Verizon and AT&T could be excluded via the "spectrum screen" provision

On the eve of an ambitious spectrum auction, one former member of Congress is troubled.  He fears that the government may mar the auction by blocking access to it without the approval of Congress.

"Winners and losers should not be chosen by the government.  The FCC should keep a hands off policy," 14-term former Virginian Congressman Frederick Carlyle "Rick" Boucher" tells me in an interview about the U.S. Federal Communications Commission's recent actions.  It was a point that he would return to several times in the interview.

I. Former Democratic Congressman Fearful of FCC Discrimination

For a former Democratic member of Congress, Rick Boucher's philosophy with respect to business is, surprisingly, closer in line with some of his more conservative Republican colleagues in Congress.  In our interview he challenged many of the stands the Obama administration has taken in the telecommunications industry.

Rick Boucher
14-term former Congressman Rick Boucher spoke to us about spectrum. [Image Source: TPM]

"When it comes to the spectrum auction, the FCC might use one of its existing mechanisms -- the spectrum screen -- to sneak discrimination in the back door," he warns.

He's referring to the upcoming auction of repurposed spectrum left over from the transition to digital TV.  A key talking point of the Obama administration has been doubling the amount of spectrum available to the market, including carriers like Verizon Wireless -- a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD) -- or AT&T, Inc. (T).  

Ostensibly, the spectrum auction is to play a key part in reaching that goal.  Bundled in with the payroll tax cut (officially titled "The Middle Class Tax Relief and Job Creation Act"), it was a key success for the Obama administration and seen as a voluntary way to eliminate waste of this precious resource.  Except that former Congressman Boucher fears that spectrum may not go to those top players that need it the most.

He states, "There probably are individuals at the FCC who think that large companies should be disqualified [from the auction]."

Auction wide
AT&T and Verizon are concerned about discimination in the FCC'S special spectrum (re)auction.
[Image Source: Oscar Hidalgo for The New York Times]

He praises Congress, saying that he thinks that they did a couple things right with the recent authorization.  He states, "The FCC has been instructed by the Congress to develop a process for [carrying out] a spectrum auction...Congress correctly instructed the FCC not to disqualify from the incentive auction process any carriers based on their size or position in the mobile carrier market."

But then the issue returns to the fear of potential discrimination via the spectrum screen -- a provision design to protect against "inappropriate concentrations" of spectrum in the hands of a few holders in individual markets.  While that provision may be legal to enforce in some cases, he suggests, he argues that overall, "We have antitrust laws that are designed to prevent undue concentration.

II. But What About the State of Competition in the Market?  One Perspective...

Touché.  The former Congressman states that the U.S. federal government has been reasonably "vigorous" in pursuing such an approach.  I ask him whether he feels that the recent U.S. Department of Justice breakup of the proposed AT&T acquisition of Deutsche Telekom AG (ETR:DTE) subsidiary T-Mobile USA is an example of such enforcement, in his eyes.

He acknowledges that it indeed showed the administration was willing to strong pursue antitrust enforcement as a means to prevent buildup.  However, he adds, "I happen to disagree with that particular decision."

He says, "the interests of the nation were not served" by blocking the acquisition, as it prevented a mutual fulfillment of spectrum and service needs, as outlined by both companies, he argues.

AT&T party
Rick Boucher suggests antitrust action is the legitimate path to preserving competition, but he argues that the T-Mobile USA acquisition was an example of bad litigation.
[Image Source: 
Spencer Platt / Getty Images]

But the antitrust process is active and doesn't need additional federal supplements from the FCC, in his eyes.  He warns of the upcoming spectrum crunch, stating, "We need spectrum urgently.  The sooner it can be developed and placed on the market for carriers the better, as we have a spectrum crunch."

He points to government estimates that mobile data traffic will swell by a factor of five by 2015 -- just three years from now.  He states, "Allowing larger bidders to buy spectrum does not foreclose smaller bidders by any means."

The mobile services market is very competitive, he argues.  Several times in our conversation, he stated, "Most Americans have a choice of 5 wireless carriers."

Playing devil's advocate, I point out to him that while smaller carriers like Sprint Nextel Corp. (S), T-Mobile USA, or MetroPCS Communications, Inc. (PCS) are an option for most, they often enjoy key disadvantages, such lack of premium handset selection (Sprint only recently acquired the coveted iPhone and T-Mobile's selection is particularly lacking), which forces them into a role as budget carriers.  The former Congressman acknowledges this to be true, but he argues that not everyone wants the most expensive option -- many Americans just want a smartphone that works and that these carriers have "plenty of Android phones" to fulfill that need.

Besides, he argues, exclusive handsets like the iPhone have a tendency to trickle down to the smaller guys over time.  On the prospects of a T-Mobile USA or MetroPCS iPhone, he states, "My guess is you'll see it migrate to other carriers as well... It makes sense for Apple."

I ask him about the consolidation of the former "Baby Bells" into what is today Verizon Wireless and AT&T.  He says that at present he doesn't see this as an issue, reiterating the five carrier per region premise.  He adds a major component of the AT&T breakup was to promote competition in the long distance market -- and he states that today rates are much more competitive (a fair point).

AT&T Consolidation
Consumers have not been harmed by AT&T and Verizon's slow merging process, former Congressman Boucher argues.  [Image Source: The Colbert Report/Comedy Central; modifications: DailyTech]

As for the complaints raised by Post-Newsweek Stations Inc. -- a division of the Washington Post Comp. (WPO) -- and a handful of other small broadcasters who propose the auction on the grounds of interference concerns, the former Congressman feels that these concerns are unfounded.  He acknowledges that TV broadcasters who stick around on the old channels used by analog will be forced to undergo repackaging, which may offer temporary inconvenience/service disruptions.  But he says that the government is paying all costs of this spectrum shuffling, and once complete that there should be no serious interference issues.

The DC veteran suggests that fears of Verizon and AT&T hoarding spectrum are unfounded.  After all, he points out, "The largest spectrum holder is actually Sprint if you consider what Sprint holds directly and what [Sprint-subsidiary] Clearwire [Corp. (CLWR)] owns."

That's a fact that most people don't know.

III. Beware Vested Interests, But Consider Mr. Boucher's Points All the Same

For clarity's sake, Congressman Boucher does undeniably have a fair share of vested interests.  In his unsuccessful bid for a 15th Congressional term in 2009-2010 he raised $29,500 USD from Verizon Communications, majority owner of Verizon Wireless.  To be fair, that's only a tenth of a percent of his total raised funds $2.6M USD.  In total he raised $210,050 USD from telecom firms -- or roughly 8 percent of his campaign costs. [source]

Further, he now heads Sidley Austin's government strategies process, as well as serving as an honorary chairman of the Internet Innovations Alliance (IIA) a DC advocacy group that represents AT&T among others (thus it's little surprise his dissatisfaction with the T-Mobile USA rejection).  Sidley Austin is notably a long-time lead counsel for AT&T [source] and has represented the carrier in several merger battles.

Sidley Austin
The former Congressman is currently employed at AT&T's lead counsel, Sidney Austin LLP.

In short Mr. Boucher's ties with the telecommunications industry run deep, both in that they have historically helped finance his way into office, and today are paying his salary.  That perspective is important, but it doesn't preclude the former Congressman from offering some valid commentary on the issue.

He does raise some interesting (and valid) points, even if he is unquestionably influenced by his own political and financial ties, ties that run deeper even than his party's general platform, which advocates stricter antitrust enforcement on the mobile carriers.

If Congressman Boucher were still an active politician, it would be easy to find fault, perhaps, in him taking the stands he is taking on these issues.  Remember such ties run both ways -- while Obama's administration played opponent to AT&T in the T-Mobile bid, it supported a bid by Sprint partner LightSquared, which could have had catastrophic consequences.  LightSquared was a key donor to the Obama campaign in 2008, holding a fundraiser for him that reportedly raised millions -- a fact that LightSquared officials not-so-subtly reminded the White House Chief of Staff in emails when they were pushing for approval.

But Mr. Boucher now is solidly a member of the private sector, albeit peripherally involved in the litigation efforts relating to the FCC and federal government.

In other words, think of his commentary about like you would think of Shaq trying to sell you on a new Buick from General Motors Corp. (GM).  -- it may be (in effect) hired commentary, but every company needs well-spoken, informed, passionate advocates capable of explaining their firm's viewpoint.  Mr. Boucher certainly argues his side's perspective quite persuasively.

DailyTech would like to thank the Mr. Boucher for taking time out of his busy schedule to offer his views on various telecom issues with us.

"This week I got an iPhone. This weekend I got four chargers so I can keep it charged everywhere I go and a land line so I can actually make phone calls." -- Facebook CEO Mark Zuckerberg

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