Monday, March 24, 2008

The 700mhz Spectrum Auction and you...National Edition

The 700 mhz spectrum auction closed last week and it is likely to be one of the most significant events you've never heard of and wouldn't normally care about if you did. Citizens should set aside a moment of silent sadness to mark the occasion. But national and local citizens will have different reasons to mark the day.

The FCC's 700 mhz auction sold off the last bits of really good spectrum that will be available for the foreseeable future. It was freed up by the Feds finally taking back spectrum from the television broadcast industry after forcing a reorganization of broadcast technology based on more efficient digital technologies. The reallocation of that spectrum held the last great hope for opening a powerful 3rd, wireless, connection into your home or business.

Opening up space for a new competitor was one of the stated goals of the sale. Instead Verizon and AT&T—by far the two largest telecommunications companies in the US each won most of a "block" of spectrum. The upside spin is that this will allow Verizon and AT&T to build faster more reliable networks. The downside complaint is the one I've already voiced: that does nothing to add new competitors to an already competitively anemic mix. This sale all but assures that AT&T and Verizon will be the dominant, largely unchallengeable national-level service providers of both wireline and wireless connectivity into future.

Part of the unhappy background to this sad tale is the finality of it. The federal government in the guise of the FCC has moved from treating spectrum as a "license" issued on behalf of the communities the licensees serve to a "property" that corporations (or at least the most wealthy ones) can buy. Because the public spectrum has been remade into private property the potential for reorganizing its use at a later time to better serve the public has largely ended with this sale. The irony is that the TV spectrum that was sold was only available because the FCC exerted its control over TV licenses to force (a bitterly resistant) broadcast industry to move to a more modern model of broadcast. The "new" spectrum will not be similarly regulated.

So...the national citizen can justifiably feel that it's sad that new competitors will not rise to challenge the oligopoly telecom market. Some had hoped that Google (which convinced the FCC to put a modest "open" condition on the block of spectrum that Verizon won) would actually buy up one of the blocks and put in what would amount to a wireless internet. A new network focused on IP data which would let you use any device to connect to it and which would be completely open. Google, it was hoped, would sell connectivity as a commodity and would eschew any attempts to build a content empire based on its control of the network. The imagined network would have been the very essence of what net neutrality advocates are hoping for. Such a network would have been very attractive one would have to think based on the bitter complaints about about the current providers and the almost universal affection for the openness of the internet. The success of a truly free entry point onto the network could have forced the current providers toward openness themselves, if only in self-defense.

We're not going to see such a network. And the record price that Verizon and AT&T paid for the spectrum is evidence of how much they feared that a neutral, open network might be successful. (The auction yielded almost twice what an optimistic Congress had hoped for.) The thin silver lining on the dark cloud of the spectrum auction is that Verizon, which has made gestures in the direction of net neutrality and which has said it would refuse to police the internet for content owners won the spectrum that was offered under the google-favored conditions. That makes it seem likely that Verizon will emerge as the preferred company for advocates of a more open internet. (Caveat: Verizon cooperated fully with the warrantless wiretapping that caused such an uproar, as did AT&T. There's no really "good" carrier, just a less bad one.)

To add insult to injury it looks like AT&T at least will have to go further in debt and eat into operational funds to pay for the ability to maintain its current business plan. That means that network upgrades, already put off as the new AT&T absorbed the debt of buying BellSouth and others, will be further delayed and since the business rationale for making the investment is, to my eye, focused on preventing new competition, the incentive for innovation will be minimized as well.

So, the hope for a new, powerful 3rd connection into the home to supplement the cable and phone duopoly has been thwarted. The incumbent phone companies have snatched up the best spectrum and there remains no block of spectrum that could be used to mount an alternate national network from scratch. This will minimize, and perhaps was meant to minimize competition and that will surely reduce innovation. Even worse, they've gone into such debt to buy the spectrum that little capital remains to do anything with it... That's the big picture and the national version of why you should care about, and shed a tear for, the unknown spectrum auction. Like many things, however, the local story may well be more interesting—and even more important to local readers. More on that in a subsequent post. Teaser: Cox, not AT&T, is the big player.

Langiappe: after drafting this up I found two smart analytical articles that I'd like to recommend to those wonkishly interested in this topic: Susan Crawford's detailed analysis of just why Verizon's win is even sadder than I have claimed and Harold Feld's take which is slightly more upbeat than my own. Lots of detail.

No comments: