The Cheerful State of Wireless Communications

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The Senate Commerce Committee's Subcommittee on Communications, Technology, and the Internet is holding a hearing today on the State of Wireless Communications. It should be an opportunity to celebrate one of the brightest successes in an otherwise mediocre U.S. economy and press for continuing a successful free-market approach.

As recently departed FCC chairman Julius Genachowski noted, the United States is the world leader in wireless. He correctly wrote:  “The U.S. is now the envy of the world in advanced wireless networks, devices, applications, among other areas.”

Genachowski went on to detail this remarkable track record:

  • “The U.S. is the first country deploying 4G LTE networks at scale, and in late 2012 the U.S. had as many LTE subscribers as the rest of the world combined, making us the global test bed for LTE apps and services.
  • “Annual investment in U.S. wireless networks grew more than 40% between 2009 and 2012, from $21 billion to $30 billion. By contrast, investment in European wireless networks has been flat since 2009, and wireless investment in Asia, including China, is up only 4% during that time.
  • “In 2013, analysts project $35 billion in wireless investment in the U.S., over 50% more than all of Europe.
  • “Investments in wireless broadband infrastructure created more than 1.6 million U.S. jobs since 2007.”

It is impossible to look at this booming industry and see anything but a vibrant marketplace where consumers are being well-served by a light regulatory touch.  Indeed the greatest risks to undermining this booming free market success come from heavy-handed regulatory intervention, or from a failure to deliver the essential raw material of wireless broadband.

In a 2012 speech, Genachowski identified this risk, saying: “America’s global leadership in mobile, and the strategic bandwidth advantage so many have worked hard to create, is being threatened by the looming spectrum crunch.”

To address the spectrum crunch, Congress wisely authorized incentive auctions to free up inefficiently used broadcast spectrum to be repurposed for mobile broadband. Unfortunately, there are ominous signs that the FCC is contemplating arbitrarily shaping auction outcomes.

Consumers have benefited tremendously over the past couple of decades as more spectrum has become available – while the industry has become more, not less concentrated. The capital required to deploy a modern mobile broadband network is staggering and there are large efficiencies of scale. So intense competition between a small number of competitors is to be expected, and serves consumers well.

Moreover, as the Phoenix Center for Advanced Legal and Economic Public Policy Studies showed in their landmark paper Wireless Competition Under Spectrum Exhaust, given the impending spectrum crunch, increasing the number of competitors will actually cause consumer harm: higher prices and more network congestion, as the largest carriers strain to meet demand.

Taxpayers also stand to be big losers if the FCC rigs the auction. An economic analysis conducted by former Congressional Budget Office (CBO) director Douglas Holtz-Eakin and former CBO principal analyst Coleman Bazelon for the Georgetown Center for Business and Public Policy found that excluding AT&T and Verizon from the auctions would reduce proceeds by up to 40 percent, or about $12 billion, jeopardizing funding for a new national public safety network and increasing the federal deficit.

A second chapter of the report, from a former top adviser to President Clinton, Robert J. Shapiro, found that, denied needed spectrum, AT&T and Verizon would be forced to manage capacity in less-effective, more expensive ways that would destroy more than 118,000 jobs by 2017.

We therefore urge the committee to exercise robust oversight to ensure that the interests of consumers and taxpayers are protected in an honest auction design.

Additionally, Congress must find additional spectrum to add to the pipeline after the pending incentive auctions.  The biggest remaining area of inefficient spectrum use is by the government itself, and we therefore urge reforms to require federal agencies to account for the value of the spectrum they occupy and pay appropriate rents in the context of their budgets – or to vacate so that spectrum can be auctioned to the public.

The wireless industry is a booming success, and consumers are benefiting.  Congress and the FCC must pursue policies to provide the industry the spectrum it needs on a fair basis and continue the successful hands-off regulatory approach.