American Enterprise Institute

[Commentary] There are strong arguments in favor of allowing the third largest US wireless carrier, Sprint, to acquire the fourth, T-Mobile, but Sprint Chairman (and Softbank CEO) Masayoshi Son's assertion that current performance of the US mobile market is "terrible" isn't among them.

Perhaps he should visit more often -- or try using a different provider. The reality is that the US mobile broadband market is one of the most competitive, and best performing, in the world. More than 90 percent of US households have coverage from next generation LTE wireless networks, which are now being deployed by all the major US carriers, including Sprint and T-Mobile. That puts the US in a virtual tie with Japan and South Korea for the most widely available mobile broadband coverage in the world. The US is also tied with Japan for the highest LTE penetration, with 20 percent of subscribers using LTE connections. Only South Korea, at 46 percent, has more.

International pricing comparisons for mobile broadband services are notoriously difficult, thanks to variations in business models (some countries rely more heavily on handset subsidies than others) and usage (Americans use twice as much mobile data as Europeans). But according to the OECD, which surveys prices for a variety of different bundles and service, US prices are lower than those in Japan for nearly every basket, and lower on average by 35 percent.

[Eisenach is director of the American Enterprise Institute's Center for Internet, Telecommunications, and Technology Policy]

[March 11]

[Commentary] Since the decision of Verizon v. FCC in which the Federal Communications Commission “lost” some net neutrality rules, many (including myself) have claimed that Verizon was actually the loser.

But I’ve had time to reassess and I feel compelled to rephrase my claim; it is not Verizon but rather Google (and other of that ilk) who is the biggest loser. This is why: Verizon (and its ilk) is accustomed to being regulated, heavily -- the Verizon decision will not change that. Google is not used to being regulated -- the Verizon decision will change that. The result of the case was that the FCC can adopt policies that help get consumers Internet connections.

That’s not the most shocking part. If I were to ask 100 people what would encourage you to adopt a new Internet provider (maybe even your first provider) the vast majority would answer the same way you would -- a lower price would be the key. The court in Verizon saw things differently. Rather than price being “the”, or even “a”, fundamental driver of consumer demand, the direct connection between consumer price and consumer demand was ignored. Ultimately, the court bought the FCC’s tale that only content drives Internet adoption. What’s more, the court believed the FCC’s claim that content “innovators” (like WhatsApp, Facebook’s new $19 billion purchase) cannot fend for themselves but must be subsidized by Verizon (and others) -- which really means they will be subsidized by you through higher consumer prices. The increase of consumer prices will thus add to innovation, that will add to consumer adoption and (if this is to be believed) even higher consumer prices.

It is this thin theory that the court found sufficient to support the FCC’s move into Internet regulation.

[Boliek is an associate professor of law at Pepperdine University School of Law]

[March 10]

[Commentary] Australia has spent $7.3 billion on its highly touted National Broadband Network, but made fiber available to only about 260,000 premises, which works out to over $28,000 each.

Nearly a decade ago, it had a chance to take a different path. In 2005, Australian phone company Telstra would cover 87 percent of households on its own nickel, with the government pitching in $2.6 billion to extend the build out into rural areas. The catch: Australian regulators would agree to follow the US model of exempting next generation networks from network unbundling requirements, thus creating incentives for intermodal competition from cable and wireless. The answer: No sale. Australian bureaucrats and politicians decided instead to heed the cries of access seekers and follow the European approach of “encouraging competition” through massive regulatory intervention.

[Commentary] The 1992 Cable Act, passed over the veto of President George H.W. Bush, contained two major provisions regarding the carriage of broadcast stations on cable and satellite systems.

First, the Act prohibits these systems from retransmitting a commercial broadcaster’s signal without the broadcaster’s explicit permission. This is known as “retransmission consent.”

However, not all broadcast channels are popular enough to warrant inclusion on a cable system. As more Americans ditched their antennas for cable, these stations found themselves reaching smaller and smaller audiences. To protect them, the Cable Act granted broadcasters the second provision, the so-called “must carry” rights. Generally, cable companies are required to carry a broadcaster’s signal upon request on cable systems within the broadcaster’s local market, without charge. If requested, the cable company must give a must-carry station the channel number corresponding to its over-the-air channel designation. These two provisions are designed to work together. However, in recent years, retransmission consent has become much more lucrative for major broadcasters. [Lyons is an assistant professor at Boston College Law School]

[Commentary] The debate over international broadband comparisons goes on. There’s lots of evidence the US is doing well.

Those who want more government control of the Internet, however, aren’t always happy about this success. Good news makes a big change in policy -- from a relatively unregulated market to one of their preferred big government models -- less likely. Thus the increasingly creative attempts to characterize the US as a broadband backwater.

The unmistakable takeaway from a glance at a chart, “Countries with high-speed broadband,” which recently appeared on Twitter is that the US trails the world. Except the chart doesn’t say that at all. It took a lot of work to create such a misleading chart.

[Swanson is president of Entropy Economics LLC]

[Commentary] The WhatsApp story is a great one -- almost too good to be true. In 2009, Brian Acton, one of two WhatsApp co-founders, was turned down for a job by Facebook, the firm that just bought his company for billions.

Jan Koum, the other co-founder and a Ukrainian immigrant, signed the $19 billion deal on the door of the Mountain View (CA) welfare office where his mother used to get food stamps. Facebook is not paying for revenue or technology. Facebook is paying for scale. In large part because of its own vulnerabilities.

When firms, products, and user bases have the ability to grow (or shrink) this fast, they can completely change the nature of industries in no time at all. And this has profound implications for policy. Messaging, chat, Skype, Facetime, Xbox conversations -- these apps have completely changed the worlds of voice, email, and mobile. With further disruptions to come. This is what we call “dynamic competition.” And it’s this idea of very rapid change, unpredictability, and overlapping technologies and business models that policymakers need to keep in mind as they consider regulatory efforts like “net neutrality,” the IP Transition, and a possible update to the Communications Act.
[Swanson is president of Entropy Economics LLC, a strategic research firm]

[Commentary] Should regulators condemn potential mergers before they are even proposed? That’s the question being raised by statements coming out of the Department of Justice and the Federal Communications Commission about the rumored Sprint/T-Mobile deal.

These rumors have piqued the interest of regulators, who have made unusually public comments apparently designed to discourage the merger. Conversations between companies and regulators about proposed deals are not uncommon. Markets abhor uncertainty, so investors crave early feedback regarding how a hypothetical deal will be greeted by regulators and what may be done to reduce the risk of an unfavorable response. If regulators identify anticompetitive concerns that can be cured by concessions, it’s better for agency officials to pinpoint the problem and propose a tailored solution during the merger approval process, rather than have the parties guess what might be a problem and what concessions might fix it. Unquestionably, regulators should scrutinize this deal closely. But both due process and the public interest demand that they be given the opportunity to do so, without regulators placing a thumb on the scale. It may be that without a merger, neither company has the scale to compete effectively against Verizon and AT&T. If this is true, then the regulators’ quixotic quest to preserve four national carriers will deprive consumers of the benefits of a more efficient market structure and the more robust competition it would bring.

It is far too early to determine that a Sprint/T-Mobile merger would be good for consumers. But it is also far too early to unequivocally decide otherwise.

[Lyons is an assistant professor at Boston College Law School]