It may also preserve Comcast/Cox?s ?monopoly? in that the deal may be a ?gentleman?s agreement? where Verizon agrees not to build out its FiOS network, reducing competition to Comcast and Time Warner?s cable services. On the other hand, if the market is defined narrowly as wired services separate from wireline services, it looks somewhat less problematic. Today, people often have both wired and wireless Internet access, thus making the services look complementary. But, I believe they can be seen as substitutes. Both of these types of access provide access to the same platform: the Internet.
That does not change because one connects through a wire and the other through a wireless signal. In addition, if Comcast (or another wired service provider) were to raise prices dramatically for wired Internet access (a common test to determine substitutes), those consumers may turn to wireless services to access the Internet. Thus, wired and wireless Internet access could be substitutes. If the products are viewed as substitutes, where the providers compete with each other, this would likely make worse the anti-trust problems.
Under section one of the Sherman Act, contracts that unreasonable restrain trade are illegal. This case would probably be made under a rule of reason analysis, where the courts will look at the pro-competitive and anti-competitive aspects of the deal. This is necessarily unpredictable, but collusive behavior that could lead to inefficient price increases is more likely to garner scrutiny by the courts. However, any potential plaintiff would have a difficult time arguing this given the dynamic and innovative nature of the market (as in, this deal could be pro-competitive in that it allows the companies to pool resources to innovate more, and benefits consumers by streamlining billing and other support services) and the hands-off approach often taken in such industries.
Moreover, the deal looks fishy because it involves the largest wireless carrier and the largest wireline carriers making a deal to be exclusive resellers of the others? products. Regardless of intention, it has the look and feel of unlawful collusion?few can honestly deny that (regardless of whether it is true). These kinds of deals should make consumers angry, at least because they
might go by with no government scrutiny. This is exactly the kind of deal that should get searching FCC and FTC/DoJ review, as it could reduce competition, further entrench the industry, and have horrible outcomes for the consumer. At the very least, the government should force the companies to defend the deal, and perhaps impose additional limitations if the need arises. While the government loves to encourage new innovation (the no-meaning regulatory buzz-word of the century), if consumers are not free to choose what new innovations are good and bad (because the provider is a monopolist or oligopolist and the consumer has no choice), then innovation could be dictated by the providers, thereby reducing innovation at the edges.
Because spectrum is limited, one company owning too much will foreclose others from owning it and competing. Thus, firms that become too big to compete present anti-trust problems. Hopefully, the FTC and DoJ will notice this, and act accordingly.
LightSquared?s Nationwide Wireless Network
LightSquared had a very ambitious goal: build a nationwide wireless network that would be available wholesale to local retailers. To illustrate, LightSquared would own the wireless network itself, and then would lease the capacity to retail wireless providers in localized areas.
Thus, LightSquared would provide the infrastructure for private wireless providers to offer service to the end user. By providing such a service, the company significantly reduces the barriers to entry for wireless providers to join in the market. Potential competitors would no longer have to erect their own towers and lease their own access from various companies across the country?this is all taken care of by LightSquared. In addition, LightSquared promised that the network would be the ?first truly open and net neutral wireless network,? alleviating network neutrality concerns some may have over centralized control of a wireless network.
But the company had a significant problem. LightSquared owned spectrum that was adjacent to the GPS spectrum band. This increased the chances of interference between GPS devices and the wireless network, something the GPS industry did not find appealing. (Generally, interference is caused when signals that are meant to travel on one frequency travel on another?radio static is a common example.) The interference problem has led to substantial fighting (read: lobbying) over whether LightSquared should even be allowed to provide nationwide wireless service.
The network was opposed by, among others, the Department of Defense, the Department of Transportation, the Federal Aviation Administration, and the GPS industry. Surely, having some of the largest federal agencies on the side of ?don?t make the GPS industry do stuff? is helpful to the cause. The GPS industry (and government agencies that rely on the technology) was upset because of the interference and the detrimental effect it had on GPS device performance. In fact, spokespeople for the industry said the network would cause gaps in GPS service where vehicles could not transmit their location, thus defeating the purpose of the GPS device. This opposition led to an investigation into LightSquared?s network, but the FCC granted LightSquared provisional approval pending testing of the interference in 2010. The testing was not successful, with the National Telecommunications and Information Association claiming the interference problems could not be fixed.
While the wireless network may have interfered with GPS devices, it is only because those devices are poorly constructed. They often pick up signals from different wavelengths. It is not (at least completely) LightSquared?s fault that its network interferes with GPS devices.
The devices themselves ?were too blind to distinguish? between the spectrum they were authorized to use and spectrum that was unauthorized. So, because these devices are poorly constructed, this pioneering, game-changing wireless network is not allowed to continue.
It is not evident that the interference argument is one that the FCC should take into account when determining whether the network can proceed. It is true that the network would require the GPS industry to overhaul its current and future devices (the FAA says it would take ten years to upgrade its equipment), but the ?we pick up signals from your band? argument sounds more like a technical and business concern of the GPS industry; in other words, if GPS devices themselves go outside their allotted band, fix it or suffer the consequences of this other legitimate spectrum users/purchaser.
On the other hand, the determination to allow LightSquared to proceed should be about whether LightSquared?s technology interferes with signals outside its own spectrum band. If GPS devices pick up signals from LightSquared?s band, that is a GPS problem, and should not preclude LightSquared?s network.
Moreover, when Lightsquared originally began this network project, the GPS industry gave it the go-ahead: in 2003 and in 2009, the GPS industry advocated adopting a particular standard to reduce interference.
Once that was accepted, the network was acceptable. But now, the industry is claiming there is no fix, and they have managed to convince the US government as well. Why? Maybe they are upset about the disruptive business model that LightSquared is attempting. But, LightSquared will not compete directly with GPS, and that is an argument we would expect out of Verizon or AT&T, not the GPS industry. Perhaps the industry made a mistake in 2003 and 2009 and the problem is actually much more substantial than anticipated. Perhaps there is some other ulterior motive. Regardless of the reason, everyone has had ample time to voice concerns about interference and potential fixes. Not until now, after LightSquared has invested $4 billion in its network, has the concern required a shutdown of the network entirely.
It is extremely unfortunate that the network has been stopped by the FCC. Luckily, LightSquared and its investors are not taking it lightly. Philip Falcone, LightSquared?s primary investor, has hired lawyers to potentially sue the FCC and the GPS industry. With any luck, they can turn this decision around, and let this truly ground-breaking network continue.
Alternatively, LightSquared might swap spectrum with the DoD. If neither works, it may spell the end of LightSquared. As it is, it has already fired 45% of its staff. At the very least, let?s hope LightSquared does not sell its spectrum to Verizon.
Conclusion
Government approval is a double-edged sword, as these cases indicate. In the latter, the FCC has played a significant role, giving LightSquared its limited approval, and then taking it away after testing showed the full extent of the interference. In the former case, parties have requested the FCC to get involved, but some argue the FCC should not.
With LightSquared, the FCC potentially acted against the public interest by preventing the first nationwide wireless network from being built.
With the Verizon deal, if the FCC gets involved, it could act in accordance with the public interest by preventing the sale and further centralization of spectrum. This goes to show that in this changing world characterized by high technology, consistency is difficult to maintain, even for the experts.
There are tons of other spectrum-related issues: what to do with white spaces; whether the FCC should implement incentive auctions; what amount of investment is optimal to make more efficient use of spectrum; or whether the public interest is better served with licensed or unlicensed spectrum. These issues affect millions of people, yet few fully understand them. This post offers just a glimpse into this vibrant and dynamic world.
Source: http://www.dailywireless.org/2012/03/13/legal-battles-in-the-sky/
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