Spectrum

Spectrum issues, community wireless, muni broadband

AT&T to FCC: “I double dare you to show you’re serious about wireless competition.”

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Rarely do you see companies double-dare the FCC to back up their brave talk about promoting competition. That is, however, what AT&T has just decided to do – with a little help from Verizon. After gobbling a ton of spectrum last year in a series of small transactions, AT&T announced earlier this week it would buy up ATNI, which holds the last shreds of the old Alltel Spectrum. To top this off, Verizon just announced it has selected the purchaser for the 700 MHz spectrum it promised to sell off to get permission to buy the SpectrumCo spectrum. And guess what? The purchaser of the bulk of Verizon’s 700 MHz licenses, which Verizon promised to divest to promote competition – is AT&T!

 

In the last few months, we have seen billions of dollars in new investment as a result of the FCC’s decision to deny AT&T/T-Mo, force Verizon to divest in VZ/SpectrumCo, and otherwise draw some lines in the sand against further consolidation and to promote competition. For reasons I explain below, this transaction crosses just about every single red line the FCC (and Department of Justice (DoJ)) have ever indicated they had about wireless spectrum concentration. The question is — will the FCC (or DoJ) actually do anything about it?

 

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Ergen Makes Bid For CLWR After All, What’s Up With That?

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Last Sunday, I noted that while Ergen was a potential bidder on Clearwire’s (CLWR) 2.5 GHz spectrum, it seemed unlikely given the fact that Sprint would still own a majority stake in CLWR and that governance issues would make this a very messy fight that would potentially tie up DISH assets when they are needed for its own network deployment and for a potential H Block Auction bid. I also noted a lot of other issues that make a purchase by anyone other than Sprint less attractive — such as the cost of network buildout — that cast serious doubt on Crest’s valuation of CLWR’s spectrum at $30 billion.

48 hours later, Ergen makes a bid for CLWR valuing CLWR at at $3.30 a share (a reasonable enough premium over Sprint’s offer to require serious consideration). Mind you, nothing in the bid (what details there are can be found here) contradicts anything I said previously. As noted by CLWR in it’s press release, the proposed deal comes with a bunch of conditions and caveats that reflect Sprint’s ownership and the cost of building out a network that would integrate with Ergen’s AWS-4 spectrum. Which naturally raises the question of why Ergen decided it was worth it to make the bid anyway. Making a serious tender offer — even if you think it will ultimately be rejected — is a non-trivial process that incurs expense. Before dismissing this as mere payback for Sprint’s (successful) push to amend the AWS-4 rules to protect H Block (creating delay in the approval and potential issues for deployment), it is worth considering what the potential upsides are to DISH that justify the cost.

Oh yeah, I should also talk about some consumer stuff and broader stuff as well. Horse race is all well and good, but there are a lot of industry folks that do that better than I do.

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Crest’s Moronic Petition To Deny In Sprint/CLWR Symptom of Broader Idiocy That Actually Matters.

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OK, I suppose I should really wait until they file, but this story detailing Crest Financial’s planned Petition to Deny in Sprint/Softbank/CLWR appears to be, in my humble opinion, the single dumbest grounds for a Petition to Deny. EVAR. For those just tuning in, Sprint, backed by Softbank, has offered approximately $3/share for the outstanding shares of Clearwire (CLWR). Because some analysts with no understanding of the actual spectrum market think CLWR is sitting on a spectrum pot ‘o gold, Crest is pissed and wants more money. It has already filed a shareholder derivative suit claiming that Sprint leveraged its insider position to buy out Clearwire below fair market value. Given how corporate law has crapped all over minority shareholder rights in recent decades, I am not giving this much hope. Apparently, Crest feels the same way, because they are now taking the fight to the FCC.

According to the story: “In going to the FCC, Crest will argue that the Clearwire deal artificially undervalues the company’s spectrum holdings, Schumacher said. That in turn potentially devalues future revenue for the U.S. government when it auctions off spectrum licenses.” Crest apparently thinks CLWR’s spectrum holdings are worth $30 billion, prompting me to wonder what planet they live on and whether they share it with House Republicans who keep thinking spectrum auctions are automatic pots of gold.

What makes this utterly dumb is the combination of a false factual premise combined with an utter lack of legal grounds, on top of a near zero chance of holding things up politically (unless AT&T or possibly DISH file, which might introduce greater political uncertainty). I would normally confine myself to simply snickering but there is a rather important point to be made here — especially for all those listening to analysts telling broadcasters they can make gajillions in the upcoming incentive auction –about spectrum valuations.

More below . . . .

 

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If your cell tower loses power, be sure to thank CTIA and the D.C. Circuit.

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As we hunker down to wait out Hurricane Sandy, some folks have noticed that if we lose power our cell phones might not provide the back up we expect. Cell towers require power, and if the back up battery is drained and local power is not yet restored then the network goes dead. We had this problem in the Katrina aftermath. The report of the FCC’s Katrina Panel recommended a requirement that carriers have power back up for towers. The FCC subsequently issued an order implementing several of the Katrina Panel recommendations, including the back up power recommendation.  Under the announced rule, carriers would need to ensure that towers had 24 hours worth of back up power. The FCC relied on its Title I ancillary authority to justify the rule — arguing that ensuring sufficient back up power to maintain communications was “reasonably ancillary” to its authority to ensure emergency communications.

Needless to say, the carriers were not thrilled with this expensive new requirement. They challenged in the D.C. Circuit. Ever happy to spank the FCC on behalf of industry, the court first issued a preliminary injunction against the rule taking effect. At oral argument, Chief Judge Sentelle and Judge Randolph, two of the more notorious FCC-bashers, ripped counsel a new one for relying on all the dopey old precedent about Title I ancillary authority. Judge Rogers noted that the FCC’s actions were justified under the court’s precedents, but Sentelle and Randolph were having none of it. Bad FCC! Extending regulatory power over carriers just because lives might depend on it and past precedent before we got here said you had authority to issue the regs!

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I Propose A Commercial For Sprint’s Unlimited Data Plan

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I recently switched from Verizon Wireless to Sprint. While Verizon definitely has the best network (sorry guys), I upgraded from a Crapberry Curve to a Samsung Galaxy S3 and wanted Actually Really Unlimited Data. Yes, I could have bought the phone at full price and kept my grandfathered “unlimited data” with Verizon Wireless. But, as readers of my very first Wetmachine post know, I try to vote with my wallet for good policy. Back in the day, I subscribed to a CLEC and DIRECTV, then switched to FIOS because FIBER IS BETTER and good policy. Besides, my wife has been a Sprint customer since forever and we save a bundle by combining into a single family plan.

Anyhoo, to get back to the point of this blog post. I am sure many of you out there have seen this heartwarming ad from Verizon Wireless called “Always There.” In it, a young lad preparing for his tuba recital looks out with disappointment to see only Mom and sisters in attendance. As young lad takes his seat, Mom launches a Verizon hot spot and young lad is thrilled to see father and grandparents attending virtually. Hurray! Shared data and Verizon’s 4G network save young lad from future abandonment issues from his workaholic father.

Unfortunately for young lad and his family, it better be a fairly short piece because Verizon’s data plans limit you to 4GB shared data per month for a Smartphone plan and up to 10 GB per month shared for a tablet/iPad. What if Mom had already used up bandwidth streaming big sister’s black belt test, for example? As this Sprint ad shows, fights over sharing scarce bandwidth are rapidly becoming America’s #1 source of family friction.

I recently encountered this actual problem in real life. My brother and his wife were delivered of a healthy baby boy last week. According to ancient Jewish tradition, we scheduled a brit milah (circumcision ceremony) for the 8th day after the boy was born. i.e., yesterday. Unfortunately, my Mom recently had back surgery, and could not make it down for the occasion. What’s a Jewish family to do? My Mom not able to attend her grandson’s brit milah? Oy! Such a shandah! And let me tell you, between the actual ceremony and all the speeches, we are not looking at some 2 minute recital here. Happily, my Sprint unlimited data contract and my Galaxy S3 provided a modern solution.

In the interest of promoting genuinely unlimited data plans (and thus biringing harmony once again to America’s families), I propose this new commercial for Sprint’s unlimited plan entitled: Data Caps Suck Foreskin.

Roll it . . . .

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Will AT&T Try To Crash the Sprint/SoftBank Party?

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Yesterday, Sprint moved to acquire a majority stake in Clearwire (CLWR) in advance of SoftBank acquiring a majority stake in Sprint. Despite some earlier speculation that SoftBank might have strategies that don’t include CLWR,  and despite disappointment from investors that Sprint won’t spend the extra bucks to acquire CLWR in its entirety, the move was pretty much expected. One of the main obstacles to Sprint in recent years has been its occasionally testy relationship with CLWR, and difficulties the two companies have had negotiating terms for Sprint’s use of CLWR’s spectrum and network.

What was odd, however, was the reaction from AT&T. Whereas the wireless world has generally been quiet, AT&T went out of its way to suggest the deal might night not be good for America. Brad Burns, an AT&T V.P., said in a statement:

“Softbank’s acquisition of Sprint and the control it gains over Clearwire will give one of Japan’s largest wireless companies control of significantly more U.S. wireless spectrum than any other company. We expect that fact and others will be fully explored in the regulatory review process. This is one more example of a very dynamic and competitive U.S. wireless marketplace, which is an important fact for U.S. regulators to recognize.”

So what’s up with that? Is AT&T simply sore because Sprint was the leading industry opponent to AT&T/T-Mo? Or, (as suggested by the last sentence), does AT&T have something more strategic in mind. And, given that Sprint is already “credited” with CLWR spectrum for spectrum screen purposes under the 2008 Order approving the current Sprint/CLWR deal, it is not clear what trouble AT&T (either directly or via proxy) could make.

I don’t think AT&T could get the deal blocked. But (as AT&T indicates) there are issues of foreign ownership that give a determined opponent with money and resources (and a grudge) a chance to make trouble. And there are some things AT&T could hope to extract that potentially make such a play worthwhile. Notably, if AT&T pushes regulators to view Sprint/CLWR’s combined 2.5 GHz spectrum as equal to AT&T’s much better spectrum,  AT&T could hold off any hard spectrum cap limit in the pending FCC spectrum aggregation proceeding or in the upcoming incentive auctions. Perhaps more significantly, AT&T could sideline Sprint — the largest industry advocate of spectrum aggregation limits  – from taking an aggressive position in these proceedings.

I explore this a bit below . . . .

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How Antitrust Enforcement And Pro-Competitive Regulation Encourage Investment, Encourage Innovation, Enhance Spectrum Efficiency And All That Other Good Stuff Despite CW To Contrary.

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In the past month, to the complete surprise of just about every analyst and industry watcher, foreign investors spent the equivalent of $25 billion to invest in competing carriers T-Mobile and to acquire control of  Sprint and ClearWire. AT&T has announced a whole bunch of network upgrades such as repurposing its 2G spectrum, clearing up the interference in the WCS band, and a seemingly endless stream of license acquisitions. While the last is perhaps not so unusual, U.S. Cellular has likewise been spending money to coble together a broader footprint using the less—than—stellar—but—better—than–nothing 700 MHz A block.

Quite a turnaround from the start of 2011, when the industry appeared on a glide-path for a duopoly. Last year, T-Mo parent Deutsche Telekom (DT) was looking for a U.S. exit, AT&T and Verizon seemed more focused on buying out competitors than on developing the spectrum they already held, cable operators were giving up whatever plans they had to enter the market, and competing carriers couldn’t find financing to build out networks or pick up licenses in the secondary market. So what happened?

The Department of Justice (DOJ) and the Federal Communications Commission (FCC) have made clear over the last two years that (a) we will have 4 national carriers, and (b) the FCC cares about ensuring enough spectrum access to keep Sprint and T-Mobile (and hopefully other competitors) viable. Contrary to all conventional wisdom, two years of FCC regulation like data roaming and special access reform, combined with antitrust enforcement around AT&T/T-Mo and Verizon/SpectrumCo, stimulates investment in the wireless industry and forces companies like AT&T and Verizon to get serious about developing the spectrum they need and ditching the spectrum they don’t need on the secondary market.

Does that blow your mind? Is that just all freaky and too much for you to handle in a neo-con policy world that worships The Gods of the Marketplace and can’t tell the difference between a “competitive market” and a “deregulated market?” If you think you can handle the wisdom, pilgrim, then see my explanation below. . . .

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Some Common Misperceptions About Incentive Auctions, and Why They Matter.

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I rarely gush enthusiastically over a Notice of Proposed Rulemaking (NPRM) from the Federal Communications Commission (FCC), but I will make an exception for the recently released Incentive Auction NPRM and associated Appendix on auction design. As Republican Commissioner Ajit Pai observed in his separate statement, it has become almost cliché to observe that this is “the most complicated set of spectrum auctions ever held by any country.” What the NPRM explains, if you are willing to plough through it, is why it is so insanely complicated.

 

Unfortunately, the complication has given rise to a number of misunderstandings about what is actually going on here. In this case, a failure to understand why this is so complicated, rather than simply knowing that it’s complicated, can result in bad policy.  The most critical misconception I have encountered to date is that the incentive auction involves wireless companies bidding for broadcast licenses, with the FCC acting as a sort of spectrum Christie’s. That is, after all, how this got sold and broadcasters and wireless companies seem to be the main players.

 

Below, I explain why this is not merely wrong, but why visualizing the auction in this way leads to policy choices that almost guarantee failure. It also bears directly on one of Commissioner Pai’s questions: why has the FCC proposed ending the auction as soon as the “victory conditions” set by Congress are met, rather than keeping the auction open as long as there appears to be the possibility of more willing bidders. . . .

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FCC Authority In VZ/SpectrumCo, or “Real Lawyers Read The Footnotes.”

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Many years ago, I taught a semester of law school as an adjunct. I assigned the students to read the FCC’s 2005 Internet Policy Statement. I was dismayed to discover that, after doing the reading, none of them had even heard of the concept of “reasonable network management.” How was that possible? Reasonable network management is not mentioned in the main text, but in footnote 15 which says that the principles are “subject to reasonable network management.” Given the centrality of the “reasonable network management” concept to the net neutrality debate, I was rather irritated. “Understand this before you graduate,” I warned them. “Real lawyers read the footnotes!”

I thought of that after reading Geoffery Manne’s and Berin Szoka’s piece about VZ/SpectrumCo over on CNET.

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The Wireless Market Is Seriously Messed Up When Every Incentive Is Anti-Consumer.

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AT&T reported their second quarter results today. According to this analysis, AT&T achieved better profitability by (a) dramatically limiting their broadband service; (b) discouraging consumers from upgrading their devices; and (c) figuring out new charges for consumers to enhance overall profit per customer.

I get that firms are supposed to maximize profit. But when every single incentive to profit maximization relies on providing less service for more money and discouraging people from using your service, something is seriously messed up. This is doubly true when usual trend in information technology is to drive prices down. And, more tellingly, it creates a real concern if we are relying on market incentives to ensure that providers do things like build out networks and provide us with better service and lower prices.

I’m not claiming AT&T is being nefarious. I’m just saying something appears seriously messed up about the whole industry structure. Given the critical importance of this particular industry to our national economy, it would be particularly useful if we had a better understanding of why this is so messed up and — jus maybe — what policies would fix it. For example, if the enormous subsidies paid for iPhones and other smart phones is an issue, wouldn’t it make sense to sever the handset market from the network? If the problem is that network upgrades are expensive to meet demand for wireless capacity, then how are we going to get networks built out?

I’d be happy to concede the issue on metred pricing, except that there doesn’t seem to be any actual relationship between the price metering and the cost of provisioning. The idea of metering is that I want to provide you with more capacity because that way I make more profit. If this were bananas, I would have a fairly direct incentive to grow more bananas so I can sell more bananas. But AT&T doesn’t want to charge me for more bandwidth, which would arguably give it incentive to build better systems and sell me ever more capacity. It wants to sell me limited capacity and then stop, presumably so it can capture some imaginary and unspecified revenue on the the other side of the platform. That creates a fairly unfriendly incentive to create scarcity and avoid investment in the network.

Which brings me back to my original point. There is something seriously wrong in a market when every single incentive is anticonsumer, and when providers can act on these anticonsumer incentives with no consequences. If nothing else, can we at least stop pretending that “the market” is going to somehow look out for consumers, despite every provider incentive to the contrary?

Stay tuned . . . .