Thursday, November 29, 2018

EU Commission Approves T-Mobile-Tele2 Merger in the Netherlands

No doubt that in analyzing market impacts and competitive concerns, every proposed merger is different. The analysis is necessarily fact-intensive, or should be. Unfortunately, there are some who generally fall back on well-worn mantras, such as "big is bad," or in the case of the wireless market, "less than four facilities-based competitors" is unacceptable.

With this in mind, I find the EU Commission's approval of T-Mobile NL's acquisition of Tele2 NL very interesting. EU Commissioner Margrethe Vestager, cdertainly no slouch when it comes to antitrust enforcement, said: "Access to affordable and good quality mobile telecom services is essential in a modern society.  After thoroughly analysing the specific role of T-Mobile NL and the smaller Tele2 NL in the Dutch retail mobile market, our investigation found that the proposed acquisition would not significantly change the prices or quality of mobile services for Dutch consumers".

Key facts: The merger involved the third and fourth largest wireless operators in the Dutch retail market. After the merger, the combined company would have approximately a 25% market share. The EU Commission certainly didn't accept the notion, accepted in some quarters as almost religious dogma, that a national wireless market must have at least four facilities-based carriers in order to be effectively competitive.

Now, back in the states, T-Mobile's proposed merger with Sprint would combine the third and fourth largest carriers. After the merger, their combined share of the facilities-based wireless market would be approximately 30%, still trailing either of the two largest U.S. providers, Verizon and AT&T, in market share. 

Also, noteworthy, turning back complaints from mobile virtual network operators that they would be disadvantaged, the EU declared: "[T]he investigation showed that any potential change in conditions for virtual mobile network operators due to the proposed merger would not have a serious impact on the level of competition in the Dutch mobile telecoms market."

Again, I am not saying, of course, that the EU's decision should dictate the outcome of the FCC and the Department of Justice T-Mobile-Sprint transaction reviews. As I said at the outset, the analysis of each merger is fact-intensive.

I am just saying…that the EU Commission decision is worth considering.

P.S. For much more regarding the context in which the proposed T-Mobile/Sprint merger should be evaluated by the U. S. authorities, see the Free State Foundation's comments and reply comments filed in the FCC's transaction review proceeding.

Monday, November 26, 2018

Amazon Should Not Receive Government Handouts

Last week, Amazon announced that it will build its highly sought-after second "headquarters" (HQ2) in two separate locations, agreeing to move to Arlington, VA, and Queens, NY. Taxpayers in Maryland and Montgomery County should be pleased that they will not have to pay the $8.5 billion offered to Amazon to induce it to build HQ2 in Montgomery County.
Without having to pay a dime, Montgomery County, which like Arlington borders Washington, DC, still should experience positive spillover economic benefits.

Amazon likely will use HQ2’s close proximity to Washington, DC, in part, to continue lobbying the federal government for various regulatory changes – some good and some bad. As one of the two largest companies in the United States, with a market cap that exceeded $1 trillion in early September, Amazon does not need and should not receive government handouts or special regulatory advantages. Instead, governments at all levels should reduce tax and regulatory barriers that stifle competition and reduce investment and innovation.
After receiving bids from 238 cities across the United States and effectively creating a bidding war, Amazon decided last week that it would locate HQ2 in Arlington, VA, and Queens, NY, with more than 25,000 employees in each location. Maryland offered $6.5 billion in tax incentives and Montgomery County threw in an additional $2 billion. But had Amazon agreed to place HQ2 in Maryland, taxpayers in Maryland and particularly in Montgomery County would have paid for Amazon’s new headquarters.
While perhaps you can't fault the company for attempting to get as many government handouts as possible, Maryland’s government should do what is best for the residents, not what is best for Amazon.
The argument in favor of offering tax incentives to Amazon is that HQ2 would stimulate the local economy and create more than $8.5 billion in long-term economic benefits. Sage Policy Group performed an economic impact study which found that HQ2 would create more than $17 billion in annual economic activity in Maryland. At the time this study was performed, it was assumed that Amazon would deploy one HQ2 with 50,000 jobs, as opposed to two headquarters, each with 25,000 jobs. But even assuming HQ2 would have created 50,000 new jobs in Montgomery County, one of the touted benefits in the study is that Amazon would contribute $280 million in annual county taxes and $483 million in annual state taxes. If Amazon accepted the $8.5 billion handout, it would have taken Amazon more than seven years to create a net positive tax contribution to Montgomery County and more than thirteen years to create a net positive tax contribution to Maryland.
Of course, had Amazon accepted the deal, it would have been under no obligation to pay back the tax incentives. What would have stopped Amazon from moving HQ2 to a new location after a few years? Taxpayers would bear all the costs with little benefits, particularly Maryland taxpayers who live far from Montgomery County who would not experience any of the increased economic activity created by HQ2.
Montgomery County and Maryland officials now have a combined $8.5 billion that can be allocated to services that will directly impact the state and local residents. Whether this means more funding for schools, roads, or tax breaks for the current residents, Maryland is likely much better off using this money in other ways.
Importantly, because Arlington, VA, a suburb of Washington, DC, will become the location of one of Amazon’s second headquarters, Montgomery County’s local economy will experience spillover economic benefits. Amazon’s move to the DC area will bring 25,000 new jobs and those new employees will spend their money on housing, food, and entertainment throughout the area. Sage’s study states that an HQ2 located in Montgomery County would positively impact DC, and Northern Virginia, as well as Maryland’s Anne Arundel County, Baltimore City, Baltimore County, Frederick County, Howard County, and Prince George’s County. So under the same locale-related assumption, an Arlington-based HQ2 should positively impact Montgomery County and other Maryland jurisdictions. Spillover effects do not stop at state borders, so Maryland should experience some of the indirect economic benefits of Amazon moving to the DC area without having to spend $8.5 billion in taxpayer money. Moreover, additional companies may consider the Washington, DC, area as a good home for their headquarters, and Maryland can use this opportunity as a way to reinvent its sales pitch to prospective companies – by lowering tax rates and eliminating costly regulations that stifle entrepreneurial and economic activity.
Despite a whopping $8.5 billion left on the table, I am not claiming that Amazon chose Virginia over Maryland due to its tax and regulatory policies. I don't have evidence for that. But that does not mean that Maryland’s improving but still sub-par business climate does not deter other companies from setting up shop within the state. (See these blogs here, here and here.) Instead of attempting to persuade companies – including one of the world's largest firms – to move to Maryland with promises of government handouts, the state and localities should remove, or at least reduce, barriers to entry. This will induce businesses across many industries to locate their headquarters in Maryland.

Thursday, November 15, 2018

Neomi Rao Nominated to the U.S. Court of Appeals for the D.C. Circuit

Earlier this week, President Donald Trump nominated Neomi Rao, Administrator at the Office of Information and Regulatory Affairs (OIRA), to replace Judge Brett Kavanaugh on the U.S. Court of Appeals for the D.C. Circuit. We were very pleased that Neomi Rao gave a keynote speech at the Free State Foundation’s tenth annual telecommunications policy conference on March 27, 2018 at the National Press Club. The video of her keynote speech begins around the 2:41:00 mark.

Saturday, November 10, 2018

Veterans Day 2018

As Veterans Day approaches, on this 100th anniversary marking the end of World War I, our thoughts turn to honoring – and thanking – our nation's veterans for their service. Some veterans, of course, have paid the ultimate sacrifice.
In the past, as readers of this space know, I have written at this time about the history and meaning of Veterans Day and, broadly, why it is important that we honor, in different ways, our veterans.
This time, I'm going to write about a matter closer to home – that is, "closer to home" in the sense of more usual Free State Foundation communications policy fare. I want to call attention to the importance of the FCC's Lifeline program to veterans.
Lifeline is the program that subsidizes telecommunications service for eligible low-income persons. As I said in a recent post, "Lifeline Matters," for at least two decades, I've been a supporter of a properly-run Lifeline program as a "safety net" for low-income persons who otherwise might not be able to afford telecom services. By properly-run, I mean that it is appropriate – indeed, necessary – that the FCC implement measures to curtail waste, fraud, and abuse in the program.
Now, for our veterans. According to recent comments filed by TracFone Wireless, Inc., approximately 1.3 million veterans (12 percent of all Lifeline support beneficiaries) participate in the Lifeline program. I suspect that many readers will be surprised by the size of that number. I am.

But the reality is that veterans, just like all other Americans, often need a safety net too. And, sometimes, as a result of their service, veterans' needs for communications services are more acute than for the population at large.

As TracFone put in its comments:

The Lifeline program plays an essential role in connecting those veterans with opportunities and essential resources. Broadband access allows veterans to stay connected not only with healthcare professionals, 911 emergency services, housing and veteran support services, but also family and friends. It enables veterans to connect with current and future employers and pursue an online education.

TracFone has heard from veterans directly through the Lifeline Facts Campaign about how the Lifeline program has improved their lives. Veterans suffering from a traumatic brain injury, for example, explained how they depend upon their Lifeline connection and mobile device to receive phone calls and automatic reminders about upcoming doctor’s appointments and when to take medication. Other veterans emphasized how important connectivity is for veterans who return home with limited or no support systems, and that it is nearly impossible to obtain a job in the 21st Century without an email address and phone number.

There is no need to belabor the point. To its credit, the Commission has been attentive to the needs of veterans in other contexts. Here I just want to use the occasion of Veterans Day to urge the Commission to keep veterans in mind as it considers the impact of its various Lifeline proposals. In short, to the extent that the Commission acts in a way that generally imperils the Lifeline program, its actions may well impact the 1.3 million veterans in the program too.

In my comments filed in the Commission's Bridging the Digital Divide for Low Income Consumers proceeding in February 2018, I addressed two measures of concern relating to the continued sustainability of the Lifeline program.

Please refer to my comments for more detail, but in short: 

  •  I contended that the Commission should not adopt the proposal to discontinue Lifeline support for service provided over non-facilities-based networks. I stated that "while promoting increased facilities investment is, most often, a worthwhile objective, the primary purpose of the Lifeline program is to promote the affordability of communications services for low-income persons." With resellers presently serving approximately 70% of Lifeline subscribers, I said "the reality today is that facilities-based providers currently are serving only a minority of Lifeline subscribers, so that discontinuing support for resellers would be very disruptive to the program."
  •  I also supported the proposal to allow providers to meet the minimum service standard through plans that provide subscribers with a particular number of “units” that can be used either for voice minutes or broadband service. I called the proposal "a pro-consumer choice, pro-empowerment, pro-market-oriented proposal worthy of adoption." This seems like a sensible way to give Lifeline customers, including veterans, more flexibility to decide how best to meet their own needs. There is no good reason to assume that Lifeline customers cannot determine themselves how to use the quantity of service available to them under their Lifeline plan.
  • Indeed, the Commission ought to reexamine in their entirety the minimum standard regulations adopted in 2016 under the leadership of previous FCC Chairman Tom Wheeler. In their current form, the inflexibility of the mandated standards limiting consumer choice is inconsistent with market-oriented principles. And the mandated increases in the minimum service standard requirements in coming years, in effect diminishing subsidy support, likely will mean the service will become less affordable and limit program participation.
Of course, many of our nation's veterans, especially those who have fought bravely in the service of our country, need various types of help, "lifelines" if you will. Here I have focused only on one. But Veterans Day is a good time to think about other needs and ways of helping as well.

Thursday, November 08, 2018

Federal Court Rules Maryland 6th District Violates Constitution

On Wednesday, a three-judge federal court panel ruled that Maryland unconstitutionally drew the boundary lines for the 6th Congressional District. The decision, which comes one day after the midterm elections, requires Maryland to submit new boundary lines for the 6th and contiguous districts by March 7, 2019.
Governor Larry Hogan, who was reelected for a second term on Tuesday, made the following statement about the decision:
This is a victory for the vast majority of Marylanders who want free and fair elections and the numerous advocates from across the political spectrum who have been fighting partisan gerrymandering in our state for decades. With this unanimous ruling, the federal court is confirming what we in Maryland have known for a long time — that we have the most gerrymandered districts in the country, they were drawn this way for partisan reasons, and they violate Marylanders’ constitutional rights.

Only House Republican On Net Neutrality CRA Petition Does Not Get Reelected

On Tuesday’s election night, Republican Representative Mike Coffman lost his bid for reelection in Colorado’s 6th Congressional district by about 25,000 votes to Democrat challenger Jason Crow. Notably, Congressman Coffman was the only Republican member of the House to sign the Congressional Review Act (CRA) resolution discharge petition intended to negate the FCC’s Restoring Internet Freedom Order which repealed the Obama FCC’s Title II public utility-style regulations imposed on broadband Internet service providers. But Coffman’s pro-net neutrality efforts apparently did not help him get reelected.
When Coffman signed the CRA discharge petition in July 2018, he made multiple statements regarding his disappointment with the FCC’s Restoring Internet Freedom Order.
Interestingly, by signing the CRA discharge petition, Coffman indicated that he agreed with those who want to restore the Obama FCC's order imposing public utility-type regulation on Internet service providers.
In a just a few months, Mike Coffman will no longer be a member of Congress. Some have called his efforts to cross party lines to become the lone Republican to sign the CRA discharge petition a “bold” move. I'm sure there were other factors that played a role in Rep. Coffman's defeat, but taking a position in favor of repealing the Restoring Internet Freedom Order certainly didn't help him.

Monday, November 05, 2018

Spectrum Matters Matter

I know it's a somewhat cutesy title. But spectrum matters do matter. Now more than ever with burgeoning demand for various spectrum-dependent services.

On October 25, 2018, President Donald Trump issued a Presidential Memorandum on Developing a Sustainable Spectrum Strategy for America's Future. This is a welcome development if only because it elevates the priority to be placed on spectrum matters within the Trump Administration.

The memorandum explains that additional spectrum access is not only important for the U.S. economy, especially with 5G wireless technology on the horizon, but it is also important for protecting national security. Given the growing spectrum demand, President Trump recognized that the U.S. must focus spectrum matters with some sense of urgency:

In the growing digital economy, wireless technologies expand opportunities to increase economic output of rural communities and connect them with urban markets, and offer safety benefits that save lives, prevent injuries, and reduce the cost of transportation incidents. American companies and institutions rely heavily on high-speed wireless connections, with increasing demands on both speed and capacity. Wireless technologies are helping to bring broadband to rural, unserved, and underserved parts of America. Spectrum-dependent systems also are indispensable to the performance of many important United States Government missions. And as a Nation, our dependence on these airwaves is likely to continue to grow.

Those demands have never been greater than today, with the advent of autonomous vehicles and precision agriculture, the expansion of commercial space operations, and the burgeoning Internet of Things [IoT] signaling a nearly insatiable demand for spectrum access. Moreover, it is imperative that America be first in fifth-generation (5G) wireless technologies — wireless technologies capable of meeting the high-capacity, low-latency, and high-speed requirements that can unleash innovation broadly across diverse sectors of the economy and the public sector.

To the point that timeliness matters, the presidential memorandum requires federal agencies, including the National Telecommunications Information Administration and the FCC to report within 180 days "on the status of existing efforts and planned near- to mid-term spectrum repurposing initiatives."

NTIA and the FCC are to be commended for their efforts during the last two years to make more spectrum available to enable the offering of innovative new services. So, to suggest that the Presidential Memorandum should spur the affected agencies to act with even greater dispatch is not to be critical.

Here I want to take note of two spectrum bands, by way of example, that are the subject of repurposing initiatives that hold the promise, if resolved in a timely manner, of making spectrum available that can be used to meet the growing demand for wireless services and for what the memorandum calls the "burgeoning Internet of Things."

First, the 5.9 GHz band. In 1999, the FCC assigned the 5.9 GHz band to Dedicated Short Range Communications (DSRC), which was intended to be used for vehicle-to-vehicle safety communications. But in the almost two decades since, the spectrum has remained largely unused for its intended purpose, while automotive safety technologies have been developed in the marketplace using non-5.9 GHz frequencies. Even automakers have stated in comments filed with the Department of Transportation and the FCC that they are moving beyond the DSRC technology to other non-DSRC automotive safety wireless technologies.

On October 29, 2018, the FCC released a report on its first of three phases for testing to determine if Wi-Fi can operate in the 5.9 GHz band without interfering with DSRC. In part the report stated: "We recognize there have been a number of developments since the three-phase test plan was announced in 2016 — such as the introduction of new technologies for autonomous vehicles, the evolution of the Wi-Fi standards, the development of cellular vehicle-to-everything (C-V2X) technology, and the limited deployment of DSRC in discrete circumstances."

In connection with the report's release, FCC Commissioner Michael O'Rielly stated: "The reality is that the entire debate has gravitated away from the type of sharing regime envisioned in the testing. Instead, the Commission should move past this and initiate a rulemaking to reallocate at least 45 megahertz of the band, which is completely unused today for automobile safety." FCC Commissioner Jessica Rosenworcel issued a statement to the same effect.

This is an instance in which the FCC should move forward with dispatch looking towards repurposing this band for the use of unlicensed Wi-Fi services. Repurposing the 5.9 GHz band could lead to more Wi-Fi offloading, which, in turn, could free up spectrum for future 5G mobile networks and spur additional next-generation services and innovations.

Second, the L-band. NTIA and the FCC also should move forward as promptly as possible to facilitate action on Ligado Network's application to use the fallow L-band spectrum to deploy its satellite and mobile network. As Free State Foundation Senior Fellow Seth Cooper stated in a June 2018 blog, the L-band spectrum can deliver advanced satellite technology in combination with terrestrial mobile technology, but, for now, it remains unused pending the resolution of interference claims. In May 2018, Ligado filed an amendment to its spectrum license modification applications in which it stated:

Mid-band spectrum like the spectrum licensed to Ligado is vital to U.S. leadership in 5G because of its reliability and suitability for high-quality coverage and capacity deployment. If the Modification Applications are approved, Ligado will be uniquely positioned to leverage the potential of this mid-band spectrum by offering next-generation network capabilities. Ligado would concentrate on targeted deployments that deliver focused, highly secure and ultra-reliable communications over custom private networks to specific geographic locations that serve the industrial Internet of Things and the emerging 5G markets, particularly in critical infrastructure industry sectors such as rail, trucking, utilities, public safety, and oil and gas.

A May 2016 report by economist Coleman Bazelon projected that Ligado’s hybrid network would generate between $250 and $500 billion in social welfare benefits by relieving growing demand pressure for mobile wireless broadband services. Ligado has affirmed its intent to invest $800 million in satellite and terrestrial network infrastructure with the prospect of creating approximately 8,000 jobs.

If Ligado's applications ultimately are granted, the projected social, economic, and national security benefits to the public, and to the nation, appear to be substantial. I understand that there are continuing claims from various quarters asserting that Ligado's proposed network raises still-unresolved interference concerns, despite Ligado's efforts over the last couple of years to address the concerns in a constructive fashion. Perhaps in this instance – as with the 5.9 GHz band and others too – President Trump's Memorandum will provide the federal agencies involved with a renewed commitment to act in a way that facilitates the repurposing of the L-band spectrum. As Seth Cooper and I said in reply comments in July 2018 in response to Ligado's recent application amendment, working with NTIA, "the Commission should do all it can to reach a final decision on the application modifications in a timely manner."

Of course, sometimes a memorandum is just another memo. But President Trump's Spectrum Strategy Memorandum ought to be more than just another memo. I am not suggesting that it purports to dictate the outcome of the two proceedings discussed here or any others. But I hope that, in this instance, the directive is a signal the Trump Administration intends to address America's growing spectrum needs as "efficiently and effectively as possible" and with a sense of dispatch.