September 2, 2011

Awaiting the Final Aria

The government’s decision to block AT&T’s acquisition of T-Mobile will have more than structural repercussions for the wireless industry. If the Justice Department prevails in court the backdoor to imposing a new regulatory regime on wireless will have swung shut. On the other hand, an AT&T court win will trigger government regulation that could ultimately spread to all wireless carriers.

Back in April, shortly after AT&T announced the acquisition agreement, I wrote in this space how it laid the foundation for a 21st century Kingsbury Commitment, the 1913 accord between AT&T and the Justice Department that shaped a century of telecommunications policy. My theory was that the conditions ultimately imposed on AT&T by the government would not only establish rules for Ma Bell, but would then expand from the largest carrier to all others. (http://www.mobilemusings.net/2011_04_01_archive.html)

Now we have the perverse situation where a government win means less regulation while a victory for the corporate interest opens the door to more. Absent a court ruling reversing the Justice Department the regulatory oversight of wireless carriers will continue to atrophy as the digital nature of the wireless business separates it from the legal nexus with traditional analog telecom regulation.

This is because mobile broadband has for several years now been classified by the Federal Communications Commission (FCC) as an “information service” as opposed to a “telecommunications service.” An “information service” is not subject to traditional regulatory requirements such as just and reasonable rates and the prohibition of unreasonable discrimination. Escaping these two historical cornerstones of regulatory policy was a huge win for the wireless industry’s new broadband offerings.

The Communications Act and its enforcer the FCC are analog legacies in a digital world. Of course, there will remain jurisdiction in areas such as the Universal Service Fund, rights of way, and Title I “ancillary jurisdiction,” but absent a new vehicle the regulation of marketplace behavior that has characterized telecom regulation for almost a century is headed towards the same fate as the dial tone – another fatality of digital zeroes and ones.

This trend could have been reversed by the conditions imposed by the government on an AT&T/T-Mobile merger. Skirting the regulatory authority issue in favor of a more flexible public interest standard, AT&T and the FCC/Justice Department would simply agree via a consent decree to pseudo-regulatory behavioral standards. Even though consent decrees are traditionally for a limited duration, such concepts once established with the largest carrier could have been lifted into subsequent consent decrees for other carriers and even into the terms for subsequent spectrum auctions (“If AT&T can live with them so can everyone else”). Ultimately, the more it was imposed on some carriers the greater would be the pressure for a “level playing field” to make the rules the same for everyone. Reportedly, other wireless operators were concerned about this kind of regulatory contagion. Absent a consent decree, however, the predicate for the infection has disappeared.

Thus, the long-term impact of the Justice Department’s decision would appear to be the growing irrelevance of traditional telecommunications regulatory concepts on mobile broadband providers.

Not so fast!

AT&T’s response to the Justice Department decision could breathe new life into wireless regulation. Bloomberg reports that AT&T may be planning to propose consent decree terms to try and entice the Justice Department to change its mind. Surely, such a proposal would contain both structural and behavioral concessions. Even if that does not come to pass, however, an AT&T victory in the appeal of the Justice Department decision would reopen the FCC’s ability to determine appropriate public interest protections.

This saga is better than opera. On stage high tensions abound. Yet, the audience – the FCC and other wireless carriers – is also a participant. Waiting for the final aria will be a nail-biter.