Ev Ehrlich's Everyday Economics

9Apr/11Off

Chicken and Dumplings

Between the budgetary Perils of Pauline, Japan’s evolution into a radioactive theme park, and Whatever It Is in Libya – War? Mission? Police Action? – there’s plenty of news flying under the radar (ironic Libya references notwithstanding). But here’s one story that flew by the other day that is absolutely
mind-boggling – the Federal Communications Commission, last Thursday, voted to let other mobile data service providers have the right to let their users roam the AT&T and Verizon mobile data networks at a government-specified price in order to reduce their customers’ roaming charges.

That is, Sprint, or T-Mobile, or any of the smaller rural carriers, or any other carriers (like Cricket), can have access to national wireless data networks without ever having to invest in them.

From the moment they entered the front door, the current leadership at the FCC has had two mantras – the first was the need for competition, the second the need to expand the broadband network to create ubiquitous, high-speed Internet access. But, like Jeff Goldblum’s sublime moment in Annie Hall, the FCC forgot its mantra.

Skip for a second the realities that first, the market was pretty competitive and that broadband was racing ahead – in fact, the two went hand in glove. When the current FCC crew walked in the door, carriers were investing tens of billions annually in infrastructure and high-speed broadband was quickly being adopted – a recent Nielsen study found that U.S. consumers are now second only to the Swiss in having a “super-fast” connection.

And look past the FCC’s confusions over how these goals related. In the name of “neutrality,” the FCC tried to impose a regulatory regime on service providers that disallowed them from offering premium services to those who needed an uniterruptable signal to offer new services, and that let Big Video – YouTube and the other Internet-choking video providers – hog up the system’s bandwidth without having to face the true cost of doing so. Somehow, the reality that you can’t force mandates on the networks and expect them to continue to expand nonetheless got lost on the FCC.

But now we’re moving onto the next level. Earlier this year, a Coalition of the Unwilling, comprised of just about every mobile service provider except those
that have actually built a national network, approached the FCC and asked that it provide them with the right to force roaming agreements on the two national networks for data services.

Here’s what Charles McKee, federal affairs vice president for Sprint, had to say when explaining why the FCC should force Verizon and AT&T to give his system the right to roam their networks at a government-specified price:

The expectation of consumers is their smart hone is going to work wherever they go. Data is not just an abstraction for onsumers now. They use it every day and rely on it more and more instead of voice.”

Or here’s the president of the Rural Cellular Association explaining without pretense why he should be able to glom on to somebody else’s investment and keep his job, country club membership, and standard of living: “This really is getting to be a matter of survival for many of our companies out there .”

As Arlo Guthrie said at the draft board, you got a lot of damned gall, Sergeant.

Here are companies that are unwilling or unable to compete by building infrastructure – note the words “compete” and “build,” the avowed dual goals of the FCC – and instead, they figure that the mood over there is pretty hostile to the big carriers and why not take a pass at being given access to the data networks?

I suppose you can’t fault a lad for trying – if I was Sprint (or a small, rural carrier) and I could force my way onto somebody else’s network, essentially giving my customers mobile data access without ever providing it myself, I’m not sure that my moral compass would point True North.

But the FCC surely knows better. Imagine being either of the two biggest networks and having spent a king’s ransom getting 4G technology – download speeds of as much as 12 mbps, wireline speed on a device in your pocket -- out in the field, only to be told that you now had to cut deals with the companies that said “not me” back when it was time to put up real money. Why would you continue to invest in infrastructure under those terms? In fact, we had precisely this kind of regime in the telephone world in the late 1990s and early 2000s and companies refrained from investing because of it – companies that built Internet infrastructure had to resell it at government-determined prices. That’s how all the DSL carriers appeared back then – they could free ride on the companies who created the infrastructure and live off their competitors’ investments by government edict. And it’s how those companies disappeared as well, because they made no investments, produced no innovation, did nothing but hitch a suckerfish ride on the whales who did the real work. Unsurprisingly, companies wouldn’t build more hostage infrastructure under those circumstances. But when the courts reversed the policy, high-speed infrastructure burgeoned.

And now, we’re heading back to an explicit policy of allowing – encouraging -- free riders on the high-speed wireless networks. What stops Sprint, or Comcast, or Cox, or Green Acres Mobile Data Services from offering 4G services without ever spending a dime on their provision? Sure, the “expectation of consumers” is that they can get data services wherever they go, but Sprint, to use the self-selected example, has made little effort to give their consumers what they want.

At some point, the infrastructure builders have to look up and think, why are we bothering? That’s particularly true for rural areas, where mobile access is going to be the dominant path to high-speed connectivity (despite some pretty silly statements to the contrary). These areas aren’t built out yet because
they’re not very profitable – duh. There’s little incentive to sink costs into low-density areas. The Administration at one point offered a National Broadband Plan that created incentives to get this activity going, but now they’re acting in ways that will bring that build-out to a halt – or expand
dramatically the budgetary cost of further subsidies to get the job done.

Moreover, these “data roaming” agreements are commonplace in the market. Voice roaming is already mandated by the FCC, because the law specifies that “telephone service” have this kind of “common carrier” approach. But the law very explicitly distinguishes between “voice service” and “data service,” and for good reasons, since “telephones” were regulated going back to the original communications acts, and the (old) telephone infrastructure was built by franchised monopolies in exchange for guaranteed returns. So the telephone system has a public legacy. But high-speed data networks like the ones the FCC seems intent on communalizing were built by private entities with risk capital in a competitive market. And if you build these networks, and Green Acres Mobile Data Services wants to use them, there’s certainly a price at which you’ll make a deal -- that’s why the deals are commonplace. In fact, the big
networks like these deals, because the carriers they’re dealing with help the big guys expand their own access to consumers.

So the other carriers aren’t after access – they can get access – they just want the government to muscle the networks and get them a better price. And ultimately, this doesn’t help consumers and doesn’t get infrastructure built, it just transfers profits from the companies who built the network to the suits who run the free riding companies.

Like its forays into “net neutrality,” the legal basis for the FCC’s decision strikes me – a practicing non-attorney (hell, my biggest legal career aspiration is to avoid being a defendant) – as tenuous at best. Do they really think a court is going to look up and say that “data” services ought to be regulated as are
“telephone” services because some “consumers expect it?” It’s like Pepsi asking for access to the formula for Coke because folks like Coke! If you didn’t know better, you’d think the FCC has decided that its best tactic is to promulgate regulations and let the court throw them out – it’s the regulatory equivalent of the lipstick scrawl on the motel mirror saying “stop me before I kill gain.” This makes the chorus of groups” (and, much to my regret, Senator Al Franken, who’s got this all fabulously wrong) that linger outside the FCC’s doors happy, while protecting us from the real repercussions of what the groups want. That can’t be what they’re thinking, but that’s the pattern.

The FCC has decided to rewrite the old story about the Lttle Red Hen. In the original, of ourse, the Hen’s idler cohorts sit on their duffs while she mills the wheat and bakes the bread. And when they all want to eat, she tells them to stick it – no work, no eat . The FCC’s petitioners smell what’s in the oven and are licking their chops. But in the FCC’s version of the story, the Pig, the Cat, and the rest of the menagerie not only take the Hen’s wheat, but take the Hen as well, and have a tasty dnner of chicken and dumplings.

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