Analysis: Obama Administration Snatching Defeat From the Jaws of Victory

Published May 31, 2016

On Cyber Monday, the most searched item on eBay was the iPad. The second most searched item? The iPhone 4S. The third? The iPod Touch. Over at PayPal, mobile payments were up 552 percent from last year.

As millions were using mobile devices to buy yet more mobile devices, however, the Federal Communications Commission was making it more difficult to expand wireless capacity and coverage.

On Thanksgiving Eve, the FCC surprised everyone. It hadn’t yet completed its investigation into the proposed $39-billion AT&T-T-Mobile wireless merger, and the parties had not had a chance to discuss or rebut the agency’s initial findings. Yet the FCC preempted the normal process by announcing it would send the case to an administrative law judge—essentially a vote of no-confidence in the deal.

FCC Chairman Julius Genachowski called AT&T CEO Randall Stephenson, who, on Thanksgiving Day, had to tell investors he was setting aside $4 billion in case Washington blocked the deal.

The only conclusion to be drawn is that the FCC wants someone else to get T-Mobile’s assets and will decide who that someone is. Central planning at its finest.

‘Pages of Conjecture’
Then, in the wake of Cyber Monday’s mobile tsunami, the FCC released its unpolished findings as a “staff report”—109 pages of conjecture that the merger will stifle competition and raise prices. This, despite voluminous real-world evidence that communications prices continue to plummet while choice in digital devices and Internet content proliferates.

The deal is already being scrutinized by the Department of Justice, which sued to block the merger last summer. The fact that telecom mergers and acquisitions must negotiate two levels of federal scrutiny, at the Department of Justice and the FCC, is already an extra burden on the Internet industry. But when one agency on this dual track games the system by trying to influence the other track—maybe because the FCC felt AT&T had a good chance of winning its antitrust case—the obstacles to promising economic activity multiply.

To his credit, FCC Chairman Julius Genachowski has trumpeted the urgent need for more wireless spectrum to help accommodate surging wireless usage and spur the next wave of mobile innovation. U.S. mobile data traffic is growing more than 100 percent per year. But, inexplicably, the FCC staff report barely mentions spectrum at all.

‘All About Spectrum’
AT&T’s acquisition of T-Mobile is all about spectrum. AT&T doesn’t have nearly enough of it to meet the needs of its growing business. T-Mobile doesn’t have enough spectrum to turn around its severely declining business, let alone compete in the fourth-generation (4G) mobile marketplace. Its parent company, Deutsche Telekom, repeatedly said it wouldn’t invest for the next generation and desperately sought a buyer. Best of all, AT&T and T-Mobile’s existing spectrum positions and network technologies are perfectly suited for a seamless merger. The result would be better mobile call quality, broader coverage, and a quicker deployment of the fastest kinds of 4G data services.

Only in Washington could such an ideal marriage look bad. The chief challenge of the U.S. wireless industry is not competition. Prices are dropping and consumers are gobbling up mobile devices and services. The big obstacles are capacity and coverage. But even if we grant the FCC’s old-school priority of a kind of perfect competition in a mature industry, its case still makes no sense. Deutsche Telekom is getting out of the business. If T-Mobile is not a viable competitor, then how does AT&T’s acquisition of it “reduce competition”? Moreover, as spectrum-hobbled companies, AT&T and T-Mobile couldn’t effectively compete in 4G services with more spectrum-rich Verizon and Sprint-Clearwire. The only conclusion to be drawn is that the FCC wants someone else to get T-Mobile’s assets and will decide who that someone is.

The need for more spectrum is eclipsed only by the even more urgent need to revive growth in the U.S. economy. AT&T is America’s single largest investor in any industry, no less in one of the nation’s most crucial assets—our digital infrastructure. Narrowly defined, the T-Mobile merger could spur more than $8 billion in additional network investment. But it’s also likely to create cascading innovations in mobile devices and Internet services.

‘Hyper-Growth Areas’
Granting itself new authority beyond the furthest reaches of communications law, the FCC questions AT&T’s estimates of the merger’s effect on jobs and claims this is a legitimate reason to block the transaction. But the net effects on the quantity and quality of U.S. jobs resulting from a leap to 4G wireless are beyond anyone’s capacity to estimate with precision. Regardless, only a heretofore unknown Federal Jobs Commission could doubt that a broader, faster, more robust digital infrastructure will spur long-term growth of quality jobs.

The FCC “staff report” may be blind to the realities of network growth and spectrum, but the real world is not. Verizon just said it would pay $3.6 billion for spectrum held by a consortium of cable companies—furthering its spectrum lead and rendering all the more irrational the FCC’s attempt to cap AT&T’s wireless capacity.
Mobile, cloud, apps—these are the healthy, hyper-growth arenas of an otherwise struggling U.S. economy. Why would the FCC want to snatch defeat from the jaws of victory?

Bret Swanson ([email protected]) is president of the technology research firm Entropy Economics LLC. This article originally appeared on The American Enterprise Institute’s The American ( Web site, and is excerpted by permission.