Sunday, April 3, 2011

Commissioner Copps Talks AT&T/T-Mobile Merger, Other Spectrum Issues with C-SPAN

This weekend, FCC Commissioner Copps (D) sat down with C-SPAN for a Q&A about the AT&T/T-Mobile merger and a variety of other timely spectrum and telecommunications issues. Amy Schatz, my favorite WSJ telecom writer, contributed questions in this episode of C-SPAN's The Communicators. I do not normally agree with Copps, but I am trying to pay less attention to a Commissioner's political affiliation and more attention to what they actually say, after becoming extremely frustrated with the political interference on the Net Neutrality decision. To refresh your memory, Net Neutrality has turned into an ongoing civil war between democrats and republicans, and I have observed that many people who have opinions on this issue do not actually know anything about it, they just side with their political party of choice. The actual Net Neutrality vote, which was 3-2 in favor of the rules (3 democrats vs. 2 republicans), was a complete fraud in my opinion. The two republican commissioners did not agree with the rules, but two of the democrats also did not actually agree with Genochowski's rules either, yet they still voted for them out of political alliance pressure. So, I firmly believe that the Net Neutrality vote should have been 1 in favor and 4 against, but unfortunately that is not how things turned out.

Anyway, Copps is speaking out against the AT&T/T-Mobile merger, and in the C-SPAN interview he argued that it will be a "steeper climb" for him to approve this merger than it was for him to approve the Comcast-NBCU merger. Copps argued that the merger will result in 2 companies controlling 80% of the spectrum, and that the merger itself may "suck the oxygen out" of other pending issues at the FCC. In a dose of humor, he referred to the FCC as the "Federal Merger Commission," and he seems especially concerned about what impact the merger will have on jobs and competition. Amy Schatz asked how the merger will impact the proposed incentive auctions (AKA reverse auctions)--I was especially impressed that she asked this question because I don't believe it has really been addressed, at least in any of the 500 articles I have read about the merger in the last two weeks. Copps indicated that the merged company may "change the game" of incentive auctions, and incentive auctions may be a less attractive solution with fewer players involved (Dear FCC: please consider this before approving incentive auctions!!). I am already convinced that incentive auctions will fail to increase spectrum ownership for small companies because small companies do not have equal economies of scale for equipment and infrastructure. When asked who will most likely participate in incentive auctions (meaning who will be willing to give up spectrum), Copps responded that it will most likely be "hard-pressed minority stations in big cities," and the hedge funds and banks that own large stations that only care about profit who will be willing to surrender spectrum for an attractive price. The combined forces of AT&T, T-Mobile and Verizon will certainly not make incentive auctions more attractive for small companies, that is for sure. Copps discussed other topics such as spectrum utilization by broadcasters vs. wireless carriers, creating a spectrum inventory, the FCC's approach to mergers over the last decade that he has been at the FCC, progress of the National Broadband Plan, and obstacles to USF reform. On that last point, Copps responded that the biggest obstacle to USF reform is that companies are accustomed to a system that is no longer viable in this era, and every player will need to sacrifice something, as well as change their mindsets, in order for a new USF to be successful (sounds ominous, I know).

Regarding the AT&T/T-Mobile merger, the only thing I want to add today that I did not discuss in my previous post on this topic is the importance of analyzing market concentration on a market-by-market basis, which Copps mentioned as well in the C-SPAN interview. AT&T has been extremely vocal about the "intense competition" in the wireless industry, and the company claims that the merger will be nothing but a blessing to the industry and consumers. AT&T claims that there are at least 4-5 wireless carriers in every market, but most of us from rural areas know that this is a lie. The FCC needs to consider how viable each competitor is to different sets of consumers in order to determine how many actual competitors exist in a given market. For example, someone in a rural area may be able to get "service" from Verizon, AT&T, and two regional carriers. However, it is unlikely that all of those carriers will provide high quality "coverage" in the places where a rural user needs to use his or her mobile voice and mobile Internet. So, lets say now there are only 2 viable competitive alternatives. From there, you have to consider other factors like monthly service plan choices, handset options, service contract obligations including early cancellation fees, what service the customer's family and friends use, and a variety of other factors. After considering and weighing all these factors, it is likely that a consumer only has one choice for a wireless provider. And that is not a competitive market!  This isn't even a problem specific to rural areas. I may have a choice of 5 or more service providers in DC, but I have reasons for eliminating many of those options based on my budget, preferences, and needs--a major need being that I need to have service when I travel to rural Iowa, which automatically disqualifies several carriers from the running.

If the FCC is hoping to foster and achieve a wireless industry where all consumers have a choice between 4-5 viable alternatives, then this merger should not be approved. It may not necessarily decrease competition in some markets, but it certainly won't increase competition as AT&T is claiming. They cannot just say that there is sufficient competition across the board without taking into consideration actual customer behavior. I worked for a short time as a sales associate for T-Mobile, which was not entirely a good experience for me, but I learned a lot about customer preferences for wireless carriers. Customers chose T-Mobile for some very specific reasons--handset choice, low-cost service plans, and international roaming and international-capable handsets were the primary reasons. I am definitely interested to see how AT&T plans to maintain some of the qualities that made T-Mobile an attractive carrier for its loyal customers, or if AT&T's arrogance will prevail and they will just assume that all T-Mobile customers will happily accept the changes, just as they are arrogantly assuming that there is industry-wide intense competition.

The C-SPAN Q&A with Commissioner Copps is available to watch here.

Comments about ICC abuse and arbitrage were due on April 1, so this week I will be writing about the Intercarrier Compensation component of USF reform--look for my comment summaries in the next day or so, and a review of the FCC's ICC April 6 Workshop later this week.

Cassandra Heyne

1 comment:

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