Antitrust Division Urges FCC to Make More Spectrum Available for Wireless Broadband

January 4, 2010. The Department of Justice's (DOJ) Antitrust Division submitted a comment to the Federal Communications Commission (FCC) in connection with the FCC's drafting of a document titled "National Broadband Plan".

The DOJ states in this comment that wireless broadband could become a competitor to wireline broadband provided by cable and telecom companies. It states that the FCC should make more spectrum available for wireless broadband. Also, it suggests doing so in a manner that puts it in the hands of competitors to major incumbent wireline broadband providers.

This comment, like a similar comment filed by the National Telecommunications and Information Administration (NTIA), cautions against putting reallocated spectrum in the hands of wireline incumbents Verizon and AT&T. See, related story in this issue titled "NTIA Urges FCC to Make More Spectrum Available for Wireless Broadband".

This DOJ comment states that wireless broadband "appears to offer the most promising prospect for additional competition in areas where user density or other factors are likely to limit the construction of additional broadband wireline infrastructure".

But, it continues that "We do not yet know, however, whether wireless broadband offerings will be able to exert a significant degree of competitive constraint on cable modem, DSL or fiber optic-based services".

The comment examines the different cost structures of wireline and wireless broadband services, and the implications for competition. "Within a given locale, wireline broadband involves very substantial sunk costs to reach a customer's location and rather low marginal costs to provide incremental services to connected households. Additionally, the costs of wireline broadband can be shared to a considerable degree with those of providing other services, e.g., multichannel video programming distribution (``MVPD´´) and wireline telephony, to the extent all the services are provided over the same infrastructure."

In contrast, "wireless broadband involves much smaller sunk costs associated with serving a given customer, but more substantial long-term marginal costs of expanding capacity in a given locale to serve more customers or to accommodate increased usage. Wireless data services may be provided over the same infrastructure and spectrum used to provide wireless voice service."

The DOJ comment states that its "is premature to predict whether the wireless broadband firms will be able to discipline the behavior of the established wireline providers, but early developments are mildly encouraging. Notably, the fact that some customers are willing to abandon the established wireline providers for a wireless carrier suggests that the two offerings may become part of a broader marketplace".

The filing also notes that both Verizon and AT&T are major providers of both wireless and wireless services, "raising the question of whether they will position their LTE services as replacements for wireline services".

The DOJ continues that "We do not find it especially helpful to define some abstract notion of whether or not broadband markets are ``competitive.´´ Such a dichotomy makes little sense in the presence of large economies of scale, which preclude having many small suppliers and thus often lead to oligopolistic market structures. The operative question in competition policy is whether there are policy levers that can be used to produce superior outcomes, not whether the market resembles the textbook model of perfect competition."

"In highly concentrated markets, the policy levers often include: (a) merger control policies; (b) limits on business practices that thwart innovation (e.g., by blocking interconnection); and (c) public policies that affirmatively lower entry barriers facing new entrants and new technologies." (Parentheses in original.)

Then the DOJ asserts that the FCC's "primary tool for promoting broadband competition should be freeing up spectrum" for "wireless broadband providers". For example, "Reallocating spectrum that is being underutilized would encourage the deployment of wireless services and could help to make such services more competitive with wireline offerings".

The comment also briefly mentions in passing that "the FCC could spur greater use of secondary markets in spectrum".

The DOJ then provides economic analysis relevant to the question of how best to put reallocated spectrum in the hands of wireless broadband providers.

"When market power is not an issue, the best way to pursue this goal in allocating new resources is typically to auction them off, on the theory that the highest bidder, i.e., the one with the highest private value, will also generate the greatest benefits to consumers. But that approach can go wrong in the presence of strong wireline or wireless incumbents, since the private value for incumbents in a given locale includes not only the revenue from use of the spectrum but also any benefits gained by preventing rivals from eroding the incumbents' existing businesses. The latter might be called ``foreclosure value´´ as distinct from ``use value.´´ The total private value of spectrum to any given provider is the sum of these two types of value. However, the ``foreclosure value´´ does not reflect consumer value; to the contrary, it represents the private value of forestalling entry that threatens to inject additional competition into the market."

It then states that "there are substantial advantages to deploying newly available spectrum in order to enable additional providers to mount stronger challenges to broadband incumbents".

The DOJ's filing lists 14 names in its signature section. Most are attorneys. However, economists Robert Majure and Carl Shapiro are also listed.

HR 1, the huge spending bill, directs the FCC to complete this report by February 17, 2010. The FCC's proceeding is GN Docket No. 09-51.