Largest Wireless Carriers by Nature Need the Most Spectrum, Hazlett Says
The FCC shouldn’t impose rules that would limit the participation of the largest carriers in future spectrum auctions, former FCC Chief Economist Tom Hazlett said Wednesday during a presentation sponsored by the Hudson Institute. Legislation approved by Congress last week opens the door to such rules, but only through a separate public rulemaking with general industry applicability (CD Feb 17 p1). Hazlett is a professor at the George Mason University Law School.
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The U.S. faces the “standard problem around the world” that the largest carriers have a greater need for spectrum because their customers use more spectrum, Hazlett said. “It’s patently obvious, though maybe antitrust regulators may sometimes miss this, that the motivation to accumulate more spectrum is not to warehouse it.” Spectrum restrictions “impose a restriction of output on the market and that’s a very problematic thing,” he said.
Competition in the U.S. is “vigorous” and “even the top firms are not making monopoly profits,” Hazlett said. He cited Sprint as an example of how much money it costs carriers to compete. “In October they finally got the iPhone and to get the iPhone they signed a deal that said they'd buy 30 million of them at an average price of $675,” he said. “Sprint can’t get anyone else to subsidize their iPhones. … They're on the hook. That’s $20 billion. The market capitalization of Sprint was about $8 billion at the time and their stock price went down 10 percent when the contract was announced.” The profits in wireless are going in other directions than to the carriers, Hazlett said. Some regulators want 15 or 20 competitors, he said, but that’s not how the market works. “The economies of scale being what they are this is how you're going to see low prices,” he said.
Hazlett also said federal policymakers need to make fundamental changes to rules dating to 1952 which continue to “wall off” huge expanses of spectrum for broadcast TV: “Because of the rigidities of that allocation, we continue to not only resist the temptation to allow other services … to use that very valuable spectrum, but we force broadcasters into a business model that was imposed multiple generations ago.” The rules still require every TV station to broadcast a high-powered signal that covers all 6 MHz assigned to the license. “They're not able to peel that back, to share their spectrum, to deal with other companies, say to do two-way mobile services,” he said.
Policymakers need to recognize that broadcasters’ business model has changed completely, Hazlett said. ABC offers valuable content, he said. “When they have new valuable video content, how do they distribute it?” he asked. “Do they distribute it by over-the-air terrestrial broadcasting on these many digital sub-channels they have? … Of course not. They put ESPN on cable.”
"Our friend Tom has been writing the obituary for broadcasting for 30 years, and he’s always been mistaken,” NAB spokesman Dennis Wharton said in response. “Apparently he missed The Wall Street Journal story this week stating that broadcast TV is experiencing ‘an unexpected revival,’ that over-the-air TV antenna sales are booming, and that folks are cutting the pay-TV cord by the tens of thousands.”