Antitrust Hearing Shows Misplaced Concerns over Verizon-Spectrum Co. Deal

It can’t be stressed enough that more spectrum is needed for mobile broadband. Mobile data traffic is doubling annually, with wireless devices devouring more and more data. It took nearly two years for Congress to approve new spectrum auctions, which will take at least as much longer to realize. But this has not phased lawmakers and so-called “consumer advocates” who are demonizing Verizon Wireless and cable companies for a deal that will deploy currently unused spectrum for more robust 4G service.

At a hearing of the Senate Judiciary Subcommittee on Antitrust yesterday, Subcommittee Chairman Herb Kohl (D-Wis.) questioned “whether these deals will bring beneficial new choices to consumers, or amount to previously fierce rivals standing down from competition.” Columbia professor Tim Wu painted the sale as “creeping duopoly” and argued government has a role in “deciding what competition is.” (Yikes.) Free Press’s Joel Kersey argued that it would diminish competition, leaving consumers with “fewer choices, higher prices, and unfair terms and conditions.”

As opposed to what? No new spectrum coming to market? Government mandating the sale only to select providers who can’t realize such efficiency gains? There are a few takeaways from the testimonies of Verizon-Spectrum Co. opponents.

First, hypothetical alternatives are irrelevant. Bemoaning the lack of other buyers of the spectrum simply doesn’t translate into an anti-trust violation. As Charles Rule, who testified neither for nor against the merger, pointed out: “So far as I can tell from the opponents’ filings there is no concrete alternative transaction, much less one that would have generated more output.”

Second, the increased output from the sale does bring net benefits to consumers. The spectrum has been unused since the 2006 AWS auction, to the obvious detriment of consumers in densely populated areas already facing a spectrum crunch. There are also substantial efficiency gains that can be made with the spectrum covering over 80 percent of the population (259 million POPs). Expanding coverage by utilizing additional spectrum is less costly than cell splitting (building more cell towers with existing spectrum). The FCC's metric for approving the deal is whether it is in the "public interest." It will take a quite a bit of creativity for opponents - who carry the burden of proof - to explain why it is not.

Third, competition is an activity, not a myopic metric set by the number of market actors or their market share, a point hard stressed by Friedrich Hayek. The deal would not eliminate a single competitor from the market, instead allowing competitors to enter into agreement to put the spectrum to use.

The deal brings further convergence to the industry, with cable companies engaging in the wireless industry in ways they previously intended, but could not afford to do. Comcast, Time Warner Cable, and Bright House Networks – who together make up Spectrum Co. – will have the ability to purchase wholesale access to Verizon’s network under their own names. Their agreement does not preclude them from competing on prices or devices with Verizon Wireless. It also doesn’t mean Verizon FiOS will stop trying to take customers from Comcast’s XFINITY service.

Finally, the only institution setting up a false choice between Verizon getting spectrum or a small provider getting spectrum is the government. As Subcommittee Ranking Member Mike Lee (R-Utah) correctly pointed out, government holds over 60 percent of the nation’s airwaves ideal for mobile broadband, while wireless companies hold less than 10 percent.

Digital Liberty has long called for government to liberate unused and inefficiently used spectrum for consumers, while “consumer advocates” have called for government to regulate wireless companies or ban them from acquiring new spectrum altogether.

By increasing the supply of “beach front” wireless property, prices will drop, service will improve, and the misplaced concerns of duopolistic competition will fade. But until then, the consumer benefits that will come from the Verizon-Spectrum Co. deal are even more pronounced and necessary.

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