Spectrum crunch: All talk, no action, and consumers suffer

The gridlock between Capitol Hill and the FCC is holding the American consumer and economy hostage

In fact, the U.S. will run out of spectrum capacity to support wireless broadband networks in the next three to five years. That’s not just my opinion. The White House, the FCC, and Congress share it, which is remarkable in this era of never-ending disagreements inside the beltway.

So the hunt is on for more spectrum. But there are few options because spectrum is scarce, with most of it already in the hands of major companies or the government. On top of that, the government controls what can be done with it. Carriers that need spectrum can either buy the entire company that owns the spectrum, they can buy the spectrum flat-out, or bid on it at auction, which rarely happens. The problem is it’s unclear just what Washington will allow.

The ill-fated AT&T/T-Mobile acquisition made it clear that the current FCC is not a big fan of successful companies seeking spectrum through acquisition. The ongoing examination and growing political rhetoric around the Verizon purchase of spectrum from cable companies makes me wonder if pure spectrum purchase will even be allowed.

This leaves us with one giant question: How can the big wireless providers continue to satisfy demands that their customers put on their networks? The FCC writes every year a FCC Wireless Competition Reports to Congress describing how competitive the wireless industry is. After reading the most recent report, the FCC’s staff report on the AT&T/T-Mobile merger and the FCC staff Order on the Qualcomm/AT&T transaction, I was left with the feeling that the FCC does not see any benefit in allowing the two most successful companies in the sector to continue growing.

By starving the successful operators of the oxygen they need–spectrum–the government is creating conditions that force a company to provide inadequate service. Everyone agrees that this is an imminent problem: The most successful operators will run out of spectrum by 2015. When that happens, the reduced download speeds and connection reliability will push customers to leave in frustration and switch to other providers. Seismic shifts in market share will likely follow.

Customers should not be harmed and inconvenienced just because certain political forces object to the success of a carrier. Such policies undermine the massive investment being made in the sector, which drives opportunities for all companies. If one looks at AT&T and Verizon’s investments as a percentage of their wireless revenue, they are the same and often more than smaller providers.

Despite the conventional wisdom that “big is bad,” there is ample of evidence to the contrary.

Apple chose AT&T to launch the iPhone because a large carrier increased its chances of success (and AT&T was willing to make the network modifications Apple requested). Google tried a different route: It launched its first Android phone with T-Mobile USA and saw little to no impact in the market. Only when Google partnered with Verizon Wireless did Android sales take off.

Large companies often blaze a trail that makes it easier for the rest of the industry to follow. For example, Verizon Wireless famously broke with industry ranks to allow customers to keep their phone number when they changed carriers and later allowed prorating of early termination fees. Without programs such as Verizon Wireless’ rural LTE program, which extends the same prices that Verizon Wireless pays for its equipment to small operators, LTE might not be on its way to as many parts of the country as quickly as it is.

By hampering successful providers, Washington will slow the wireless economic growth engine that helps so many other industries become more efficient. The government should foster growth and should not hem in a company so that it ends up providing inadequate service. The last thing the wireless industry needs is to have the government managing market share. The results will be lousy service and less innovation.

Without a doubt such restrictions will significantly lower government receipts from the auction process at a time when Washington desperately searches for revenue, especially revenue sources that are not controversial. What the country needs is a regulatory environment that shepherds and enables American businesses and consumers to benefit from this significant national resource.