Tuesday, May 10, 2011
Will AT&T-Mobile Lay Claim to CAF and Mobility Funds? Now it’s Getting Personal.
I was planning to write a nice, calm review of the Rural Associations' RLEC Plan for USF Reform today, but an article that I caught first thing this morning really got me riled up about the AT&T-T-Mobile merger—not that I haven't been riled up about it all along. I just could not pass up analyzing the latest steaming dish of controversy, plus it has been awhile since I've written about the merger and a lot has happened since Commissioner Copps talked with CSPAN about his merger concerns. Can you stand to read yet another article criticizing this merger after all the reports this past week about consumers rallying against the AT&T Monopoly 2.0? Well in case you were on a remote island all week with no Internet—in which case I am eternally jealous—over 4,000 consumers submitted comments to the FCC (search docket 11-65) voicing their concerns about the merger. In response, AT&T allegedly claimed rather arrogantly that consumers' comments were not legally or rationally argued, therefore they don't really matter. I normally get a kick out of some of the crackpot consumer comments submitted in FCC proceedings, but it this case I actually found a number of very well stated and extremely concise arguments. How many pages of legalese and industry jargon does it take to say something like "The merger will harm competition and increase prices, taking away a viable and low-cost competitor from the marketplace." I flipped through about 100 or so consumer comments at random the other day and most of them carried this message in some form or another—easily and clearly stated in a few paragraphs at the most. As a former T-Mobile employee and customer, I can vouch for many of the reasons why consumers are worried about the merger. But: it wasn't really until this morning that my anti-merger sentiment really hit the boiling point.
The May 10, 2011 Hillicon Valley article, "AT&T's Subsidies an Issue in Merger," revealed a merger concern that I have been pretending to ignore thus far: "some lawmakers are worried that AT&T could use government funds to fulfill its broadband pledge"--that is to bring wireless broadband to 97% of the U.S. in 6 years (Jerome, Hillicon Valley, 2011). It is extremely profound that this merger is taking place in parallel with the potentially RLEC industry-shattering USF Reforms—both are excepted to be decided within the year, and both will potentially change the telecommunications industry as we know it. The question is: how will these two legally separate but inextricably linked decisions mold the future of USF and rural access to broadband? When you consider the lobbying prowess of AT&T, things start to look pretty scary. If the merger is approved and the FCC's USF Reform NPRM proposals are adopted without change or consideration of alternative plans (such as the Joint Board or Rural Association Plans), there is a real threat that AT&T-Mobile will make a clean sweep of the limited (and possibly capped) CAF and Mobility Funds by dominating the reverse auctions and literally annihilating competitors market by market, like ants with a magnifying glass. According to the Hillicon Valley article, "As timing would have it, AT&T stands to gain a lot of government-collected money in the next several years, as the Federal Communications Commission moves forward with a plan to subsidize broadband service through the $8 billion Universal Service Fund" (Jerome, Hillicon Valley, 2011).
Am I getting worried over nothing? I don't think so. This issue poses a real and significant threat to both RLECs and small wireless carriers. Although AT&T claims that they are not looking for government subsidies to build out wireless broadband to 97% of Americans, AT&T is still the largest recipient of USF to date. With the FCC's proposed mechanisms for USF Reform, I don't see how AT&T will not continue to be a major recipient of USF. The FCC specifically wants to get more USF support into the hands of large price cap carriers, who have historically done the worst job at deploying broadband to rural areas. Additionally, the fundamental principles of reverse auctions literally guarantee that AT&T-Mobile will scoop up even more subsidies unless conditions are applied to prevent this from happening. Such a condition would not be unreasonable or unusual—both Sprint and Verizon have faced similar conditions in the past.
The first condition should be that AT&T-Mobile is not allowed to participate in reverse auctions. It was AT&T's choice to consume a viable competitor for $39 Billion in order to increase its spectrum assets rather than try to acquire more spectrum the hard way—by patiently waiting for the FCC to release little bits and pieces and then fighting for them with everyone else like hungry dogs fighting for table scraps. Buying an entire competitor just to increase spectrum holdings is a luxury that literally no other carrier—except maybe Verizon—can afford. AT&T's market power and economies of scale would undoubtedly allow the behemoth to undercut the bids of any small competitor in a reverse auction. Furthermore, if reverse auctions are technology neutral and if USF is only granted to one provider per area under CAF, AT&T could easily dominate any RLEC attempting to participate in a reverse auction to provide broadband to rural areas. If auction blocks can be aggregated, we have even more reason to worry, as AT&T could gobble up entire hunks of geography in one bite. After that, will AT&T even bother to extend wireless broadband to far reaching, unprofitable rural areas? The Federal State Joint Board on Universal Service is concernedunserved or poorly served—especially if there are no conditions placed on the winner. I think these USF reform concerns effectively overlap with my concerns about the merger and its impact on the future of USF. AT&T made a choice to devour a competitor with cold, hard cash; and that choice should be reiterated through restrictions to USF support in the future. I do not think it would be unreasonable to impose a condition that AT&T could not participate in reverse auctions (if reverse auctions are approved, which I hope they are not). If the FCC and DOJ want to go really far, they can impose a second condition that restricts AT&T from receiving any USF under either CAF or the Mobility Fund, but realistically I don't think this would happen. Too many rulemakers and lobbyists will argue that you cannot prevent a carrier from receiving USF just because the carrier is big and rich, especially if the carrier is critically positioned to be able to provide broadband to rural areas at the lowest cost (even if quality and small companies are sacrificed in the process). Additionally, the endpoint goal of deploying broadband to 97% of the US will cloud the short term judgments about how that goal is to be achieved.
I keep thinking about the story in The Master Switch about how AT&T used to go into farm communities and rip out the telephone infrastructure that the first rural telephone company proprietors poured blood, sweat and tears into building. AT&T would publicly destroy the equipment as a macabre symbol of their monopoly power. This will absolutely happen once again, in essence, if AT&T-T-Mobile merger is approved and the company is allowed to participate in reverse auctions. There is a domino effect that is being set into place right now: if USF reforms are passed in ways that are harmful to small rural carriers, and AT&T is allowed to merge with T-Mobile, and AT&T is not restricted from receiving USF funds under the new USF regime; RLECs will start to fall one by one to the monopoly. Am I being overly depressing and grim? Possibly. But when AT&T rips out and destroys the telecom infrastructure that a small family-owned company has built over the last 100 years—literally or figuratively—I take it personally.
P.S. This article in The American Prospect about the merger, "The Return of Big Bell," by Nancy Scola, is the without a doubt the best article I've read about the merger so far, hands down. Also, if you are strongly opposed to the merger, then check out the No Takeover Project.
Update 5/11/11: At the conclusion of an explosive and dramatic Senate Judiciary subcommittee hearing on the AT&T T-Mobile merger today, AT&T did agree to hypothetical condition to not use USF to deploy broadband. Although this promise calms my fears somewhat, it is an empty promise until the condition is actually imposed. I guess the first step is acceptance, but for now its like they are accepting nothing since the conditions have not yet been developed. Your move, FCC and DOJ.
Edit 5/19/11: Tied for first place in the best article on the merger is "The End of the Telecom Revolution," by Chip Pickering, which emphasizes the importance of knowing the history of the telecommunications industry, including pre-telecom history going back to the eternal wisdom of Adam Smith. This article warns of the dangers of monopolies and that approving the AT&T-T-Mobile merger will wipe out years of progress in telecom competition, reverting the industry back to the dark ages, literally. Best quote ever: "The American people need market competition, not collegiality between Washington bureaucrats and the companies they supervise on behalf of taxpayers. The public interest cannot be exchanged for cupcakes and market concentration. As Marie Antoinette infamously said as the French people starved, “Let them eat cake" or in AT&T’s case, cupcakes." Referring, of course, to AT&T's habit of gifting the FCC with pricy baked goods.