) is coming, then near term consolidation--if it maximizes industry output--will not lead to a less beneficial result for consumers in the long run.
Singapore is actively considering just such an approach, by reserving specific future spectrum for a new competitor. Such an approach introduces the concept of "contestability" in a very real and certain way. Firms in the market are allowed to maximize current efficiency by using optimal blocks of spectrum. Yet these same firms understand that they will be facing certain competition by a potentially lower cost competitor in the foreseeable future.
Wireless broadband consumers benefit from solutions, not rhetoric. The FCC should stop viewing market participants as obstacles to consumer satisfaction, but rather as indispensable vehicles to satisfying consumer demand. In a world where a vital input like spectrum can be expanded, albeit slowly, does it really make sense to freeze firms' spectrum reserves at a pre-wireless-broadband level?