Competition is a critical ingredient for functioning markets. Without it, we have market power, higher prices and market failure. With it, we have new offers for smartphones without contracts or penalties for consumers, WiFi calling for businesses and more.
When asked recently in a public forum, why mobile phone coverage and services are so poor in the U.S., Eric Schmidt of Google said that it was because we do not have enough telecom competition.
Spectrum is the oxygen that all wireless carriers need 24/7 to operate their networks and serve customers. For over 10 years, FCC rules have included a “spectrum screen” which roughly prevents any one carrier from amassing licenses for more than one third of total mobile spectrum. This is a policy explicitly designed to promote and enable a competitive market.
In the mobile wireless business today however, the largest two carriers, AT&T and Verizon, control 78% of high quality low band mobile spectrum. They began to acquire this position originally from direct FCC assignments made to wireline telephone companies in the government-structured duopoly cellular markets of the 1980s. Cellular frequency block assignments were made city by city (actually metropolitan areas), which is why at first there was no rural service coverage at all.
In the 1990s, the FCC conducted pro-competitive auctions of mobile PCS spectrum that first broke open the geographic wireless duopolies. However, less than 10 years later, industry consolidation became the norm, and then another spectrum auction in 2008 resulted in a sweep of valuable 700MHz spectrum by AT&T and Verizon, yielding a setback for competition.
The FCC is planning to auction additional spectrum next year that it expects will be harvested from TV broadcasters via the so-called incentive auction program. Part of the housekeeping preparation for the incentive auction is a comprehensive FCC review and overhaul of its outdated spectrum screen.
Access to superior quality low band spectrum below 1G is a critical competitively significant factor recognized by the Justice Department in a detailed recommendation it made to the FCC last month. Clear caps on the amount of premium mobile spectrum that may be licensed to any one company will provide greater predictability for bidders and an opening for smaller carriers to secure at least some of the newly available spectrum, so that they can still offer consumers competitive choices for mobile broadband.