The Rural Cellular Association’s opposition to the AT&T/T-Mobile acquisition puts a spotlight on the un-sustainability of the analog rural cellular model that is on the wrong side of broadband change.
- The clear but unspoken subtext of the RCA’s opposition is their recognition that their current subsidized model of rural cellular providers is fundamentally ill-equipped for the competitive broadband era.
- Simply, the RCA is quixotically trying to drag the anchor of an inefficiently and unsustainably subsidized analog business model into the efficient and competitive broadband Internet future – a recipe for losing the future.
Importantly, most of the RCA’s problems exist completely separate from this transaction.
- This transaction just creates a prime opportunity to engage in regulatory capitalism and artificially create the fiction of a competitive model by seeking regulation that makes competitors implicitly, and taxpayers explicitly, subsidize rural cellular providers, regardless of whether it is pro-competition or pro-universal service or not, but simply because that was the way the old dying voice subsidy system worked.
- Providing masking-tape and rubber-band fixes to a rapidly dying industry model only undermines and delays the benefits of the new technology and the vastly superior economics, functionality, efficiencies, and productivity it can provide to most all but ~15% of the Nation's rural consumers.
I. Wrong Side of Change
RCA providers find themselves on the wrong side of change from: technology, consumer demand, economics, competition, and government budgets.
- Technology: We are in an obvious and inexorable transition from RCA’s legacy analog-voice technology model of the past, to the diverse broadband Internet-Protocol technology model of the future, that enables much more than voice: broadband Internet, voice, video, and near-infinite applications.
- Consumer Demand: Since technology now enables it, consumers are demanding more -- increased functionality, value and innovation of broadband services – than cellular rural providers' technology and model provides.
- Competition: Increasingly rural cellular providers are seeing a market that has passed them by, one that is less driven by rural geography and cellular voice and more driven by reaching the world and using any broadband IP application.
- Network: The legacy analog voice network based on copper line economics is dying, with over half of all local copper access lines lost to other facilities-based competitors and roughly ten percent more are going away every year.
- In short, the underlying copper-infrastructure undergirding rural cellular’s copper-subsidized business model is unlikely to survive the end of this decade.
- Economics: Since technology, consumer demand, competition and the network has radically changed the expected value proposition, the economics of rural cellular has also changed radically; now forward-looking competitive broadband economics are vastly superior to backward-looking subsidy and regulation-based voice economics.
- Government Budgets: The Great Recession and the resultant unprecedented Federal, State and Local budget deficits mean resources are meager at best to continue to subsidize unsustainable technologies and business models.
It is unrealistic for rural cellular providers to ignore all the changes above and imagine they can politically drag their subsidized past into the more efficient broadband future via blocking or conditioning a legal AT&T/T-Mobile transaction.
If authorities look at this transaction through the appropriate lens of how it provides large new benefits to millions of rural customers, rather than how the transaction exposes the relative inefficiencies of the wrong-side-of-change rural cellular competitors, the transaction is clearly pro-competition.
- Put another way, denying rural consumers the competitive benefits and coverage-efficiencies of the AT&T/T-Mobile transaction because it offers more value to rural customers than rural cellular competitors would not be competition-centric analysis but competitor-centric analysis.
- Central to competition is the freedom, within antitrust limits, to provide more efficient and economic combinations and offerings to consumers than a competitor.
RCA has essentially framed its opposition to the transaction as a catch-all regulatory wish list for industry-wide price regulations, and inter-carrier/USF subsidies that are inappropriate to decide in a merger context.
II. Competition Can Now Outperform Regulation for Most of Rural America
One of the biggest revelations of this merger is that competitive models, without any government subsidies, can provide 4G LTE broadband service to the vast majority (~85%) of rural customers.
- (AT&T has pledged to provide 4G LTE broadband service to 97% of the United States; the U.S. Census Bureau claims ~20% of the U.S. population is rural, so AT&T would be providing coverage to ~17 of the ~20% -- or ~85% of U.S. rural consumers without subsidies.)
What this shows is that the wireless broadband economies of scale from a competitive AT&T/T-Mobile transaction transform rural broadband economics.
- It suggests that Congress and the FCC should reexamine and update their assumptions in law and the National Broadband Plan about what percent of the population requires subsidies to get broadband, if 97% of the population can get 4G LTE broadband service competitively.
- This proposed transaction suggests that the market economics of providing near universal broadband service via wireless is more economical and efficient than the economics of laying copper/fiber over long distances for few users.
It is instructive to compare what portion of the country RCA providers provide coverage (see green RCA map) versus what AT&T/T-Mobile offers in seventeen state maps.
- These maps show the RCA model no longer best serves the most rural providers.
- These maps (RCA's and AT&T's state maps) show how in at least eleven big states, representing almost half of the country's area, RCA providers offer little coverage, while a combined AT&T/T-Mobile would offer extensive 4G LTE coverage in: Kentucky, Pennsylvania, California, North Dakota, New York, Louisiana, Minnesota, South Carolina, Indiana, Texas, and Michigan.
- The big takeaway here is that AT&T without subsidies is going to reach vastly more rural consumers than RCA providers can serve.
In extremely tight financial times, why not have competition and market forces provide near universal broadband service to the Nation without the cost of the inefficient subsidy structure of the past?
In sum, RCA opposition to the AT&T/T-Mobile acquisition is more about protecting and more deeply subsidizing RCA members dying business model that is completely on the wrong side of change, than it is about best serving American consumers, both rural and urban.
In essence, RCA’s message is don’t let their competitors and market forces create efficiencies, economies or new benefits that RCA providers cannot provide.
- RCA’s approach is about trying to delay the inevitable losing model, by forcing competitors and taxpayers to subsidize a losing model and also preventing a winning alternative that provides major benefits over what they have today.
- RCA’s approach is a recipe for losing not winning the future, because winning the future involves permitting antitrust-legal combinations that provide large increases in functionality, value, and innovation.