AAI’s Analysis of Verizon-Cable Is Industrial Policy Not Antitrust

-By Scott Cleland

Reading through The American Antitrust Institute’s white paper on Verizon-Cable, it is striking how little analysis is relevant to antitrust/market-competition and how it is basically a thinly-veiled tacit pitch for the DOJ and the FCC to pursue an aggressive industrial policy for the wireless industry.

The white paper presumes that because the DOJ blocked the AT&T/T-Mobile merger to preserve T-Mobile as a disruptive fourth wireless competitor, and because T-Mobile now claims it needs more spectrum, that the government should intervene somehow to effectively redirect the spectrum to T-Mobile and away from Verizon.

The huge flaw in the AAI’s analysis is its central presumption, which is contrary to longstanding spectrum auction law, that the government, not market forces, should allocate spectrum. The analysis ignores that the law of the land allocates spectrum via property rights and auctions enabling the spectrum to find the party that most economically values it and has the most economic incentive to put it to productive use. The AAI’s analysis appears biased against existing law in assuming that the only or primary reason that the largest wireless providers would want more spectrum would be to anti-competitively keep it from its smaller competitors, and not the obvious and real reason that they want to provide better, faster, more reliable mobile broadband service to more people in more of the country to make more money.

The paper quotes former FreePress Chairman, Professor Wu, saying: “Every hertz that Verizon gains is a hertz denied a smaller competitor;” but does not mention that Professor Wu preaches that every network infrastructure provider is a monopolist at heart because private property in communications is inherently bad, discriminatory, and anti-consumer in the absence of strict common carrier regulation and governmental control.

Another huge flaw in the AAI white paper’s and Professor Wu’s analysis is that spectrum is a zero sum game. It is not. The Government could allocate more spectrum to the broadband marketplace over time, if there was the political will to do so. The government is the real bottleneck when it comes to spectrum and the wireless market. If there is any failure here it is government failure to urgently optimize spectrum availability, not any market failure, because prices are plummeting, and consumers enjoy many choices, innovation, and massive private investment in the wireless cybrastructure.

AAI exposes its predisposition towards industrial policy by focusing on what Professor Wu and the AAI want the wireless market to be or what the wireless market should be in their imaginations. By presuming that spectrum effectively should be allocated to smaller competitors with less relative demand for the spectrum by government, rather than to the competitors that economically value it the most and can put it to the most relative economic use fastest in the marketplace by market forces, the AAI white paper presumes an industrial policy that seeks to manipulate resource inputs to try and redistribute market share from the supposed market-share rich to the market-share needy.

We have seen this kind of communications industrial policy mindset at work before in the 1990’s with CLECs, and it ended in unmitigated disaster as virtually all of the CLECs went bankrupt, because the FCC ignored economics and tried to mandate CLECs to be market winners via incredibly-favorable nano-regulation. All the CLECs went bankrupt because markets measure success and survivability by economics and a financial bottom-line — measures the FCC ignored at their peril.

The AAI paper implies that the Government should intervene in the market to effectuate getting the Cable spectrum allocated to the companies whom the AAI, Professor Wu and other industrial policy proponents want, those with the least share. The underlying AAI industrial policy presumption here is that consumers have not made the right choice in the marketplace by selecting Verizon and AT&T as their wireless providers and that Verizon/AT&T should be spectrum constrained by a strict government spectrum screen so that consumers can be chased from their chosen providers to the providers AAI and the other industrial policy proponents think they should choose — the relatively littler companies ( like T-Mobile, a ‘liliputian’ company with over 30 million customers).

In sum, this AAI analysis of the Verizon-Cable transaction has negligible value, because it presumes antitrust should adopt preemptive intrusive regulation based on speculative assumptions contrary to law and precedent, and that the government should ignore spectrum auction and competition law and pick winners and losers in the marketplace.

Competition and markets are about consumers picking winners and losers every day based on market forces, whereas this AAI white paper basically encourages the Government to pick winners and losers, an approach that has a pathetically dismal track record in practice.

In a word, this paper presents no credible evidence or arguments why antitrust and FCC authorities should not approve the Verizon-Cable transaction forthwith.
Scott Cleland is one of nation’s foremost techcom analysts and experts at the nexus of: capital markets, public policy and techcom industry change. He is widely-respected in industry, government, media and capital markets as a forward thinker, free market proponent, and leading authority on the future of communications. Precursor LLC is an industry research and consulting firm, specializing in the techcom sector, whose mission is to help companies anticipate change for competitive advantage. Cleland is also Chairman of NetCompetition.org, a wholly-owned subsidiary of Precursor LLC and an e-forum on Net Neutrality funded by a wide range of broadband telecom, cable and wireless companies. He previously founded The Precursor Group Inc., which Institutional Investor magazine ranked as the #1 “Best Independent” research firm in communications for two years in a row. His latest op eds can be seen at www.precursorblog.com.

Copyright Publius Forum 2001