Chateau AT&T Produces A Vintage Whine
Chateau AT&T Produces A Vintage Whine
Chateau AT&T Produces A Vintage Whine

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    The July 12, 2007 from Chateau AT&T has reached new heights. It is bold and robust, dominated by classic indignation, accented with dark undercurrents of threatened litigation and yet, through it all, not a hint of irony. This is a whine for the ages.

    It has to be that good because it is paired with the rare and delicate 700 MHz spectrum, in itself a complex blend of public safety, incumbent operators, license sizes, service conditions and a promise of innovation that confounds even the most dedicated of telecom palates.

    While it is worthwhile to get into the details of what AT&T told the Federal Communications Commission (FCC) in its filing of July 12, it is even more worthwhile to take a look at the document in its larger context. As an alternative to the wine analogy, a useful place to start might be a famous magazine cover from January, 1973 which had the cover line: “If you don't buy this magazine, we'll kill this dog.”

    AT&T is telling the FCC that if the Commission doesn't hold the spectrum auction along the lines that AT&T wants, then the auction will be a failure. The company will file suit, thus delaying the auction beyond the Congressional mandate, receipts will be lower than expected, the spectrum will be wasted, and it all will be the Commission's fault. It is all nonsense, of course, but it doesn't matter. Bullying and threatening are well-established tactics that go back decades. Bell companies are wont to threaten anybody over anything at any time. Even during the current debate over a non-discriminatory Internet, the Bell companies argue that if the regulatory climate isn't to their liking, then they won't invest to upgrade the network. The only difference is that National Lampoon back then was kidding; AT&T isn't.

    AT&T's other major obsession, along with the penchant for bullying and threatening, is their Google-on-the-brain mentality. The company seems to think it can score points simply by attacking Google. This tactic started last year when the company had Rep. Henry Gonzales (D-ATT) introduce legislation aimed at regulating search engines. Is there an inferiority complex at work here? Is AT&T jealous because Google built its company the real old-fashioned way, with smarts and hard work, as opposed to AT&T having been created out of a government monopoly? In any case, this isn't about Google. It's about innovation by those other than the major carriers.

    On the merits of the issues involved, AT&T argues that the cellular market is competitive and that there's no need for the “open access” model that would allow innovators to have access to spectrum. Here's how AT&T characterizes the argument: “Google's request for 'open access' conditions in the 700 MHz band is nothing less than a request for the Commission to repudiate this history of competition, consumer welfare, and ongoing investment, and to adopt instead highly regulatory, deeply intrusive requirements that would frustrate innovation and inhibit broadband deployment. But Google identifies no evidence in the record or elsewhere of the sort of market failure that would justify such a stunning about-face.”

    Here's one: Free the iPhone. If buying a $600 phone that can turn worthless overnight if you leave the cellular carrier it's on isn't a “market failure,” then the definition of “failure” must be lacking.

    There is a “protesteth too much” quality about AT&T. Google asked for “open access” wholesaling requirements on 22 MHz of the 60 MHz up for auction. Considering all the spectrum that AT&T and Verizon won in the last couple of auctions, and the amount they will probably get in this one, that's really not too much to ask. AT&T is asking to maintain control over a system in which incumbents control the spectrum, the devices and the applications that run over the network, while making life difficult for consumers to change carriers. That's worth defending, right? The fact that all the major cellular carriers use that same business plan, with some differences at the edges doesn't mean there's real competition for consumers. It's competition as defined by the industry, for the industry.

    The rest of AT&T's filing is similarly flimsy. Contrary to the argument AT&T makes, all of the evidence shows that prices for spectrum go up when the auction inhibits the incumbents. Revenues are depressed when incumbents game the auction and keep receipts down. As Harold Feld has written, one auction in which incumbents were limited in how much spectrum they could acquire brought a return of $4 MHz/pop – a standard if arcane measure of value. By contrast, the most recent auction brought 53 cents per MHz/pop.

    At the end of the day, the FCC will be judged by how well it used the unique opportunities presented in this auction to bring new competition and services to the American public, not whether companies which already have most of the spectrum will have more. If the Commission has to act in the face of threats from AT&T, so much the better. AT&T's is a whine that should be allowed to go sour.