Sprint and T-Mobile Merger Looms Large (Episode 77)

Date: 22 Jul 2019 | posted in: Building Local Power, MuniNetworks, Podcast | 0 Facebooktwitterredditmail

This week, we’re bringing you Building Local Power a little early in light of recent developments with the Sprint and T-Mobile merger. Host Chris Mitchell, interviews two telecommunications experts to get their take on the merger and its potential impact. First Chris talks to Gigi Sohn, a Distinguished Fellow at the Georgetown Law Institute for Technology Law & Policy. Chris also talks with Blair Levin, a Senior Fellow at the Brookings Institute. They discuss:

  • How the T-Mobile and Sprint Merger could raise prices for millions of Americans, especially low-income households, and otherwise harm innovation.
  • The importance of mobile when households can’t afford a fixed Internet connection
  • Precedent for blocking the merger, including the failed AT&T and T-Mobile merger
  • How Wall Street thinks about mergers and what local policymakers can learn from Wall Street analysts

Wall Street understands that the world is about probabilities, not certainties. And, in Washington, that is really a bad way of thinking about it because in Washington you don’t actually own a problem, you own a narrative, and you should never be anything other than 100% certain of the correctness of your narrative. But that’s just not the way that the real world works.

Hibba Meraay: Hi, everyone. It’s Hibba, ILSR’s Communications Manager. And today on the podcast, we have Chris with me here. Hey, Chris.
Chris Mitchell: Hey, Hibba. How’s it going?
Hibba Meraay: Good. How are you?
Chris Mitchell: I’m a little bit worried. I think we’re talking about the 2020 election. I didn’t prepare a whole lot. It’s 476 days away. I’m getting a little bit nervous about it. I’m sure how ready I am to talk about it today.
Hibba Meraay: Don’t worry Chris. You can just catch up watching all of the political comedy commentary. I don’t even watch the debates anymore. I just watch the Daily Show recap of it. It’s fine, but that’s actually our topic for today.
Chris Mitchell: Oh. Whew, I was really worried when I woke up.
Hibba Meraay: You actually interviewed some folks to talk about the T-Mobile and Sprint merger, which is a topic we have touched on before. So, my question for you is, why isn’t this over yet?
Chris Mitchell: I would say because we’ve gotten to a point in time in which, if you’re powerful enough, you can’t lose. You can just drag it out. This merger, I think, is more than a year old now, or approaching it. I think many of us thought we’d know if we’d won or lost. And by the way, winning means preserving competition. Losing would be losing competition in this sector. In an ordinary time, we might have seen a decision made, but we are not living in ordinary times. I don’t know if you’d noticed that.
Hibba Meraay: Yeah. I would say that’s even an understatement right now. You interviewed two people. A little bit later we’re going to hear from Blair Levin. But first, Gigi Sohn. Why her?
Chris Mitchell: Gigi has very unique characteristics. I mean, not only is she very knowledgeable on these, but anyone who knows her knows that she also has this characteristic of in-your-face honesty, I would say. Which is that she sticks to what she believes, and she’s not going to sugarcoat it, and she’s not going to try to change her message based on who she’s to talking to so much. She’s going to tell you what she thinks, and I’ve always really respected that. She’s spending a lot of time working on this issue. Gigi is someone who … We’ll talk in the interview briefly about her background, but she’s spend a lot of time in public interest, telecom, and working at the FCC recently, the Federal Communications Commission. So I though she’d be a perfect person to discuss this issue with.
Hibba Meraay: Yeah, I definitely get that from her listening to the interview. At one point, she calls the merger a soap opera, which I thought was a fantastic comparison. It’s clearly very draw out like we’ve said. Otherwise, do you think that’s a fair comparison?
Chris Mitchell: I think it is a fair comparison. I mean, like in a soap opera, you might have a person that is buried alive, and then they’re crawling their way out. It’s something that you would think of unprecedented in the course of human affairs, more or less. And this merger has had many unprecedented aspects to it, so I think that’s accurate. It’s an interesting cast of characters that are involved, including now, apparently, an executive from DISH who is well-known within the industry and may be essential in terms of crafting some form of compromise.

So, absolutely. I don’t recommend that people tune in and really try to follow this thing super closely. There’s better uses of your time. Following all of ILSR’s work, for instance, would be a better use of people’s time.

Hibba Meraay: Of course.
Chris Mitchell: But I think that this is really important because what we’re seeing is a very important decision that will have important implications for how the market is structured moving forward when it comes to broadband internet access when it comes to the mobile services that not only do we depend on in many cases, but also that may allow for significant innovation. I think changing the market structure could result in less than that. We’re never going to know. We’re only going to live in one timeline. But this is a key part to take a look at how these decisions are made, I think.
Hibba Meraay: Right. I think Gigi and Blair do a great job of making that case. Could you tell us a little bit more about Gigi?
Chris Mitchell: Yes. Gigi is, right now, the Distinguished … And I think that’s accurate. She is a Distinguished Fellow at Georgetown Law & Policy. She’s also a Benton Senior Fellow and Public Advocate. Benton is a public interest, telecom-focused foundation that we’ve done a lot of work with over the years. We hold them in high regard. So she’s working for very well-reputable organizations, unlike me who’s constantly trying to ILSR’s reputation down. I think would be a good time to jump into that interview.
Hibba Meraay: Sounds good.
Chris Mitchell: Gigi, it’s wonderful to talk to you again. Can you remind me what you were doing at the FCC when you were working with Chairman Wheeler?
Gigi Sohn: Well, I basically had three jobs. My official title was Counselor to the Chairman. But I was, number one, a policy advisor because I do have expertise in telecommunications and media technology policy. I also was the main outreach person to all third parties, so be it public interest, academics, industry. If they wanted to talk to the Chairman’s Office, they mostly came through me. And thirdly, I talked a lot to the press off the record. Which, as a longtime public interest advocate and somebody who never saw a camera they didn’t want to be in front of, was kind of interesting to be off the record all the time.
Chris Mitchell: Sure. You mentioned longtime public interest advocate, you’ve been just … I mean, your heart and soul has been in broadband telecom policy forever, it seems like.
Gigi Sohn: Yeah. Don’t make out to be older than I am. But yes, I’ve been in this work for over 30 years. After two years in private legal practice, which I hated, I went and worked for a public interest law firm that no longer exists called Media Access Project, and I litigated cases mostly at the DC Circuit, the Federal Court of Appeals here, on behalf of diverse media, consumer rights.

In those days, as I’m going to be dating myself, the issues were mostly around trying to promote diverse ownership of media and trying to make sure that broadcasters and cable operators served the public interest. The internet was really only a dream in scientists’ and academics’ eyes. It wasn’t until around 1998, 1999 where the internet started to become a thing. With it, my focus certainly shifted, because I was kind of tired of trying to make top-down command and control media behave, and saw the internet as a way to empower individuals. It does a lot of that. Obviously, there’s some other things we don’t like.

For Media Access Project, I went to the Ford Foundation where I started the funding program that now funds a lot of public interest advocates like me. And then, I started an organization called Public Knowledge, where I worked as the CEO for twelve years. And then, I went off to the FCC for three years to work for Chairman Wheeler. Since then, I’ve been a fellow at Georgetown. Again, a public advocate, but like a public advocate without an organization. I’m just out there, as my own little part of the resistance, trying to make sure that the internet stays open, that competition flourishes, and that people get to speak without gatekeepers getting in the way.

Chris Mitchell: With regard to a major merger, this T-Mobile and Sprint, what is the big deal with that?
Gigi Sohn: Well, it’s a huge deal. The wireless market actually started out with eight carriers, and now we’re down to four. Four has worked, I would say, quite well. Not fantastically, probably not as well as five or six, but it’s worked well. And it’s hard to overestimate the impact that T-Mobile and Sprint have had on that market, because they’ve not only pushed Verizon and AT&T, who were the two big behemoths, to do things like cut out two-year contracts, unlock their phones, provide more family-friendly plans, but they also compete with each other. They compete with each other for a segment of the population that AT&T and Verizon don’t really care about, and that’s value-conscious and low-income consumers.

So if you take away Sprint … Okay. If you combine Sprint into T-Mobile, T-Mobile’s incentives change. They go from wanting to beat up on the big guys and compete for the value-conscious consumer with Sprint to wanting to be like the big guys. And in fact, the record at the Federal Communications Commission on this merger … And this merger now has been going on, the proceeding’s been going on for over a year. It’s a very long, drawn-out thing. And I’m happy to talk about the process, because the process at a minimum is weird, and at maximum is just wrong, quite honestly.

Chris Mitchell: From weird to wrong
Gigi Sohn: Yeah. But I mean wrong being kind. Let’s put it that way. But the important things is the records show that if these two entities combine, prices could go up as much as 15%.
Chris Mitchell: Right. And the part that really gets to me is this idea of Sprint and T-Mobile are actually competing for low-income customers, which is something that we do not see in the wireline market. So it seems pretty important.
Gigi Sohn: It’s extremely important. If you were to combine these two entities, Sprint owns Virgin Mobile and Boost Mobile, and they are what are called prepaid companies. In other words, these are ones where you buy a number of minutes or you buy a certain amount. You buy a card for $30 that you use for the month. Many of us are postpaid, which means you just get your bill and, whatever it is, you just pay it. Those prepaid customers, again, are the value-conscious customers with low-income consumers. T-Mobile has Metro PCS. If you combine those two companies, they will control 60% of what’s called the facilities-based prepaid markets. So in other words, the prepaid market of companies that have their own facilities, their own infrastructure. That’s an awful lot of the market. That is absolutely going to result in higher prices for the consumers who can bear it the least.
Chris Mitchell: We know that going from four to three is mathematically 25% less competition, but what do we know? I mean, is there evidence from other markets in terms of going from four to three, what we should expect?
Gigi Sohn: Oh, absolutely. Both in the Netherlands and Austria, they went from four to three, and prices went up by double digits. In Canada, where it’s now been over a decade where they’ve been trying to create a fourth new competitor, same thing. Double digit increases. The European Commission did a study showing that in markets that had three competitors, as opposed to four, the prices were much higher. There’s tons of evidence.

I do hear people say, “Well, Europe is a different market than the United States.” If anything, they think it’s smaller. So you would think that three would be okay, right? But even in those smaller markets, the shrinking from four players to three players have resulted in huge price increases. So yeah, we have a lot of evidence in that regard.

Again, even more compelling, the evidence on the record … Which, by the way, the merging companies don’t dispute. So what they say is, “Well, you’re going to get more for your money.” Right? So it’ll be a lower price per gig.

Chris Mitchell: Right.
Gigi Sohn: That assumes that the customer is willing to pay for an increase no matter how small. And again, let’s get back to who we’re talking about when we talk about these two companies. These are consumers for whom maybe having a cell phone is a huge burden. Maybe that even takes food off the table. We can talk about 5G and how spectacular is may or not be, but the fact of the matter is these two companies serve a market that cannot bear 15% price increases.
Chris Mitchell: People who know me can say that I’m occasionally insensitive, so this question is a little provocatively framed. So let’s just assume for a second prices go up. Okay, so that does harm some families. But is mobile really that important? I mean, as you know, I spend most of my time working on fixed access, access to the home.
Gigi Sohn: Right.
Chris Mitchell: So, if we lose this battle, what’s the big deal?
Gigi Sohn: Is mobile that important? Again, getting back to low-income families, they’re the ones that rely on mobile. They’re the ones that can’t afford a fixed connection. I don’t know what your fixed connection costs, but I can tell you that … Well, my triple play always creeps up to $200 a month, and the broadband part is $80 a month. I live in Washington DC, and I actually have three choices.

So, what we have here is a situation where unfortunately, for good or for ill, some people are reliant upon mobile for the foreseeable future. Look, I’m with you. I want everybody to be connected to fiber and to have gigabit speeds, but we are so far away from that. Maybe in 10 years, in 20 years we’re having a different conversation about mobile. But in 2019, the conversation we’re having is that I think about a third of poor families or more rely upon mobile broadband to do things like their homework, right? And to look for a job.

It’s not an ideal situation. I did a speed test. I was in Montgomery, Alabama, and I did a speed test on my mobile just for the heck of it. I was getting five megabits per second down and actually six up, which was interesting. I got more up than down. But those speeds are so poor. That’s the state of the market that we have today. It’s that low-income Americans rely on this slow service.

Chris Mitchell: Right. I did say I was being provocative. I think it’s incredibly important, because the price of accessing the internet is already far to high relative to its importance for the future of our democracy, let alone all the other benefits one gets from it.

But one other thing I just wanted to ask regarding the potential of the merger. We don’t have time to go into all the details that I know you could talk about. But it does seem like Sprint and T-Mobile, in part because they’re the smaller ones, have historically been a little bit more innovative. And in having that merge, we could lose that.

Gigi Sohn: Well, absolutely. T-Mobile was the first carrier to eliminate two-year contracts and provide unlimited data. T-Mobile and Sprint were the first to allow subscribers to unlock their phones. Both companies fought to match AT&T and Verizon in coverage, speed, and reliability. I mean, T-Mobile especially, right? In some ways, they kind of brought Sprint along with it. When the AT&T/T-Mobile merger was foiled, and that was another merger that I testified against, T-Mobile all of a sudden become the un-carrier. They brought in John Legere, who, while I disagree with him on this merger, I think is very dynamic and a very good CEO. They just said, “Okay. We’re just going to go toe-to-toe with big guys.” And that’s been really important.

Again, if Sprint goes away and T-Mobile would become just about as big in customer size. Verizon has about 110 million customers. AT&T a little under 100 million. This combination, depending on whether there are divestitures or not, would be again around 100 million. So all of a sudden, it’s of equal size and power to the other two. Do you think that the incentives are going to be to try to continue to undercut it? No. And it’s really important. So in the soap opera, that is this merger, you see that every time that there’s bad news for the merger, not only do Sprint and T-Mobile stocks go down, but Verizon and AT&T stocks go down. And while Wall Street is not necessarily magical, what it’s saying is that Wall Street believes that this merger is good for AT&T and Verizon because it will lead to greater coordination between the three companies and higher prices. In other words, T-Mobile will no longer be the feisty un-carrier trying to undercut those two companies, but they will work in concert with them.

Chris Mitchell: One thing I’ll say to that, we don’t have time to get into is that, you and Harold Feld and others who opposed the AT&T/T-Mobile merger made a number of predictions that came true. AT&T/T-Mobile at the time predicted that there’d be doom if they weren’t allowed to merge. But I want to ask you the final question. What has surprised you about this? You said it’s gone from, it spans the gamut from wrong to weird in terms of the process, but what has been the most surprising thing for you as this has played out?
Gigi Sohn: Yeah. Weird is really absolutely the right word. Well, what’s been weird is that you had an FCC Chairman who put out a statement, now, I think we’re going about six weeks ago, saying that he would approve this merger, okay? He went out on a limb by himself, although he did get his two Republican colleagues to join in later on in the day. This doesn’t happen, okay? When a merger is either going to be approved or blocked in this space, obviously, the Federal Communications Commission and the Department of Justice, the Antitrust Division, Department of Justice basically almost simultaneously announced it. Maybe it’s a couple of hours lag, but in all my 30 years of doing this, I’ve never seen an FCC Chairman go out on a limb like this. That’s number one weird thing that happened. That was obviously to place pressure on the Assistant Attorney General for Antitrust, a guy named Makan Delrahim.

The second weird thing that happened was that 14 States Attorneys General, including the Attorney General of the District of Columbia, which I live there, so I consider it a state, have sued. So they went ahead of the Department of Justice and they’re suing to block the merger. So that’s weird thing number two. Weird thing number three is that for the past, I’d say three weeks or so, three or four weeks, the Antitrust Division is trying to broker an agreement where they basically create a new, I call it like a Frankenstein monster, a new fourth carrier, right? Rather than block the merger, so we have four carriers already, rather than blocked the merger, and if Sprint wants to get out of the market, it could sell its assets to somebody else, is trying to kind of cobble, boost Mobile here and some Spectrum there, and sort of create this new fourth carrier.

And that’s just unprecedented, at least in this country. Supposedly, they did it in Italy. I’ve heard mixed things about whether it has succeeded or not, but it’s now been, like I said, three weeks, a month now that they’ve been trying to create this Frankenstein monster. It doesn’t seem to be happening, but depending on what report are you listened to, either, a deal is imminent or it’s never happening. So it’s just the whole thing is strange, most particularly the fact that three FCC Commissioners would come out in favor of a merger, when at least two of them have not even seen the decision. So the FTC Chairman has not sent around his decision approving the merger. And so that’s this really, that’s weird. And frankly, I think that’s wrong. I mean that’s highly irregular, but put the state’s lawsuit on top of that, and this Frankenstein process on top of that, and you have an unprecedented situation as far as merger review is concerned.

Chris Mitchell: Well, I’m glad that we have you to give us a sense of history, although you have not been around since the dinosaurs, as you reminded me.
Gigi Sohn: Chris, can I just mentioned one other thing, because I do think it’s important, and it is history, and it’s something I have written about for the Benton Foundation? This is not the first time that there has been strong political pressure to, basically, drop a major antitrust proceeding, okay? During Reagan’s time, the Justice Department was in court trying to break up AT&T, so this this was like 1984 or so, and the head of the Antitrust Division at the time, so in other words, I’m Makan Delrahim’s predecessor, a guy named Bill Baxter was litigating this case and he was getting pressure from Casper Weinberger, who is the Secretary of Defense from Malcolm Baldrige, who was the Secretary of Commerce and from Ed Meese, who at the time, was Counselor to President Reagan, and eventually became Attorney General, to drop the case. And he refused. He just, he absolutely refused. He said, “We’re going to litigate to this to the eyeballs,” and, it led to the breakup of AT&T.

I’ve been urging making Delrahim to follow his predecessor and push away, as he applies pressure, push away whatever pressure is coming from the White House. Supposedly, there is, it’s not coming from the President, he’s got other things on his mind. And just do the right thing and join the states to block this merger. But we’ll see what happens.

Chris Mitchell: Yes. The breakup of AT&T was really fascinating, in part because of all the conflicts of interest because AT&T had employed everyone, I think at the time.
Gigi Sohn: What’s similar is actually, so Bill Barr, the Attorney General, today, is recused from this case because he has AT&T stock. It’s actually Time Warner stock that became AT&T stock when AT&T bought Time Warner. In Reagan’s time, William French Smith who was the Attorney General was recused. I don’t remember for what reason. I think it was a similar reason, some sort of financial interest. So you have an absolutely paralleled decision, except the kind of political pressure on Baxter coming from the Secretary of Defense and the Secretary of Commerce who went to the President and said, “Make him stop.” And Reagan, at that point, didn’t care and just kind of blew it off. But it’s far more than what Delrahim is getting today. So my message to making Delrahim, who I actually respect, is, “Follow your predecessor, Bill Baxter.” Actually, Baxter is a hero of Delrahim’s. He’s mentioned Baxter in five different speeches. Follow your hero, follow your predecessor, and just join the states to block this merger, and let the chips fall where they may.
Chris Mitchell: Yes, exactly. And who knows which young lawyers may be watching Delrahim, and inspired by this to break up the next attempt in 20 or 30 years for something similar.
Gigi Sohn: 20 or 30 years? I think it’s going to come sooner than that.
Chris Mitchell: Right. Well, thank you so much for your time, Gigi.
Gigi Sohn: Chris, it’s really been a pleasure.
Chris Mitchell: Thanks for listening to our conversation today on building local power from the Institute for Local Self Reliance. As usual, we don’t have an ad, but I wanted to ask your support for our work. Reporting on these great local initiatives, it takes a lot of time and energy. Your donations keeps us working and keeps our spirits high. Please take a minute to go to ilsr.org/donate. Any amount is welcome and we do sincerely appreciate it. Write to us, podcast@ilsr.org.

Now, we’re going to get back to our discussion about the Sprint and T-Mobile merger, and we’re going to branch out a little bit, so let me bring Hibba back into it. Hibba, what did you think about the Gigi discussion? Did you have any takeaways from it?

I thought Gigi made a really strong case for why the merger should be stopped, and also talking a little bit about the history of telecom mergers before. She touched on how there is hope, right? Because AT&T and T-Mobile made an attempt to merge, and I didn’t know a lot about that history, so I thought that was super informative. She did talk about how this time it’s a little bit different and there are things that she hasn’t seen before going on behind the scenes. I’m, overall, hopeful after listening to her. What did you think, Chris?
Chris Mitchell: I very much agree with your assessment. And it’s not just because one of my favorite phrases is that when all hope is lost, there’s nothing left to worry about, which I think really captures a lot. But there’s always hope. There’s wonderful opportunities we’re learning from this. Many of us did not expect to stop the AT&T/ T-Mobile merger.

And oddly enough, Gigi Sohn’s group, Public Knowledge, was really essential in making that happen. But I think, even a situation in which we lose this, the question will be how do we move on to the next thing? I think people really have to think about these issues as a longterm fight to build local power to stop monopoly. That means that even if we lose battles, we figure out how to move forward as best we can. Because what’s important is the longer issue of who has power in this country, our communities, or the big centralized businesses, or even centralized political power elsewhere. I think there’s tremendous hope to stop this merger, and I think that one of the things I’m hopeful about is that as we’re fighting these mergers, we are focused on how we can build the bigger movement for stopping monopoly in general.

Hibba Meraay: Right. That is our goal here ILSR. Chris, you also talked to Blair, what are we going to hear from him?
Chris Mitchell: Okay, so let’s bring on the interview with Blair. Blair Levin is someone who’s been very active in also I think advocating for the public interest. Since writing the National Broadband Plan, he’s been at various think tanks. He’s currently at Brookings. One of the things he often does is write op-eds or even shorter pieces with people who he has strong disagreements with in which they can demonstrate where there is strong agreement across party lines or across different values. I think those are valuable pieces, even though those might be the ones I disagree with some of the most. He also provides equity research on policy issues for an organization called New Street Research.
Hibba Meraay: Great. So, let’s hear from Blair.
Chris Mitchell: Now I’m talking with Blair Levin. Blair is is someone who’s given us a lot of advice over the years, someone I think really gets things right. Since writing the National Broadband Plan, he’s been at various think tanks, currently at Brookings, but he also provides equity research on policy issues for an organization called New Street Research. So welcome back to another conversation, Blair.
Blair Levin: Well, thank you very much.
Chris Mitchell: Let’s jump right into the merger. You do a lot of analysis of all kinds of mergers around tech and telecom-type stuff. This is one that I’ve read a lot of things you’ve written about, but I want to ask you very specifically whether you think we would see more investment in 5G-type networks, and in general, better networks, if the merger happens or if it’s stopped and we remain with the four competitors?
I think there are multiple views on that, but the most important thing to understand is investment is a multifactorial equation. In other words, the single biggest driver, in my opinion, of 5G investment will be demand. Right now, when you talk to Wall Street people and when you read serious industry reports, as opposed to those reports which are prepared for DC officials, which usually include a lot of hype, that frankly is not true, what you see is there’s a lot of demand for enterprise 5G, but a high level of uncertainty about any mass market 5G.
Chris Mitchell: So to be clear then, enterprise meaning, larger, medium-size perhaps, but larger businesses.
Yeah. Exactly. Big Institutions. The the question is what are the applications that would cause people like you and me to say, “I want to upgrade my service to a 5G service, and I want to buy a new phone which is a 5G compatible phone?” Sometimes, industry answers with a, “We’ll built it and they will come.” Sometimes, they answer with a, “Well, no one knew what the applications were for 4G and we did it.” There are lots of different things we can say, but the single most important thing I want to say is that, as to the question of what will drive investment, the merger is part of it, but there are a lot of other factors out there. If we hit a recession, that could affect investment. If suddenly inflation starts to flare up because the Fed got it wrong, that could affect the level of investment.

If there’s an infrastructure plan in 2021, where government wants to try to create Smart infrastructure, that could drive investment. But as to the merger, I think there is a good case to be made that it would accelerate T-Mobile’s investment, and then that would accelerate AT&T and Verizon’s. But a big question mark to me is whether the current negotiations between T-Mobile and Dish result in a deal between the two of them, and then the deal will almost certainly pass scrutiny by the Department of Justice, then it has to get through the litigation with the states. But if all that happens and Dish is investing at the same time, particularly, because Dish will be investing in a brand new network without legacy and networks, that could accelerate investments.

Chris Mitchell: Now, I think it’s really interesting, and actually this is really what I wanted to get to in inviting you on, is not so much to talk about whether we would see more 5G faster or not, but I think this question which is presented often to the public and to policy makers as, if there’s a merger, there will be more investment as some sort of certainty. And I wanted to get a sense from you how Wall Street thinks about these sorts of things, because I think Wall Street thinking, although, I rail against it in many ways, would be an improvement over a lot of inside The Beltway thinking, and evaluating mergers, and things like that.
Yeah. I would say two things. First of all, Wall Street understands that the world is about probabilities, not certainties. I think it’s important that we understand that you can have a view that it’s 90% certain, or 70% certain, or 50% certain, but nothing in the real world that matters is 100% certain. And, in Washington, that is really a bad way of thinking about it because in Washington you don’t actually own a problem, you own a narrative, and you should never be anything other than 100% certain of the correctness of your narrative. But that’s just not the way that the real world works.

The second thing I would say is Wall Street, and this is one reason I really actually enjoy working with Wall Street investors, is they actually care about real facts. They care about real data, they care about real things, and they’re not heavily influenced by soundbites, because if you make investment on the basis of sound bytes, you are going to lose all your money, and then you won’t have a job. On the other hand, there are people in Washington who always make decisions based on soundbites, and they managed to keep their job. So it’s a very different kind of situation, and I definitely prefer the environment in which there is a premium on actually being accurate.

Chris Mitchell: Nice
I think pretty much all of my competitors, but particularly the competitors who do what I don’t do, which a fundamental analysis, the companies are outstanding.

In the telecom space, people like Craig Moffett have been around a very long time. They know the business. They’re not always hard on the stock picks because that’s about probability, but you can trust their numbers to be more accurate, and certainly they’re much more logical. When I read speeches by policy makers in Washington, I’m constantly finding logical flaws, flaws of data, etc. I don’t find that when I read competitors’ works, which I sometimes get to do.

So I would say if you read any one analyst, you’re probably better off than reading any speech by a government official.

Chris Mitchell: And so the last thing I want to bug you about is relating to where the money comes from for 5G, and what kind of decisions are made. We’ve talked in the past on other shows, and you’re written very well about the foolishness of the federal government overruling local authority on matters of rights of way management, the fees that they charge, and that sort of thing, noting that these sorts of things are probably not going to significantly change the amount of investment, particularly in rural areas because profitability in one area does not mean you’ll invest in a different area. So I don’t want to so much rehash that, but I’m more curious about if we just think about any given scenario moving forward, where does the money come in terms of how much 5G will be invested, whether it will be 50 billion dollars or 150 billion dollars or 300 billion dollars in coming years?
It comes from investors who expect to get that money returned to them with significant profit. And this is actually a really important point that I think is often neglected by policymakers who somehow believe industry’s going to invest 150 billion dollars, sell services to exactly the same customers at lower prices.
Chris Mitchell: Right. That’s-
That is not going to happen.
Chris Mitchell: That’s exactly what I wanted to ask you.
I’m going to now contradict myself and say there is a certainty. It is 100% certain that no investor will invest money to be able to sell a service to the same customer at a lower price unless there is a threat that they’re going to actually lose all of their customers because someone else is doing it. And that’s kind of innovation sometimes does cause investment to actually lower prices.

One of the really interesting things that is not being discussed in the Sprint/T-Mobile deal, but I think is an interesting policy point, is there… One of the arguments T-Mobile makes is that Sprint can not survive as a 5G competitor. This is not a failing firm defense, but it’s what we refer to as a flailing firm defense, which is, as the industry moves forward, Sprint won’t be able to move forward. I think it’s an interesting question whether in a world of 5G, whether a lower priced 4G company would put some price constraints on 5G services. I don’t know the answer to that. Intuitively I think it would, but I think that’s what, that requires a lot more economic analysis before I would make an answer, but the question is, from a consumer perspective, if you had a choice of 4G at $40 or 5G at $80, which would you buy? And would that $40 4G service cause 5G prices to be lower?

My point is simply that the money has to come from the sale of services in the future. And by the way, as we’re talking about investment, there could be, the merger could lead to a short term significant investment, but maybe longer term it would slow down investment because if you have three players, traditionally you get less investment than if you have four players, so…

Chris Mitchell: I actually happen to be a person who uses Ting, which uses the Sprint network in my case. And-
Chris Mitchell: I can’t remember the last time I was mad at my phone for taking too long to download something. I mean, I just, it’s not how I use my phone. You know?
Right. People talk about things like remote surgery. A, that isn’t a very big market. B, you can already do remote surgery unless what you think is going to happen is doctors are going to do surgery while driving in cars. Well, we don’t have that capacity today. 5G theoretically gives it to us, but I don’t want my surgeon to be driving at the same time. You know? Friends don’t let their surgeons drive and do surgery at the same time.
Chris Mitchell: That’s a whole new level of complexity to the trolley problem. What if one of the people is doing surgery?
Right. Exactly. Oh, god. Law school would be so much more interesting.

Another thing they talked about is autonomous vehicles. There was no car company that is building a car to be an autonomous vehicle that will depend on 5G. Zero. And the reason is very simple. You can’t build it unless you are 100% certain that by the time the car was on the road, 100% of all roads would have 5G service. That’s never going to happen. Are there some benefits of 5G to autonomous vehicles? Yeah. One of the really interesting things to me about 5G is that the wireless industry shows, and they were making reasonable business judgements, to use the friendliness of the FCC to get a little bit of money from the cities, about three billion dollars, which in the context of a 100 billion, 200 billion, 300 billion dollar capital expenditure for 5G, isn’t that much money. But they have now completely pissed off one of the largest potential buyers of 5G services with our cities. Cities are part one of the few institutions that have tremendous mobility needs, police, fire, trash pickup, etc. and can use 5G in all kinds of ways to improve the way traffic flows and other kinds of services. And instead of working with the cities to make that happen, they got the FCC to essentially do a wealth transfer in which cities have to turn over billions of dollars, a few billion dollars, and the companies don’t have to do anything.

I think this is a huge mistake for lots of different reasons. But one of them is cities should be one of the big drivers of 5G, and we’re not focused on that at all. Instead we’re focused on some things that actually don’t matter.

Chris Mitchell: One other question, and it actually gets back to the robotic surgery and the 5G cars and things like that, is I think the whole ideas of insurance and liability, I think, are a little bit lost among policymakers. They get lost a little bit. And that’s… I can’t imagine a lot of these promisings happening unless the carriers wanted to take liability that they would guarantee that their service would be uninterrupted during these important periods, and I just don’t see how that would work.
It’s a great question. It will be very interesting to see how liability issues work with things like autonomous vehicles because people will be killed. Probably many fewer people will be killed, but nonetheless, in an individual case, there’s a question of is it the car company, is it the software, is the person who made the particular camera that malfunctioned, or is it actually a driver who did something? I mean, that leaves… It will take at least 10 to 20 years of this kind of court litigation to work itself through, but your big point is correct. You can’t make huge investments unless you have some notion of what your risk is for liability for the cellular that service.

Currently you can’t sue your phone company if there’s some bad consequence of the service going down for five seconds. But the contracts, and I, like anyone else, I’ve never read the contract, but I’m 100% certain that AT&T and Verizon have something in that, or T-Mobile, have something in it that says they’re not liable. But that’s part of the reasons why it’s highly unlikely that a surgeon will rely on it, or… They’re going to rely on private networks that do make those kind of guarantees as opposed to a best efforts network that simply says well do our best.

Chris Mitchell: Right. Thank you so much, Blair. It’s great to have you back on.
Okay. Good talking with you.
Chris Mitchell: So Hibba, I’ve had more time to reflect on this, and I’ve talked with Blair many times over about issues related to this. I’m curious what you take away from our discussion.
Hibba Meraay: Yeah, I think it’s really great to have another perspective on an economic argument. Usually a lot of times advocates focus on a moral argument. I feel like we at ILSR and other focus in our area also have an economic argument, but this one has a different flavor, right? It’s coming from Wall Street, and sometimes we don’t consider those ideas in the same way. So I think it was great to hear from Blair, and I particularly loved that line that he said about Wall Street is about probabilities, not certainties. I think you and him both touch on how people think that you can predict what’s going to happen, and Wall Street will always act a certain way, but her really opened up that world, and was like, actually we’ve got some indicators, but we’re always guessing, and that’s part of the game.
Chris Mitchell: I take a lot of that away as well. I mean, I feel like there are times where we’re working on policies, whether they’re local or national, and we may forget that people may disagree with us. People may be ignorant of what we’re talking about. They get a vote too. You know, the best policy may not necessarily be the one that it works out best in your mind, but the one that will adapt to our messy world. And I think about this a lot lately, whether it’s the busing controversy that’s been, we’ve been reminded of from the debates with Senator Harris and former Vice President Biden, but at the end of the day, everyone has a vote. And I’m not just talking about the ballot box, I mean how they react in their actions, and so thinking about things in terms of probabilities, I think, is very valuable and a reminder that even things that have very slim odds happen. You know, there’s a saying that a million to one odds happen eight times a day in New York because there’s eight million people there. So it’s a good reminder to be humble, I think, and when we’re thinking about these policies and to make sure we’re building adaptable policies.

It’s also a good reminder that we don’t know exactly what will happen as a result of different mergers. I have opposed many mergers, and they have not all been awful. And frankly, some of these mergers that we’ve seen, like AT&T/Time Warner, I think there’s less of a concern that AT&T will ruin the broadband market, although they’ll try, than that they’ll just destroy HBO as being a wonderful source of video content because of their terrible management. So these things have many different factors, and sometimes we get too focused on one or two of them, and it’s worth remembering that.

Hibba Meraay: So you did watch the debates?
Chris Mitchell: I at least paid attention to the outcomes. Definitely.
Hibba Meraay: Great. That’s the important part.
Chris Mitchell: Yeah, you know, it’s… I really resent that we’re talking about 2020 so early. I’ve probably said this before, but at the same time, I don’t feel like I can start paying attention next summer, and then be totally clueless as to how we got where we are, so we’re all getting sucked along in this sort of a break of a glacial dam. You know? So there’s not a lot we can do about that.

But I wanted to force a recommendation in here, even though we don’t always do that. And that’s because I’m very excited about a new report that we just put out about rural broadband. We did this report 18 months ago or so showing where co-ops are offering fiber optic service across the United States. We’ve updated that with the most recent data from the Federal Communications Commission. My colleagues, Katie, Hannah Trostle, and Hannah Bonestroo, did really great work showing how much growth there’s been, and oh boy, I’ll tell you, there’s actually more hope for high quality broadband in rural America than there are in our cities, frankly, where many of us are going to be stuck with the cable monopoly for a long time. So that’s up on our site. The report is called Cooperatives Fiberize Rural America, a Trusted Model for the Internet Era. And that will be something we link to, but also you can just find with a search and make sure you’re looking at the 2019 version.

Hibba Meraay: Yep. Awesome. So we’ll definitely put the link in the show page like Chris said, and thanks, Chris, for joining us today, and for doing the interviews.
Chris Mitchell: Oh, you’re right. You’re not rid of me yet. I’m going to try and be funny here. For people who don’t think I’m funny, now’s a good time to fast forward to the next podcast.
Hibba Meraay: Thank you all for tuning in to this episode of Building Local Power from the Institute for Local Self-Reliance. You can find all the links to what we discussed today on ILSR.org on the show page for this episode. That’s ILSR.org.
Chris Mitchell: Wait, was that ILSR.org?
Hibba Meraay: I think it was. One more time. ILSR.org, for the folks in the back.
Chris Mitchell: I heard that. I heard ILSR.org. I’m feeling pretty good about that.
Hibba Meraay: While you’re there, you can sign up for one of our many newsletters and connect with us on social media. You can also help us out with a gift that helps produce this podcast, gets us great guests like G. G. and Blair. And I guess Chris sometimes.
Chris Mitchell: Right. In fact, if you give generous gifts, you may be able to force me to take vacation time. I’m sure John and Stacy would be very amenable to that.
Hibba Meraay: Please give us a gift. The gifts also help us produce original research on the way monopolies are impacting our economy. Also please help us out by rating this podcast and sharing it with your friends. If you give us a five star rating or review on iTunes, that really helps other folks find us. This show is produced by Lisa Gonzalez and me, Hibba Meraay. Our theme music is Funk Interlude by Dysfunction_AL. For the Institute for Local Self-Reliance, I’m Hibba Meraay, and I hope you join us again in two weeks for the next episode of Building Local Power.
Chris Mitchell: Yes. Me too. And I’m Chris Mitchell. And let me encourage you to really, really share this because we don’t do a lot of advertising. I mean, we don’t want to take out a bunch of Facebook targeted posts to violate people’s privacy to get them to listen. So you can help us by really, really sharing this a lot. We’d really appreciate that. So, like Hibba said, we’ll see you in two weeks. Thanks.


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Audio Credit: Funk Interlude by Dysfunction_AL Ft: Fourstones – Scomber (Bonus Track). Copyright 2016 Licensed under a Creative Commons Attribution Noncommercial (3.0) license.

Photo Credit: pxhere

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