But since 2001, when a Republican-led FCC lifted caps on the amount of spectrum any one company could control, that has changed, particularly as it relates to next-generation data service. Now, through spectrum swaps, mergers, partnerships and purchases of large blocks of new spectrum at government auction, Verizon and AT&T have each assembled enough concentrated spectrum to be able to offer coast-to-coast service on their own next-generation networks. For them, roaming and equipment interoperability are no longer so important.
Not surprisingly, then, the two industry leaders recently began demanding hefty roaming fees from small competitors for use of their networks, since no reciprocity is needed. The FCC responded with a proposed ruling requiring them to reach roaming agreements at reasonable rates, a rule that both companies vigorously opposed. And after the FCC adopted it anyway, the always-litigious Verizon filed suit in federal court to overturn it.
Equally interesting is that Verizon and AT&T are now offering phones that work only on their networks but not on those of their smaller competitors, which disadvantages the small guys in two ways.
Now, when the smaller companies go to the manufacturers of handsets and chip sets, they can no longer just order the same sets that Verizon and AT&T order and get the advantage of the same low price. Instead, they have to pay significantly higher prices to get the manufacturers to produce different versions of the phones just for them. Some even say that they can’t get phones at any price.
By selling devices that work only on their part of the spectrum, AT&T and Verizon have also created a big disincentive for their customers to switch to one of the smaller providers when service contracts expire. To do so would mean throwing away a perfectly good handset and incurring the expense of buying a new one that works on all networks.
Such behavior by the industry giants can be found in almost every industry, of course, but over the years it has proven to be particularly effective in telecom, where there are huge efficiencies and other advantages that flow from being big. These scale advantages are the reason there has been so much consolidation in the industry over the past 20 years, why AT&T is willing to pay $39 billion to buy what it claims is a struggling competitor, and why, if it succeeds, Verizon will try to regain the top position by buying No. 3 Sprint.
The situation was much the same in 1913 when, in response to the first antitrust suit against AT&T, President Theodore Vail convinced the Justice Department that the phone business was a natural monopoly and that AT&T ought to be it, under government regulation. Today, there is probably competitive headroom for AT&T, Verizon and maybe one other firm in the market for wireless voice and data services, at least until the next technological breakthrough comes along.
And therein lies the central question in all this: Which arrangement — a tightly-regulated oligopoly or a lightly-regulated market with numerous firms of varying size — is most likely to produce the next innovation that improves services while lowering costs? At different times, we’ve had success with both models, but surely the worst outcome would be the unregulated oligopoly that AT&T and Verizon would have us embrace.