The FCC espouses transparency and data driven decisions. So what happened in the SkyTerra transaction order released last Friday? A trio of Bureaus/Offices (collectively, the Bureaus) approved a transaction with no real analysis of significant, novel conditions. Without analysis, it is hard to say that these ostensibly “voluntary” conditions were transparent or data driven. Either way, they constitute an entirely new approach to the wireless market.
A little background on the transaction is necessary to understand the implications of the conditions imposed by the order. SkyTerra operates a mobile satellite system (MSS) in the “L-band”. It also holds authority to operate a terrestrial network in the L-band pursuant to “ancillary terrestrial authority.” In the order released last week, the International and Wireless Bureaus and the Office of Engineering and Technology authorized a transfer of control of SkyTerra to Harbinger, a private investment firm based in New York City. Harbinger intends to use SkyTerra’s spectrum “to develop a nationwide terrestrial broadband mobile 4G LTE network, which, without regard to satellite coverage, will provide wireless data on a nationwide basis.” (SkyTerra Order, Appendix B, Attachment 1.)
As part of its review of the transaction, the Bureaus analyzed whether the transfer of control would pose any competitive concerns. A key to any competitive analysis is defining the relevant product and geographic markets. Despite Harbinger’s intention to develop a nationwide, terrestrial wireless network using LTE, in the SkyTerra Order, the Bureaus defined the relevant product and geographic markets generally in terms of traditional MSS, i.e., as low-speed data, voice, and high-speed data services on land (also known as land-remote), at sea (maritime), and in the air (aeronautical). (SkyTerra Order at paragraphs 38-39.) Given this market definition, the order’s analysis of potential competitive harm focused almost exclusively on other MSS providers. Yet, in the benefits section of the analysis, the Bureaus extolled the potential of Harbinger’s proposed terrestrial network to enhance “competition in the provision of terrestrial wireless services provided by terrestrial carriers such as AT&T, Verizon Wireless, Sprint, T-Mobile, Clearwire, and others, particularly in the area of mobile broadband services.” (SkyTerra Order at paragraph 59.) This analytical sleight-of-hand results in a mismatch between the competitive harms analysis and the potential benefits analysis.
By eliminating a discussion of potential terrestrial wireless broadband competition in the harms analysis, the Bureaus neatly sidestepped an extended analysis of competition in the terrestrial wireless broadband market. Why would the Bureaus want to avoid a transparent discussion of terrestrial competition based on the data? A look at the novel conditions imposed by the order may provide some insight.
The first condition is breathtaking.
In what is ostensibly pure coincidence, the same day the SkyTerra Order was released, SkyTerra filed a letter describing conditions “Harbinger commits to abiding by” if its transfer of control and other pending applications were granted. (SkyTerra Order, Appendix B.) The first condition is breathtaking. That condition prohibits SkyTerra from “directly or indirectly, enter[ing] into any agreement to make its spectrum used by its terrestrial network in the 1525-1559 MHz/1626.5-1660.5 MHz band (‘L-band’) available to an entity that, at the time the agreement is entered into, is the largest or second largest wireless provider without receiving prior Commission approval.” (See SkyTerra Order, Appendix B, Attachment 2.) The condition defines the “largest or second largest wireless provider” to mean “the largest or second largest provider of commercial mobile radio services (‘CMRS’) and wireless broadband services (including the provider’s Affiliates) measured by aggregate nationwide revenues of the provider and its Affiliates for such services.” (See SkyTerra Order, Appendix B, Attachment 2.) The third condition expands upon the first by prohibiting Harbinger from allowing “any combination of the largest and second largest wireless providers (as defined in Condition 1)” from “accounting for more than 25 percent of total bytes of data carried on [Harbinger’s] terrestrial network, without prior Commission approval.”
As a result of these conditions, for the first time, the FCC has imposed network-based market restrictions on wireless service providers solely on the basis of their revenue. Because the competitive harms section of the analysis in the SkyTerra Order didn’t discuss terrestrial wireless broadband providers, it’s difficult to determine the potential harm the Bureaus were attempting to remedy by this condition. Were they concerned about the potential for excessive spectrum aggregation? If so, why didn’t they address spectrum holdings rather than revenue? Were they concerned about market shares? If so, their action would appear to be contrary to the findings of the last 13 CMRS competition reports, each of which has found that the wireless marketplace is effectively competitive. In either event, there are still the questions of whether revenue is a reasonable proxy for market share or spectrum holdings and whether 25 percent is a reasonable network usage limitation (for the speculative harm).
At the end of the day, it’s difficult to tell exactly what the Bureaus were trying to accomplish by prohibiting the two largest wireless service providers by revenue (presumably Verizon Wireless and AT&T Wireless) from accessing Harbinger’s network without FCC approval. One can speculate that they wanted to address spectrum aggregation concerns without engaging in a messy (and potentially contradictory) analysis of actual spectrum holdings. Or one could speculate that they were concerned about current market shares. But it would just be speculation, and speculation is neither data driven nor transparent.