Open Access is a Moneymaker All Around; AT&T is Happy to Swallow a “Poison Pill”
Open Access is a Moneymaker All Around; AT&T is Happy to Swallow a “Poison Pill”
Open Access is a Moneymaker All Around; AT&T is Happy to Swallow a “Poison Pill”

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    Open Access is an idea that serves the public interest in a lot of ways. Fundamentally, it's a way to ensure that there will be competition in the wireless broadband market, regardless of who ends up controlling the spectrum. Open Access rules turn the license holder into a wholesaler, who provides connection to retailers behind the towers. This model is simple from an engineering perspective, and a moneymaker for both the wholesalers and retailers from a business perspective.

    We've been talking about Open Access a lot recently. Here's Gigi explaining how this model works and why it's such a good idea. A few weeks ago, I pointed out some similarities between Open Access and MVNOs, an existing and successful wireless business model. Kim explained how limiting incumbent participation in the auction can increase competition. We attended the 700 MHz hearing, made a video about it, and posted some observations on the testimony. Here's our page on the issue, which includes a summary of our position, and links to some studies and literature we've been handing out on the Hill and to FCC staff.

    Is What's Good For the Incumbents Good for the Rest of Us?

    Desperate to ward off the creation of true broadband competition, the incumbents are pulling out all the stops. One of their arguments has been that placing Open Access rules on the spectrum — never mind the public interest benefits — would “decrease the value” of the spectrum. This is code for saying that Open Access rules would reduce auction revenues. But we can show what this just isn't the case. Frontline Wireless has just released a study showing that Open Access rules are likely to increase, not decrease, auction revenue. You can read the study here for more detail and explanation.

    Making the spectrum becomes less valuable to the incumbents does not therefore make it less valuable overall. General Motors' president Charles E. Wilson famously said that “What's good for General Motors is good for America.” But what's good for the incumbents is assuredly not good for America. Placing Open Access rules on the 700 MHz spectrum is likely to increase new entrant participation in the auction, thereby increasing its likely revenue.

    We understand that the incumbents have strong incentives to control the spectrum. To them, it has what is called “foreclosure value.” It is valuable to them insofar as it might enable them to fill in the gaps in their existing networks and coverage– the same way that the last piece of a jigsaw puzzle might be especially valuable to someone who has the rest of the puzzle completed. There could be a public interest justification for this gap-filling, but the incumbents don't need all the spectrum to fulfill it, and it has to be balanced against other factors such as increasing competition. Regardless, this filling in the gaps is not by itself enough to explain the dizzying amounts of cash that incumbents seem willing to spend on the spectrum.

    There's another, more telling reason, for the spectrum to be valuable to them: They really would not like for a new entrant to create a broadband competitor to their existing networks. When we say that incumbents are likely to warehouse spectrum, we don't mean that they'll do nothing with it. Rather, we mean that they will not put it to the same use that a new entrant that is not worried about cannibalizing an existing business would. We'd rather see a new nationwide broadband competitor to the incumbents than see the incumbents use the public's spectrum to marginally improve their service.

    Possible new entrants see how valuable the spectrum is to the incumbents, and it scares them. Why would they want to play a game they know they can't win? This could have the perverse effect of decreasing the auction revenue. Keeping competitors away won't make the auction more competitive. Even if new competitors enter and don't win, their presence is likely to make any collusion or tacit agreements between the incumbents as to how to allocate the spectrum difficult — the incumbents will have to actually compete amongst themselves, rather than reaching little “arrangements.” Furthermore, “new entrant” doesn't mean “broke.” A well-funded new entrant might want to stay away from a non-Open Access auction that would be totally dominated by the incumbents — it wouldn't want to be the only new entrant. But it might be more willing to enter, and then win, a more competitive Open Access auction.

    Who Wants Open Access, Anyway?

    AT&T in its comments keeps saying that Frontline is “seeking to impose spectrum restrictions that would make the proposed E block unattractive to any bidder other than Frontline.” But Frontline has simply proposed an Open Access model that they think is in the public interest and that they — or anyone else — could make money off of. They are not asking to be given anything, and their proposal for a sensible Open Access business model (with important public safety benefits) is no “poison pill,” something else AT&T has called Frontline's proposed rules.

    Anyone, even AT&T, can bid on Open Access spectrum under Frontline's proposal, and turn a handsome profit. Even AT&T has conceded this:

    Robert Quinn, Jr., AT&T senior vice president, said the company was considering the possibility of becoming a wholesaler for a block of 700 megahertz (MHz) spectrum that the Federal Communications Commission is planning to auction within the next several months.

    “It's a different business model for us, but one that we'd be looking at,” Quinn said in an interview with the Center for Public Integrity's “Well Connected” Project. “If, in the end, that spectrum is attached to public safety, and for example there's a wholesale requirement, we'll take a look at it.” (Source: Center for Public Integrity.)

    AT&T is not alone in its willingness to swallow the Open Access “poison pill.” Northrop Grumman has communicated with the FCC that “the proposed open access shared public safety/commercial network advocated by Frontline Wireless, LLC (“Frontline”) and others is technologically feasible and practical[.]” Northrop Grumman's comments show a clear willingness by that company to participate in an Open Access model.

    Open Access is a simple way to ensure that our country gets broadband competition. The FCC shouldn't worry that Open Access rules will make the spectrum less attractive — AT&T and Northrop Grumman aren't afraid. Here, the public interest and private business interests are aligned.