Taxpayers left out of wireless gold rush
Satellite TV provider Dish Network says it’s thinking only of customers as it offers $25.5 billion to buy Sprint Nextel, the third-biggest U.S. wireless company.
“A transformative Dish/Sprint merger will create the only company that can offer customers a convenient, fully integrated, nationwide bundle of in- and out-of-home video, broadband and voice services,” said Charles W. Ergen, Dish’s chairman.
“This unique, combined company will have a leadership position in video, data and voice, and the necessary broadband spectrum to provide customers with rich content everywhere, all the time,” he said.
Here’s what Ergen neglected to mention:
Dish now controls billions of dollars worth of unused wireless spectrum that it obtained from the federal government as well as through a series of acquisitions, such as its $2.9-billion spectrum purchases last year from failed satellite operators DBSD North America and TerreStar Networks.
Under the terms of a deal cut in December with the Federal Communications Commission, Dish now has seven years in which to start operating a wireless network covering at least 70% of the population. If it fails to do so, its wireless license from the FCC will expire.
Dish’s attempt to purchase Sprint isn’t about serving customers. It’s about positioning the company for a wireless future that, regardless of what role the company plays, will be worth a bundle.
Consumer advocates remain wary of the ongoing trend of consolidation among telecom companies.
“These Frankenstein-style mergers among weaker players are no substitute for real competition in the mobile, broadband and video markets,” said S. Derek Turner, research director of Free Press in Washington. “Until something is done about the market power that companies like Comcast, Verizon and AT&T; abuse daily, consumers will be stuck paying higher bills for mediocre services,” he said.
The reality, however, is that sky-high bills and mediocre service have become hallmarks of the U.S. wireless industry, and there’s little anyone can do to change that.
There are too many barriers -- cost, licensing, the Verizon/AT&T; duopoly, which together controls about 70% of the mobile market -- to building a new wireless network from scratch.
The only way to be a player in this market is to buy your way in, and that means doing exactly what Dish and most other telecom heavyweights have been doing for years: acquiring other companies with slivers of the spectrum pie.
While most of the attention was focused Monday on Dish’s big-bucks bid for Sprint, Verizon Wireless was reportedly offering up to $1.5 billion to purchase wireless spectrum from networking company Clearwire.
That would be the same Clearwire that already is 51% owned by Sprint, which has offered $2.1 billion for the rest of the company.
That also would be the same Clearwire that Dish, separate from its Sprint buyout bid, has offered to acquire for $5.15 billion.
Meantime, the Japanese telecom giant Softbank has its own $20.1-billion offer on the table for Sprint, and Verizon ponied up almost $4 billion last year for wireless spectrum owned by some of the country’s biggest cable companies.
And don’t forget the ongoing effort by Deutsche Telekom, parent of No. 4 T-Mobile USA, to buy MetroPCS after AT&T;'s bid for T-Mobile collapsed in 2011.
Complicated? The incestuous, scheming nature of the telecom industry makes “I, Claudius” look like “Pee-wee’s Playhouse.”
To date, the FCC has focused primarily on maintaining a semblance of competition in the wireless market. Yet as the value of wireless spectrum grows exponentially, another issue has emerged: Are U.S. taxpayers being fairly compensated?
It’s easy to overlook, but the fact remains that the American public owns all this spectrum, not Verizon, not AT&T;, not Sprint. We lease it to deep-pocketed telecom companies so they can ostensibly serve the public interest.
According to the FCC, spectrum controlled by the top four wireless companies was worth at least $150 billion as of the end of 2010, the latest year for which statistics were available.
The fact that Dish’s offer for Sprint topped Softbank’s by more than $5 billion highlights how quickly the value of spectrum can grow, especially as it becomes increasingly clear that the future of communications lies in smartphones, tablets and other mobile devices.
“It’s obvious why all these companies want spectrum,” said Linda Sherry, a spokeswoman for the advocacy group Consumer Action. “The wire line is going the way of the dinosaur.”
Edward A. Maldonado, a Miami lawyer specializing in telecom regulatory matters, said the FCC has a responsibility to ensure the public is receiving its fair share of this wireless gold rush.
“The leases ought to be reviewed to make sure they’re in the best interest of consumers,” he said.
Most spectrum licenses are good for 10 to 15 years at a time, and typically are renewed. But could they be renegotiated?
Maldonado said that could be tricky. Much would depend on the terms of the highly complex agreements and how aggressively telecom companies might resist treating the public with greater fairness and generosity.
Mark Wigfield, an FCC spokesman, declined to comment when I asked how much elbow room the wireless leases may contain.
Of course, lawmakers could pass a bill requiring telecom companies to renegotiate terms in light of the changing marketplace, or at the very least to agree to a provision requiring higher payments as the value of leased spectrum rises.
But considering that the telecom industry is among the most influential in Washington -- it spent about $55 million on lobbying last year, according to the Center for Responsive Politics -- that’s not a likely scenario.
More likely is that the spectrum haves will grow wealthier and more powerful, and the have-nots will be increasingly marginalized. The actual owners of wireless spectrum will remain where we began: paying high fees for mediocre service.
In that sense, you could say, it doesn’t really matter who owns Sprint. The wireless deck is already stacked.
David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to email@example.com.