Good morning. My name is Harold Feld. I am Senior Vice President of the Media Access Project (MAP). For more than 35 years, MAP has served as a non-profit law firm and public advocate to provide a voice for the public interest in our communications policy. Today, I am pleased to represent the Public Interest Spectrum Coalition (PISC), a broad coalition of citizens groups such as Public Knowledge and Free Press, think tanks such as New America Foundation, civil rights organizations, consumer organizations, and organizations representing higher education.
The 700 MHz Auction was both the most successful auction in FCC history and perhaps the worst failure in Communications policy in recent memory. The paradox is possible because the FCC, and sadly, not a few members of Congress as well, have reduced the entire public interest analysis for auctions to four words: “show us the money.” The auction statute gives a lengthy list of public interest goals: increasing competition and avoiding “undue concentration of licenses;” promoting ownership opportunities for small businesses – especially rural, woman owned, and minority owned businesses; and providing to all Americans the economic and social benefits of wireless. To these we added to the hopes for the 700 MHz auction the creation of a wireless “third pipe” broadband provider to keep with the broadband cable modem service and DSL duopoly that controls over 90% of the residential broadband market. Finally, we expected the D Block public/private partnership with public safety to build the national, interoperable broadband public safety network that the 9/11 Commission and everyone else agrees we need.
None of that happened.
The auction raised over 19 billion dollars. It may have given DBS provider Echostar a boost for providing new video services. And the C Block condition may finally give subscribers to Verizon a chance to connect their own devices to the portion of Verizon’s network that uses the C Block spectrum – depending on how firmly a future FCC enforces these conditions.
That’s it. No third pipe. No new wireless competitors. Instead, the auction simply cemented AT&T and Verizon’s position as the dominant wireless companies, free to integrate the spectrum most suited for wireless broadband with their existing wireless and wireline assets. The two companies jointly paid $16 billion dollars in exchange for staying top dogs of the wireless world for the foreseeable future. A great deal for AT&T and Verizon, but a rather nasty deal for the American people. And to make matters worse, we didn’t even get the public safety network built.
Predictably, everyone has a favorite villain to blame and a cure that fits with their business model. It’s Kevin Martin’s fault for pushing the C Block band plan and adopting the “open device” condition that forced AT&T to beat up on MetroPCS, Leap, and the other second tier providers. It’s Morgan O’Brien’s fault for being too aggressive with potential bidders and scaring off the money. So all we have to do is yell at Kevin Martin to stop trying to regulate the “wildly competitive” wireless market, slap Cyren Call on the wrist, and we can fix everything.
I wish it were that simple. But, as usual, the truth is far more inconvenient. We got the auction results we deserve because the FCC and Congress absolutely refused to “pick winners” or do anything that might jeopardize the auction revenue. Where the FCC actually tried to do its job on the public interest side – such as with the open device condition on C Block or the public/private partnership on D Block – it faced stiff resistance and had to adopt outrageously high reserve prices to protect the auction revenue. The FCC – at the urging of many members – absolutely refused to adopt any rules that would exclude incumbents or make it easier for new entrants. It was no surprise that the players with the greatest ability to “extract value” from the licenses and pockets deep enough to outbid anyone else, i.e., AT&T and Verizon, won the licenses. As Woody Allen once observed, “the race is not always to the swift, nor the battle to the strong, but that’s the way to bet.” If you structure an auction to maximize revenue and refuse to “pick winners,” you can hardly complain when the biggest wireless companies win again and again and again.
If we don’t like the world created by the 700 MHz auction and our wireless polices over the last ten years, we need to change our policies. To get competition, we must “pick winners.” To get open networks, we must have rules that force companies to open their networks. If we want to see a real public/private partnership for our public safety network, we need to worry less about how to get at least a billion dollars for the commercial side and spend more time thinking how to make that public/private partnership work.
I am aware that many who dislike the thought of regulating the wireless industry point to the C Block as proof that regulation is bad. In particular, AT&T argues that it paid $2.68 MHz/Pop for B Block licenses rather than $0.76 Verizon paid for C Block licenses to avoid the open device condition. Bad regulation! According to AT&T, the condition reduced auction revenue by nearly $1.90 MHz/Pop.
Even if we accept that as true (and for reasons I give below, I find it hard to swallow), think about that for a minute. AT&T will pay billions of dollars to keep its networks closed. Why on earth would it do that? Unless it plans to get that revenue from somewhere else. And they do. That $2 MHz/Pop is bribe money from AT&T to the federal government to have the freedom to charge me, and you and every other subscriber $600 for an iPhone. It’s a bribe to the Treasury to be able to keep competing services off their system, so it can charge dollars for ring tones instead of the pennies people pay in Europe and Asia. It’s a bribe to the Treasury to be able to keep us in the digital stone age so that AT&T can remain “master of its domain” and dictate exactly who gets to speak, what services get offered, and what price we all have to pay.
In keeping with the Passover Season, I can only say to Congress “Let the American People Go!” We can start by rethinking the D block, and trying to develop rules for a public/private partnership that puts our public interest goals first and maximizing revenue out of the picture. But whether it is thinking about how to resolve the outstanding problem of D block and getting a public safety network built, opening wireless networks, or encouraging new entrants who will provide economic opportunities to all Americans regardless of gender, color or where they live, Congress and the FCC must change course. We must stop making auction revenue our highest priority while praying that somehow the next spectrum auction will be different. Because, unless Congress and the Commission have the courage to start “picking winners,” we can expect to see the same results again and again and again.
To read the rest of Harold's testimony, click here [1]. (PDF)