Wednesday, October 07, 2015

Sprint's Spectrum Spectacle

As most readers of this space know, on September 28, Sprint released this statement: “After thorough analysis…it will not participate in the 600 MHz incentive auction.” The statement went on to say: “ Sprint has concluded that its rich spectrum holdings are sufficient to provide its current and future customers great network coverage and be able to provide the consistent reliability, capacity, and speed that its customers demand.”

As my mother used to say: “Now you tell me!”

I say this because, again, as most readers know, Sprint spent much time and money lobbying furiously to establish, maintain, and, if possible, expand the reserve spectrum the FCC set-aside to provide Sprint, T-Mobile, and others favored bidding treatment in the 600 MHz auction. If you peruse the relevant dockets (AU Docket No. 14-252 and GN Docket No. 12-268), you will find at least a couple dozen comments and ex partes to this effect. Of course, Sprint is perfectly free to spend its lobbying resources as it pleases. But, unfortunately, its extraordinary efforts to preserve and expand the reserve set-aside, although it was not alone, required others parties – and the Commission’s own staff – to expend extra resources as well responding to its pleas.

And, after all that, Sprint announces that its rich spectrum holdings are sufficient to provide its current and future customers great coverage network coverage.

There are some important lessons here that go way beyond lamenting the expenditure of time and resources.

The foremost lesson is one I have tried to hammer home for many years. Absent a true market failure – and there is not one with respect to the marketplace for broadband services, including wireless services, the Commission needs to quit trying to manage competition. While FCC Chairman Tom Wheeler and his colleagues may not accept the characterization, what else, but “managing competition,” to call the establishment of bidding set-asides designed to favor certain market participants in an auction?

And this is even more the case when the spectrum set-asides are intended to favor well-capitalized firms like T-Mobile and Sprint. I have never argued against foreign ownership of carriers participating in the mobile marketplace, and I don’t intend to do so now. Generally, the infusion of foreign capital into the U.S. from major corporations like Deutsche Telekom (T-Mobile) and Softbank (Sprint) is a net positive. But I see no reason why such foreign ownership should be favored as a matter of regulatory policy in the context of a spectrum auction or otherwise.

Here’s another problem, much documented in the “public choice” literature, with the Commission’s “managing competition” approach. It encourages even more special pleading in the future because all parties know the Commission’s door – its mindset, really – is receptive to accepting such entreaties. For example, in this case, a focal point all along of the special pleading regarding the 600MHz reserved spectrum has been that Verizon and AT&T already possess “too much” low-band spectrum relative to their competitors.

The notion of the Commission trying to assess the precise differences in the various spectrum bands relative to their marketplace value is highly dubious. In any event, isn’t it clear, now that the Commission has established the precedent of jiggering the auction on this basis, that Sprint will be enticed in the future to once again argue it needs some form of favored treatment because it lacks sufficient spectrum? This, even though Sprint decided not to bid on low-band spectrum in a special set-aside in the upcoming auction because “its rich spectrum holdings are sufficient to provide its current and future customers great network coverage.”

The Commission invitation to even more special pleading would be farcical if it weren’t sad.

Now, I appreciate that constructing and implementing the forthcoming 600 MHz auction is a very complex undertaking. I recognize that Chairman Wheeler and his fellow commissioners are working hard to try to ensure the auction is successful. I especially appreciate the dedication, hard work, and good faith of Gary Epstein, Howard Symons, Roger Sherman, and others on the Commission’s staff, as they put in long hours with the aim of conducting a successful auction.

But this too must be said. Whether through ingrained regulatory hubris, or through a more conscious determination not to relinquish any regulatory control, the Commission continues to try to “manage competition” in far too many instances when it should, instead, simply step away and rely on market forces.

Sprint’s spectrum spectacle presents just one more example.