By Ben Quayle When Americans elect a new president next year, I hope we’ll select someone who favors free markets and consumer choice. These are the same basic principles that should guide the Federal Communications Commission when it makes a crucial upcoming decision: how to auction off the low-band spectrum currently occupied by television broadcasters but essential to wireless carriers of all kinds. Keeping in mind that free markets, not monopolies, drive innovations and improvements, the FCC should make sure that the auction results in a robust wireless sector that allows true competition and market forces to thrive.
Here’s why the FCC’s support for free competition is so important: wireless devices are ubiquitous in today’s society. We use them to talk with our family, respond to texts, draft emails, watch movies and even make payments. These technological advances have changed the way we communicate and the way we conduct our business. All of these features, however, require one thing that is allocated and controlled by the government – spectrum.
Spectrum is the lifeblood of wireless services and innovation. As more and more Americans access the Internet on mobile devices, the demand for spectrum capacity continues to grow, exponentially. But the FCC has allowed this critical resource to become concentrated in two dominant carriers. The result has been less competition, less consumer choice and less innovation in the wireless sector.
Take, for example, the current distribution of low-band spectrum in the marketplace. Low-band is critical for providing the kind of in-building penetration and wide-area coverage that wireless consumers expect. The government granted huge swaths of low-band spectrum — free of charge — to the Twin Bells back in the 1980s. And over the ensuing three decades, these two companies quietly amassed an astounding 73 percent of all low-band spectrum in the United States.
Such consolidation is dangerous. It will open the door to more regulation and further expansion of government. Ultimately, those companies will get a guaranteed rate of return and market share with little or no competition. This is a statist mindset that runs contrary to our free market principles. As the legendary investor, Teddy Forstmann, once wrote about the statist businessman: “… He wants government to guarantee him security without risks, the opportunity to succeed without the possibility of failure.”
Unfortunately, the mindset of the statist businessman is flourishing in certain parts of the wireless sector. As a result, big government is broadening its control. Recently, the FCC classified mobile broadband under Title II of the Communications Act, expanding the government’s toolbox to potentially include rate regulation and other top-down policies. In a fully competitive wireless market, the government would not need to impose artificial competition using monopoly-era rules.
The wireless sector, as it currently stands, is not a free market. In a free market, companies that provide the best products and services will succeed while the others fail. In the wireless sector, the government controls access to spectrum, which is the most important input to any wireless company. Decades of spectrum aggregation and consolidation have put the squeeze on the innovative disrupters in the industry. Approximately 23 percent of the population has access to five or more mobile wireless providers today. Fifteen years ago, however, this number was 69 percent of the population. Innovative disrupters cannot effectively survive — and the free market cannot work — when critical inputs, distributed by the government, are effectively controlled by a duopoly.
Fortunately, the FCC has a chance to fix this and decrease the role of government in the wireless sector. Next year, the agency is scheduled to conduct another major auction of low-band spectrum currently occupied by television broadcasters. It is imperative that the rules of the auction permit access to spectrum by the greatest number of competitive providers. The Big Two should not be permitted to further consolidate their low-band wireless spectrum holdings at the expense of true wireless competition and the consumer benefits that would result.
Most government agencies rarely take action that would actually reduce their command and control. However, if the FCC focuses on the long-term viability of the wireless sector, that’s exactly what will happen. It would result in a wireless sector dictated by free market forces, not government control. To accomplish this, the FCC should set up a mechanism whereby competitive wireless providers can acquire spectrum without the risk of being completely displaced in the auction by the Big Two. This will also send a message to the statist businesses that we have had enough of the slow creep of government at the expense of the American consumer who is stuck with higher prices and less choice. Let competition win and the free market thrive.
Ben Quayle is a former Republican congressman for Arizona, where he served as chairman of the House Subcommittee on Technology and Innovation. He serves as a strategic consultant to T-Mobile US.
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