November 28th, 2007

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I'm Not So Crazy After All -- Or Others Are As Whacky As I Am

So during the big fight on the upcoming wireless auction, I and my friends pushed for the FCC to set aside some spectrum for mandatory wholesale of capacity to promote competition. In addition to the standard arguments that Man Must Not Meddle In Markets (while ignoring that wireless licensing is all about government regulation), the anti-wholesale folks kept insisting it wasn't a viable business model. Why? Well, because if it were, others would already be doing it. (How many Libertarians does it take to change a light bulb? None - if the market wanted a working bulb, we would have one already.)

We counter argued that wholesale was a viable business model, and that the reason you don't see it in the market has a lot more to do with the operation of wireless cartels to exclude rivals rather than with the healthy economics of a functioning market place. "Nonsense!" Cried the wireless industry. "Absolutely bonkers, etc."

Well, turns out I'm not so crazy after all. Or if I am, a lot of wealthy businesses are just as crazy as I am. According to this Businessweek article, a number of potential bidders have been looking at doing a wholesale model. Turns out there's plenty of demand, but existing licensees don't want to offer it as a service for a variety of reasons from the rational (we want to use it ourselves) to the reasonable (that's not our business model and we don't want to get into a new and potentially risky line of business) to the anticompetitive (lease to a competitor, right!).

So, as I and my colleagues kept insisting, there's a demand for this service. The market isn't supplying it, but because access to the critical input (use of the electromagnetic spectrum) is a government monopoly, it can only be resolved by government action.

But fear not gentle Neo Cons. The tale has a happy ending for all. Rather than set aside spectrum for wholesale, as we had asked, the FCC adopted our proposal to fix the bidding process. By making all bids anonymous, the wireless cartel can no longer signal each other or play other games to exclude new entrants. So while we don't have any assurance that wholesale will happen, those who want to offer the service in the market will at least have the opportunity to win licenses.

And they said I was mad, MAD! bwahahahahaha! I'll show them "mad."