Meddling with Wireless Service (2007 Aug)

by Barry A. Liebling

The major players in wireless telephone service Verizon, Sprint Nextel, T-Mobile, and AT&T are itching for new business and are spending enormous amounts of money on marketing. Each has a stake not only in voice telephony but in delivering broadband wireless internet services. Their competitive quest for developing more attractive products to customers is never ending.

Soon the Federal Communications Commission (FCC) will be auctioning off additional spectrum which will provide wireless carriers new opportunities to increase their capacity and offerings. Observers of the industry agree that the impact of the new available spectrum will be formidable.

And, as always happens when the business environment changes, interventionists and free marketers clash. Playing their customary roles in July 2007, The New York Times is espousing the interventionist cause while The Wall Street Journal is arguing for free markets.

Randall Stross, writing in The New York Times, takes a classic interventionist position. According to Stross wireless carriers are mischievous in that “they do anything they can to keep power in their own hands.” It is troublesome, according to Stross, that they insist on deciding which phones and equipment run on their networks and dictate which features of the hardware will operate. For example, if you buy the new Apple iPhone you can only use it on the AT&T network – not with other carriers.

Stross praises Representative Edward Markey of Massachusetts who is urging the FCC to force wireless carriers – that want to obtain a part of the new spectrum – to open up their networks to any equipment a customer may have. All wireless carriers should be compelled to work alike – allowing any phones or hardware to function. This means that the owner of the network – the carrier – will not have the authority to decide how it will be run.

Holman W. Jenkins, Jr. of The Wall Street Journal is battling for the free market approach. His position is that wireless carriers should be permitted to use their new capacity any way they see fit. He anticipates that wireless carriers will experiment with various business models – ways of using the new spectrum profitably – and customers will flock to those carriers that deliver the most attractive services. If the FCC straight-jackets wireless carriers into one government-mandated business model, the value of the new spectrum will be stunted and less money will be invested.

Jenkins asserts that lobbyists representing Google are working hard to push the interventionist agenda by reassuring Representative Markey and members of the FCC that wireless carriers should be compelled to work in lock-step. He points out that forbidding carriers from developing proprietary alternatives will make it easier for Google to extend its dominance from the wired world to the wireless internet. The problem for Jenkins is not that Google might prevail. It is that Google is using the government cudgel.

Is there some way for interventionists and free marketers to agree on the appropriate public policy for wireless carriers? Perhaps not. The two factions have incompatible views of the importance of dealing by mutual consent and the role of government.

To a free marketer mutual consent is a necessary condition for doing business. Should wireless carriers allow customers to use any equipment they want on the network? That decision ought to be in the hands of carriers and customers. One wireless service provider might calculate that it can attract more customers by having an open network. Another could insist that only its hardware can be used. Those carriers that have effective business models will prosper. In a free market neither the wireless carriers nor the customers are guaranteed to get exactly what they want. The possibility of failure is a consequence of free association.

To an interventionist dealing by mutual consent is acceptable but hardly essential. It is fine if the other person accommodates to your wishes, but voluntary action is expendable if you really want something and you do not get compliance. When someone buys an expensive cell phone and later changes carriers the new service provider may not allow him to use his phone. An interventionist believes that force is permissible whenever persuasion does not work. If you allow people to come to agreements uncoerced there is no assurance that your preferences will prevail.

To a free marketer the role of the government is to protect individual rights, including property rights. In the domain of wireless telephone service the owner of the network has the right to manage it. The government’s job is to discourage and stop the use of force or fraud. Exactly which technologies or business models happen to succeed or fail is outside the proper domain of government. It is not legitimate for a business to seek government favors.

To an interventionist the government is a tool for positive action – a first-line solution “to set things right.” When the winners and losers in a business are different from what interventionists prefer, they cry “market failure.” Then it is time for the government to swoop in. To interventionists Google’s lobbying efforts on its own behalf are entirely appropriate – especially since they masquerade as being done for “the common good.”

While interventionists and free marketers are bound to clash, there is a solution to the conflict. Interventionists might reconsider their assumptions and learn to appreciate that individual freedom precludes the initiation of force.

*** See other entries at in “Monthly Columns.” ***

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