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They are missing the point here. Exactly how many of the four nationwide networks started out as a nationwide network? The answer is maybe one, but that is a big maybe

More Nationwide Networks

Saturday, April 04, 2009

I keep hearing that there will be problems resolving the first responder spectrum and the 700-MHz D Block that was not sold during the last auction. At the IWCE, several groups were quite vocal about convincing congress and the FCC to remove the D Block from the auction block and give it to the first responder community. The problem, I am told, is that the Democrats (those in power) were disappointed that a new nationwide wireless network provider did not win spectrum at the last 700-MHz auction. So, the reasoning goes, they will be loath to give up the possibility of a new nationwide provider entering the scene and going head to head with AT&T, Verizon, Sprint, and T-Mobile. They seem to think that more networks means less expensive services for customers, even though we already have some of the lowest wireless rates in the world.


They are missing the point here. Exactly how many of the four nationwide networks started out as a nationwide network? The answer is maybe one, but that is a big maybe. AT&T was put together from Craig McCaw’s non-nationwide network, then AT&T’s non-nationwide network. When AT&T and Cingular (also put together from a number of networks) got together, AT&T finally had a nationwide network. The Verizon Wireless nationwide network was put together from Bell Atlantic, Nynex, GTE, and several others, and T-Mobile became nationwide only after it merged several networks, including OmniPoint, into what today is T-Mobile.


Sprint may be the only “nationwide” network to start from scratch, but even then, it used agents and other network providers to stitch together its nationwide network. Nextel was cobbled together by buying out many small SMR operators and might be considered a nationwide network today. So exactly who do these folks in Washington expect to step up and commit to a new nationwide network, especially when we already have four or five along with many local and regional networks? Just what would having one more nationwide network accomplish?


It would take years and billions of dollars to build out a footprint that could match AT&T, Verizon, Sprint, or T-Mobile. Where would that money come from today? Are the people in charge of all of this so uneducated about wireless and competition that they don’t understand how wireless developed over the past 25 years? In 1981, we started with two network operators in the 850-MHz band, the A Block and B Block. Then in 1996, congress and the FCC decided that a duopoly was not working to the best advantage of consumers and auctioned the 1900-MHz spectrum.


Yes, there have been many more players, but over time they were gobbled up by the others, as will happen in a free market economy. So we ended up with four tier one players and more tier two and three players, and with the consumer, in most areas, having a choice of more than eight networks when you count MVNOs (Mobile Virtual Network Operators), some of which have gone belly-up over the last few years because they could not compete and attract enough customers. How long will it take for those in charge to understand that there are economics at work here? How long will it take for them to stop listening to the Internet companies that have “discovered” wireless as the next best thing in life and want to play?


How many muni-Wi-Fi systems have failed? Will Clearwire make it as a national network operator? If there was a demand for more networks, would NextWave’s plan to provide a nationwide network for all to use on a shared basis have failed? The issue is NOT how to attract another nationwide network operator, that will happen if and when market conditions are right, by existing 700-MHz network operators such as Cox, Comcast, and others joining forces. But how will having yet another national network operator help the public safety community accomplish the goal of interoperability?


I don’t expect all congress members to be smart about wireless. However, before they go spouting off about competition, fairness, and lower consumer pricing, they should seek advice from people who understand the economics and limitations of wireless, the reality of the costs to build out a nationwide network, and the chances of making a decent return on investment, which is damn hard, nearly impossible, and not a good use of capital.


Part of the problem in Washington is that it is easy to pick on the telecommunications companies. Remember when AT&T was broken up? Was that really the best thing for this nation? Do you want to know why some of the rest of the world is ahead of us when it comes to broadband deployment? It is because many governments make it a priority and make it happen. And, by the way, most consumers in these countries pay a lot more for voice and data services than we do.


When it comes to rural broadband, which I have spent a lot of time on, those in DC don’t seem to remember that phone and electricity to rural America was subsidized by the federal government and still is to some degree. They think simply throwing $7 billion at the wireless problem will solve it? Yeah, this is just as likely as someone bidding on the D Block at 700 MHz and then building out a $20 billion network to be number five or six in the nationwide pool or number ten in the local markets! Or selling the ASW-3 spectrum for a nationwide broadband network with 768 Kbps of free broadband (if it really is broadband speed)! At 2.5 MHz, that is a $45 billion investment over ten years. Who in their right mind would make that kind of investment for a network that will be obsolete before it is finished?


This should not be about what one political party believes, especially when its beliefs are based on misleading information presented by companies with ulterior motives. I am sure today’s network operators have their own agendas as well, there is no mistaking that, but there is also no mistaking that they are already meeting on the battleground of competition—recent pricing decreases indicate that fact very clearly. I am not picking on a single political party, especially since I am a registered Democrat, however, it appears as though the folks now in charge in DC don’t have a clue about the real world of competition or how things work, as evidenced by the fact that they want to withhold the D Block from the public safety community so another “nationwide” company can step forward and bid on it.


Will Clearwire, which can hardly afford to continue to build out its 2.5-GHz spectrum, step forward? Will Frontline (oh, sorry, it’s gone) or someone else step up? Perhaps AIG will use some of its bailout money to bid on the spectrum. (I couldn’t help myself.)  Washington is pushing for yet another nationwide wireless network, which means it is listening to Google, Microsoft, and others in the Internet community and being led to believe existing wireless network operators are villains in not getting coverage into all of America and keeping prices high (which is simply not true). Thus the wireless industry, one of the few industries helping our nation out of its worst recession in years, is doomed to go through yet another round of consolidation (rather than the expansion Washington is seeking).  You would think those in charge would take time to find out what is really going on in the wireless world instead of listening only to those who have recognized late that wireless is the future of this nation.


We typically reward those who understand the trends and move forward with products and services that drive them. We did so with Apple, IBM, DEC, Xerox, Compaq, HP, and many others, and those who were late to the party tried their best to get a piece of the action. If they were deserving of it, they got it—Gateway, Acer, Panasonic, and others—but if they were not, they fell by the wayside. So let’s allow the market forces to decide who survives and thrives in wireless voice and data without the government (congress) interfering with those forces, ensuring that we retain our leadership position in wireless. And for those who doubt we are leaders, go to Europe for a month and pay the bill for voice and data services there. You will come home really appreciating wireless prices we pay here at home.


Give the D Block to the public safety community. Don’t hold it hostage in the hopes that the Lone Ranger will ride over the hill and make it into something it cannot be—a successful nationwide competitor to those already in the marketplace.


Andrew M. Seybold

COMMENTS: This is an archived post. Commenting is no longer available.

Joe Nordgaard - 04/06/2009 03:52:00

Bravo Andy!!!

A nationwide D block with all of its encumbrances, while noble in their goals, amounts to walking on "wireless water." Even if all the billions in financing were in place today - it would take 3-5 years to just build out - if all the constituent stakeholders could agree on the scope of services, reliability, grade of service and coverage requirements (both indoor and out).

You illuminated an issue that appear have only grown in my life time of spectating Washington, that is, a fundamental lack of understanding of economic realities – and Wireless is no exception. I call it the "Magic Money Tree" problem. I see no “Magic Money” falling from the trees to build this network to the level of financing necessary to be reasonably viable – coast to coast – border to border.

Also to be considered, the deficit spending that is rampant at the State and Federal levels only pits the various public Treasuries against those trying to finance this and other private sector endeavors.

The supply and demand of capital will be interesting to watch when trillions are needed by governments over the coming months to finances an ever expanding set of deficit financed programs – regardless of their merits or social benefits.

But not to fear - there is always the Magic Money Tree that is well rooted and grows on the Potomac. To fully understand this tree and all of its magic, it appears one must partake of the waters within the Beltway. And I fear, there in lies the problem.