Verizon

Reading through The American Antitrust Institute's white paper on Verizon-Cable, it is striking how little analysis is relevant to antitrust/market-competition and how it is basically a thinly-veiled tacit pitch for the DOJ and the FCC to pursue an aggressive industrial policy for the wireless industry.

The white paper presumes that because the DOJ blocked the AT&T/T-Mobile merger to preserve T-Mobile as a disruptive fourth wireless competitor, and because T-Mobile now claims it needs more spectrum, that the government should intervene somehow to effectively redirect the spectrum to T-Mobile and away from Verizon.

The huge flaw in the AAI's analysis is its central presumption, which is contrary to longstanding spectrum auction law, that the government, not market forces, should allocate spectrum. The analysis ignores that the law of the land allocates spectrum via property rights and auctions enabling the spectrum to find the party that most economically values it and has the most economic incentive to put it to productive use. The AAI's analysis appears biased against existing law in assuming that the only or primary reason that the largest wireless providers would want more spectrum would be to anti-competitively keep it from its smaller competitors, and not the obvious and real reason that they want to provide better, faster, more reliable mobile broadband service to more people in more of the country to make more money.

The Washington Post's lead story today, "Landline Rules Frustrate Telecoms," puts a needed spotlight on obsolete communications law that: falsely assumes the telecom marketplace is still a monopoly with no consumer choice; and still mandates telecom companies subsidize below-cost, copper-line telephone service to households as if it were still a government-sanctioned monopoly.

A bit of history is warranted here. This century-old political arrangement -- the 1913 Kingsbury Commitment between the Federal Government and AT&T -- effectively established a government-sanctioned monopoly in return for universal telephone service to all Americans and utility rate of return regulation. In 1996, Congress reformed Federal communications policy by ending monopoly and promoting competition. Today, despite copper telephone networks losing half of their customer base to cable, wireless, VoIP, broadband and other Internet competitors (and losing most of their most profitable landline customers) many legacy telecom legal requirements, like subsidized below-cost telephone service, live on despite being obsolete. This means that in today's fiercely competitive voice service marketplace, mandating that only one provider must provide subsidized below-cost, copper-line service to potentially millions of households, is a classic un-funded mandate and a hidden, unfair, investment-distorting business tax on only one competitor.

T-Mobile demanded last week that the FCC deny the Verizon-Cable spectrum license transfer, apparently so Deutsche Telecom/T-Mobile could get it at a deep FCC managed-market discount.

The FCC is not Deutsche Telecom/T-Mobile's personal do-over button that they can push and magically reset the marketplace to an earlier time more to their liking. All other players have made market-driven decisions and have to live with them, and so should Deutsche Telecom/T-Mobile. That's the essence of free-market competition, companies move forward or backward based on their own market-driven choices. It's not competition or a market, if those who don't like the outcome of their own market decisions, run to government for a do over and quasi-international bail-out.

Let's review how T-Mobile got to this point.

For years T-Mobile has been a seller of its spectrum; because its parent Deutsche Telecom has long wanted to exit the U.S. market because it requires more capital investment than they are willing or financially able to expend.

FreePress' latest net neutrality folly and political agitation is pushing the SEC to make shareholders from AT&T, Verizon and Sprint vote on inappropriate, ill-advised, and unwarranted proposed shareholder resolutions in favor of wireless net neutrality in the weeks ahead.

Let me count the ways this is a waste of time and abuse of process.

First, it inappropriately and destructively attempts to politicize non-political entities, by trying to force a public political position from non-political corporate entities, whose contractual and fiduciary responsibility to shareholders is to economically/financially grow the value and profitability of the corporation.

Second, the appropriate place to have political votes is in legitimate political processes, elections or representative votes or decisions by elected officials at the appropriate local, state, and Federal level, which enjoy the constitutional, political, and relevant authority and legitimacy to decide political issues in a meaningful, substantive and productive way.

Third, the operative authority here for shareholders, the companies' shareholder agreements, corporate charter, and bylaws, are legally grounded on a contractual agreement between the company and shareholder to protect and grow the shareholders investment in the company, not to promote extra-political positions that actually could endanger the underlying purpose of the shareholders agreements.

The Senate Judiciary Subcommittee hearing on the proposed Verizon-Cable spectrum sale flushed out the opposition's best arguments and evidence and they proved surprisingly weak and sparse.

Behind the façade of FreePress' trademark bumper-sticker bluster of "a competition crisis," "a creeping duopoly," and "spectrum warehousing," there was very little substance to back up their pejorative assertions.

FreePress' bogus duopoly deception is the core weakness of the opposition to this commercial agreement. To believe there is a Verizon-AT&T wireless duopoly, one has to:

Hopefully, the March 21^st Senate Judiciary Subcommittee oversight hearing on the Verizon-Cable spectrum transaction will be a fair hearing based on the competitive facts and the law, and is not allowed to be hijacked politically by FreePress' signature gamesmanship.

I. FreePress Fiction

It is disturbing that two of the three hearing witnesses opposing the Verizon-Cable agreement are from FreePress: Joel Kelsey, FreePress' Policy Advisor and Tim Wu, who was FreePress' Chairman just thirteen months ago and has been a longtime FreePress board member.

It is curious and troubling that the Senate Subcommittee specializing in "competition policy" would seek testimony from two anti-profit, anti-property-rights adherents who don't believe competition policy can work.

The March 21^st Senate Judiciary Subcommittee hearing reviewing the Verizon-cable agreements provides Congress with an opportunity to learn:

• How the metamorphosis of communications competition is increasing competition;
• How the Government has created artificial and temporary spectrum scarcity in failing to free up more spectrum for broadband use in a timely fashion; and
• How unfair, arbitrary and capricious the FCC review process has become in reviewing market transactions.

Given that the DOJ has such weak grounds and facts under antitrust law to challenge the Verizon-cable commercial agreements, and given that the spectrum transfer is in the public interest in multiple dimensions, opponents appear to be pushing the FCC to do whatever necessary to try and block Verizon-cable under the FCC's make-it-up-as-they-go-along public interest standard.

Netflix' erratic and panicky behavior this past year is telling us that Netflix' leadership fears they may becoming the AOL of web streaming.

Remember AOL was the company that led the dial-up narrowband market, but fell way short in transitioning to broadband success. (Investors remember AOL-Time Warner, dubbed the worst merger of the century.) Meanwhile, Netflix is the fallen star company that led the mail-DVD business, but now is struggling to repeat its offline success online with web streaming.

If one looks at Netflix' panicky behavior over the last year or so, a clear pattern emerges that Netflix' own management is very concerned about how it will successfully transition from DVD mail-order leader to successful web streaming provider.

Consider the cumulative evidence.

Mobile technology advances are dramatically increasing the intensity of competition broadly online and offline. The technological convenience of using a smart phone, tablet etc. rather than a card or cash to pay for goods and services, wherever one may be, is igniting a competitive free-for-all.

• That's because the technological shift to devices rather than cards creates a huge potential competitive opportunity for most everyone in the competitive ecosystem to potentially disintermediate other industries -- i.e. Wrest control of the customer relationship, customers' private information, interests and metadata, and also the bundling of marketing coupons and promotions, in markets with transactions in the trillions of dollars annually.

Activists and regulators who fear a potential new communications "opoly" lurking around every corner -- in need of preemptive government intervention to protect consumers from the convenience, savings and benefits of a highly-competitive marketplace -- need to take a breath, enjoy, and get out of the way of this amazing technological convergence and innovation over mobile payments.

Activist carping about the commercial Internet being commercial is revving up again, this time with the carping focused on framing new broadband usage-pricing innovations by Time Warner Cable and AT&T, as somehow a violation of the "open web."

To cut to the quick and translate what is really going on politically here, this activist carping is the latest attempt to revive and re-fight the manufactured net neutrality debate between: