Call it what you want: a bailout, a thumb on the scales, bidder restrictions–the FCC might conspicuously intervene in the 2015 incentive auctions at the behest of smaller carriers and public interest advocates.

Chairman Wheeler’s recent comments indicate the FCC may devise a way to prevent the largest two carriers–AT&T and Verizon–from purchasing “too much” of the television broadcasters’ spectrum at auction. AT&T likely sees the writing on the wall and argues that if there are auction limits, the restrictions should apply only to the auction, rather than more extreme restrictions that would penalize AT&T and Verizon, the largest carriers, for previously-acquired spectrum. As The Switch’s Brian Fung put it,

the small carriers favor what are called “asymmetric” spectrum caps that affect various carriers differently, while opponents prefer “symmetric” caps that don’t account for existing market positions.

While I wish AT&T put up more of a fight to auction interventions, they (and staff at the FCC) are handicapped in pursuing an unrestricted auction. The blame lies mostly with Congress who gave the FCC vague (thus ripe for abuse) and conflicting mandates spanning decades. The 1993 law authorizing auctions, for instance, requires the FCC to “avoid[] excessive concentration of licenses” and to “disseminat[e] licenses among a wide variety of applicants” among other regulatory carve-outs for smaller competitors. These latter requirements, if implemented as rigorously as smaller carriers would like, directly undermine the purpose of the 2012 American Taxpayer Relief Act that requires the upcoming spectrum auctions raise $7 billion for a public safety broadband network and $20 billion for deficit reduction.

By asymmetrically penalizing AT&T and Verizon, the FCC increases the probability the auction fails to raise the tens of billions of dollars needed (see Fred Campbell’s recent paper). I haven’t heard a policymaker speak about the incentive auction without remarking how extraordinarily complex it is. That complexity–as was made clear in this week’s Senate hearing on the subject–means no one knows how much spectrum will be auctioned off or how much money will be raised. I was doubtful the FCC would secure the called-for 120 MHz for auction in the first place, but the Senate hearing convinced me that they might not get even 60 MHz. If the FCC meddles too much and the broadcasters aren’t assured they’ll get top dollar for their spectrum, the broadcasters might not show up to sell.

For many reasons, the FCC should ignore the pressures to restrict the large carriers in bidding. Smaller carriers argue the large carriers will outbid them only to preclude competition and hoard the spectrum. Every major carrier is spending billions to expand its footprint and capacity rapidly so the hoarding argument is hard to accept (not to mention, carriers face FCC build out requirements). The hoarding argument also confounds me because AT&T and Verizon are at the forefront arguing for more spectrum auctions, particularly spectrum from federal agencies. Would they want the market flooded with new spectrum only so they could spend billions to hoard it?

Asymmetric auction restrictions also resemble a bailout for smaller carriers. T-Mobile and Sprint–who most actively lobby for auction restrictions–are not mom-and-pop establishments. Each is a sophisticated, powerful corporation with access to capital markets and backed by larger international telecoms–Germany’s Deutsche Telekom for T-Mobile and Japan’s SoftBank for Sprint. DT and SoftBank have both pledged to spend billions in the next few years to improve their American carrier’s competitive position. Such carriers do not need an FCC handout.

The bailout resemblance is more apparent when you realize Sprint has been hamstrung for nearly a decade with damaging business decisions. Three come immediately to mind: 1) the dreadful merger with Nextel in 2005; 2) the ill-fated bet in 2008 to forgo LTE rollout in favor of WiMax, a competing 4G standard; and 3) the loss of over one million customers when it discontinued its push-to-talk iDEN service for network upgrades. The losses from the Nextel merger alone approach $30 billion.

To be clear, I don’t second-guess Sprint’s decisions. They did what innovative firms are supposed to do in attempting big, risky investments. However, it should not be the job of the FCC to favor some firms through spectrum auctions because some carriers’ business decisions did not pan out. That is not a competitive wireless auction–that is an FCC-orchestrated bailout. Granted, the FCC has been handed conflicting mandates. The Commission has ample discretion, however, to conduct a competitive auction that both complies with the law and improves chances of reaching the ambitious revenue goals. Intense meddling with auction results could prove disastrous.

[Cross posted at Truthonthemarket]

As I have posted before, I was disappointed that the DOJ filed against AT&T in its bid to acquire T-Mobile.  The efficacious provision of mobile broadband service is a complicated business, but it has become even more so by government’s meddling.  Responses like this merger are both inevitable and essential.  And Sprint and Cellular South piling on doesn’t help — and, as Josh has pointed out, further suggests that the merger is actually pro-competitive.

Tomorrow, along with a great group of antitrust attorneys, I am going to pick up where I left off in that post during a roundtable discussion hosted by the American Bar Association.  If you are in the DC area you should attend in person, or you can call in to listen to the discussion–but either way, you will need to register here.  There should be a couple of people live tweeting the event, so keep up with the conversation by following #ABASAL.

Panelists: Richard Brunell, Director of Legal Advocacy, American Antitrust Institute, Boston Allen Grunes, Partner, Brownstein Hyatt Farber Schreck, Washington Glenn Manishin, Partner, Duane Morris LLP, Washington Geoffrey Manne, Lecturer in Law, Lewis & Clark Law School, Portland Patrick Pascarella, Partner, Tucker Ellis & West, Cleveland

Location:  Wilson Sonsini Goodrich & Rosati, P.C. 1700 K St. N.W. Fifth Floor Washington, D.C. 20006

For more information, check out the flyer here.

John Schwartz of The New York Times called me two weeks ago and asked for comment about a potential controversy involving mobile phone provider Sprint and the charitable organization Catholic Relief Services (CRS). The facts were pretty sketchy at the time, but Schwartz told me that CRS was accusing Sprint of blocking Mobile Commons, the company that connects CRS and 100 other nonprofit organizations with text messaging networks, from getting a short code to create a charitable mobile donation program in the wake of the Haiti earthquake. Here’s the basic background that appeared in Schwartz’s March 24th article, “Catholic Charity and Sprint Tangle Over Texting“:

[CRS] wanted to try a twist on the technology: when people sent a text message to donate, they got a reply offering to connect them via phone to the charity’s call center. The group hoped that the calls could build a stronger bond with donors, and garner larger contributions as well. But just three days into the effort after the Jan. 12 earthquake, the charity got word that Sprint Nextel was demanding that the “text-to-call” effort be shut down. The charity had 40 days to abandon the feature or lose access to millions of Sprint customers.  Sprint’s original motivations are murky; it said that an intermediary company had failed to properly fill out a form to verify that it was dealing with a legitimate charity.

It didn’t take long for the regulatory activists at Free Press and Public Knowledge to pounce and claim the Federal Communications Commission (FCC) had to intervene to save our souls from the nefarious scum at Sprint. After all, you do know that Sprint hates Haitians, right?  The company obviously wanted to see Haitians starve and not receive any support from charitable organizations.

No, seriously, come on!  How asinine is this storyline?! That’s why, when Schwartz called me about the issue, I felt something else had to be going on here. When he asked me for a quote for the story, here’s what I said, (on the assumption that Sprint probably had some sort of system in place to ensure fraud wasn’t taking place): “most people would say, I want my carrier to be doing a certain amount of policing for potentially harmful or fraudulent activities,” and would hold the carrier responsible if things went wrong.

And, now that all the facts are out, we now know that Sprint had no charity-blocking machinations in mind. Indeed, as I suspected, the company (quite sensibly) has a process in place to make sure that any organization asking for the short code is legit and not a blatant scam artist. Here’s how Sprint explained the situation:

We are simply asking Mobile Commons – the aggregator involved – to adhere to the same reasonable practices with which other entities involved in mobile giving adhere.  Specifically, certify that the charities they work with are 501(c)3 organizations; set up a confirmation process for each short code; and, provide basic information concerning the mobile giving campaign they wish to implement. In turn, this allows us to accurately communicate this information to our wireless customers who call us seeking more detail. Taking these steps also protects our customers and assures that their donations are going where they are intended.

Makes perfect sense to me, especially in light of the unique “text-to-call” service being proposed by CRS and Mobile Commons in this case. If you were a mobile phone operator, wouldn’t you want to a have a process in place to vet short code use so that your users weren’t getting scammed by hucksters? (That’s especially the case in our litigious society, where class-action lawsuits fly at the first whiff of potential trouble.) And as a customer, don’t you hope that your provider has such safeguards in place?  Basically, that’s all that Sprint has done here.

But here’s what I found really surprising, and that you certainly wouldn’t learn if you only listened to the howling in Free Press and Public Knowledge press releases: Sprint never blocked the CRS code at all! A clearly (and legitimately) agitated John Taylor, who handles corporate communications for Sprint, notes:

There is not ONE Sprint customer who has been prevented from using the short code set up by the mobile marketing firm hired by Catholic Relief Services. That’s because the short code is operable on Sprint’s network. (It never was suspended and we never threatened to suspend the code.)

And here’s Sprint’s letter to the FCC responding to the allegations and verifying that the CRS code has been operational and will continue to be so.

Now, let’s get back to the call by Free Press and Public Knowledge for regulatory intervention. They made that call to regulatory arms less than 24 hours after Schwartz’s NYT article appeared. Never mind the sketchy facts, they basically said, we are going full bore forward and requesting action now!  Here’s what they demanded:

“The Commission has an opportunity to establish the rule of law with regard to text messaging and short codes. It can require that carriers deal fairly, and that non-profits and commercial enterprises have the necessary stability and legal protection from unjust and unreasonable discrimination to innovate and explore new ways to use this communications technology. But if the Commission once again turns a blind eye to carrier discrimination by letting the Petition continue to languish, this too will send a message to both carriers and users of short codes, and we can expect such arbitrary discrimination to continue to increase.”

But the problem with this is that the carrier in question (Sprint) was dealing with the situation fairly and in a reasonable, non-discriminatory manner.  The company was applying the same sensible policy in this case they they have applied across the board . And, again, they were not blocking anything at all !

In a truly audacious response to these facts, Harold Feld of Public Knowledge tries to avoid admitting that they were clearly wrong on the facts and instead spins this around to make it all Sprint’s fault. In a response to John Taylor, Feld argues:

the “real story” is that Mobile Commons and CRS must put up with such ridiculous processes and arbitrary treatment at all . That you feel ill-used because the process that you developed and implemented prevented you from discovering that a customer was threatened with a shut off for a relief fund — and that you failed to contact the customer directly after the NYT reporter alerted your company about the problem — emphasizes the phenomenal sense of entitlement carriers have with regard to how they provision what should be a basic service no different from use of an 800 number.

Absurd. What “ridiculous processes and arbitrary treatment” are you talking about, Harold? There’s none here to be found!  Would Free Press and Public Knowledge prefer no process at all?  Again, should any huckster calling themselves a “charity” be able to grab a short code and unwitting “donors” givers straight to their offshore account to pump individual givers’ bank accounts at will?  That seems like bad business to me—for both Sprint and its customers. Indeed, if Sprint didn’t have some policies in place to deal with such things, policymakers would likely be up in arms about it and the FTC would potentially come calling once things went wrong. Or would you put the FCC in charge of monitoring all these things on behalf of carriers? Should the FCC have a whole wing of regulators dealing with standard business practices like fraud prevention? Seriously, why shouldn’t that be handled by private carriers?

Even more outrageous is Feld’s line about carriers’ “phenomenal sense of entitlement.”  What in the hell is he talking about? The only “sense of entitlement” I can find here is the one on display at Public Knowledge and Free Press, two organizations that apparently believe that they are entitled to instantaneous FCC regulation of communications markets based on asinine and unsubstantiated conspiracy theories. Most troubling of all is the fact they couldn’t even wait 24 hours to check out all the facts and see what the real story was—perhaps, by checking with Sprint!  Instead, they displayed a reckless disregard for the truth in their rush to fire off a letter asking the FCC to bring down the regulatory hammer.

Shame on them both.

Progress & Freedom Foundation released a new report this week entitled “A Primer on the US Mobile Television Market,” by Joseph S. Kraemer, Ph.D., who is an Adjunct Fellow at PFF and a Director at Law and Economics Consulting Group. It’s not a policy piece; it just focuses on the projected growth of the mobile television marketplace over the next few years. Kraemer explains why “mobile video is forecasted to explode over the next four or five years.” He notes that it is the logical evolution of the television marketplace:

mobile digital television is a logical extension of the digitally-driven development of television from passive entertainment to an interactive, high value, versatile medium. Each stage builds upon the set of earlier stages. “Personal television” adds functionality and value to “web TV” which did the same to “digital television” which, in turn, did the same to “analog broadcast television.” The development process is additive and cumulative. Although critically important, mobile television is just one aspect of the evolving “personal television” stage.

The report is packed with lots of useful factoids and charts for media analysts. And the paper also contains a useful glossary of terms and acronyms about various mobile media technologies. I’ve embedded the paper below so you can take a quick look, or you can download the 31-page report here.