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When dinosaurs mate: AT&T and Deutsche Telekom

FCC weighs up a Big One

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It's easy to blame the FCC – but who else do you blame?

If the takeover is approved, then, the implications will ripple out to consumers for years to come. The regulator will most likely approve the deal, setting the seal on 30 years of chaotic and contradictory policy making.

In the mid-1980s the Federal Communications Commission opened spectrum via lottery – a change from the technocratic beauty contests of the past 50 years.

Three-hundred-and-twenty thousand lottery tickets were issued, and while canny speculators made a fortune by "flipping" their tickets, everyone else lost. The taxpayer lost out on a bonanza from the true market price of the spectrum being realised; the administrative costs to operators were huge, as they sought to buy up the tickets they needed – costs that were naturally recouped from higher bills from consumers. The lottery cost left the taxpayer $300m worse off: the estimated cost of administration at the FCC. And it left the landscape fragmented. It was never attempted again. In the 1990s, the industry tried auctions, and lucky winners who overbid but were undercapitalised (notably NextWave) did not pass go, and went straight to the bankruptcy court.

Just as there's no such thing as a free lunch, there's no such thing as a free tax windfall. Operators that managed to extend their credit lines to win the dot.com era of auctions went on to recoup the money from punters, so tariffs stayed higher for longer, and capital expenditure picked up the burden; older 2.5G and (in the US) 2.75G networks stayed around longer than anyone expected. Where we saw smatterings of 3G, it was (with the exception of pure play 3G networks) under-provisioned and underwhelming. Then the US mobile market caught up with the rest of the world and overtook it – and all operators were creaking under the strain.

Particularly AT&T, which had further enhanced its historical affection by being the "Operator That Ruined The Magical iPhone Experience". Until a few weeks ago, if you wanted an iPhone that worked on US 3G, you needed to go to AT&T.

So the AT&T-T-Mobile USA merger is all about sites, spectrum and squeezing competition. And the guiding light of the FCC is again cloaked in confusion. To oversimplify it crudely, the FCC traditionally favoured an anarchy over homogeneity, believing a diversity of local choice would be better for competition. Recent beneficiaries of this have been ClearWire and LightSquared, the latter is a clever and ambitious idea to wholesale (proper, LTE) 4G network capacity off spectrum available to satellite networks.

The FCC has now all but given up, and will read the rites for its guiding principle if it approves the merger. It will make a few concessions – a few noises about Open Spectrum for the Google lobbyists – and declare that it's happy with three nationwide operators. But why not say so all along?

And I'm amazed to discover that if the FCC rejects the merger, Deutsche Telekom walks away with $3bn and spectrum. Nobody can lose from this, except, almost certainly, the punter. ®

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