The Future of Wireless Communication May Be Decided by Professors Who Are Paid for Their Opinions

Who's winning, who's losing, and why.
March 21 2014 6:00 AM

The Wireless Wars

The future of wireless communication may be decided by a massive influence web of lobbyists, think tanks, and academics who are paid for their opinions. 

John Legere, CEO and President of T-Mobile USA, makes an announcement during an event about new contract pricing on March 26, 2013 in New York City.
John Legere of T-Mobile has not hidden his displeasure at the way the wireless industry works.

Photo by John Moore/Getty Images

The setting was ornate, the subject esoteric, but the implications huge.

The crowd that filed last month into the wood-paneled room 226 in the Dirksen Senate Office Building included lawmakers, lobbyists, company executives, and a few mystery guests—a roster that reflected the enormity of the issue at hand: nothing less than control of the growing wireless market and the hundreds of billions of dollars that go with it.

Verizon Communications Inc. and T-Mobile USA Inc. were out in force, as were some of the most powerful lobbyists in Washington, D.C. Along with those household names was the little known but quietly influential Jonathan Spalter.

Advertisement

The chairman of Mobile Future, a Washington, D.C.-based nonprofit group, sat at the witness table along with the big wireless carriers and well-known consumer advocates to tell senators how the government should auction valuable airwaves that the telecommunications companies say they need to keep up with the exploding use of smartphones and tablet computers.

Spalter told the senators that the best way to ensure a successful auction—one that would best serve customers and promote innovative technologies—is to allow all wireless companies to bid without restrictions on as many frequencies as they want.

What Spalter didn’t reveal is that Mobile Future, which describes itself as “a coalition of cutting-edge technology and communications companies and a diverse group of non-profit organizations,” is funded in part by wireless giants AT&T and Verizon, which are also advocating for an auction free of limits. The group also didn’t detail that relationship when it submitted three research papers to the Federal Communications Commission arguing against restricting how much spectrum a company can obtain in an auction. And it didn’t disclose the fact that data from a research paper it used to create a graphic arguing against limits was commissioned by AT&T and filed with the FCC, which is writing rules for the auction. Mobile Future does list AT&T and Verizon as among its 82 members on its website.

Sally Aman, principal of Aman & Associates, the public relations firm hired by Mobile Future, said the committee “is and was fully aware of Mobile Future's membership.” But the relationship wasn’t clear to almost anyone watching the proceedings.

Orchestration of Influence

Mobile Future is just one thread in the massive influence web being deployed by AT&T and Verizon as they fight proposals advocated by their smaller competitors and the Justice Department to limit how much of the new wireless frequencies they’ll be allowed to bid on at the auction that’s scheduled for next year.

The spectrum that’s up for sale is highly coveted because it allows transmissions to travel long distances and penetrate buildings. Good spectrum is crucial for wireless companies to attract customers by delivering an ever-increasing amount of information to smartphones and computer tablets.

The competition for control of the airwaves has set off an intense lobbying fight that rivals some of the largest battles over telecommunications policies of the past. The four biggest carriers together spent $37.3 million in 2013 trying to influence lawmakers and the FCC on a host of policy issues ranging from taxes to cybersecurity as well as spectrum—and the auction is still more than a year away.

But the carriers led by AT&T and Verizon likely have spent at least twice as much on behind-the-scenes influence campaigns—hiring Ivy League academics, giving cash to think tanks, associations, and universities, and employing public relations firms—all part of a synchronized effort to sway the FCC to establish rules that favor them, said James Thurber, a professor at American University who has been studying lobbying for 30 years.

“This includes all the advertising, white papers, surveys, grass-roots, and top-roots activities going on,” Thurber said. “Lobbying isn’t just what the federal registered lobbyists do. It’s an orchestration of a variety of techniques and influence.”

Battling AT&T and Verizon are Sprint Corp. and T-Mobile, the third- and fourth-largest carriers whose networks and customer bases are dwarfed by their larger rivals. The two have put together their own influence campaigns, hiring teams of paid academics and building connections with consumer groups and associations. But Sprint and T-Mobile are at a disadvantage against AT&T and Verizon’s deep pockets and network of political ties, according to those who track Washington lobbying efforts.

At stake is no less than who may ultimately control the public’s wireless access to the Internet, on which all kinds of data—from medical records and bank transactions to Amazon purchases and movie downloads—travel from providers to smartphones and tablets.

The sale of the newly available airwaves also will determine if the wireless market becomes one ruled by two companies or if a recent burst of competition initiated by T-Mobile will continue, said Harold Feld, a senior vice president at Public Knowledge, a consumer advocacy group in Washington that wants to limit how much spectrum each carrier can purchase in the upcoming auction.

“For wireless carriers, the stakes are enormously high,” Feld said. If the smaller companies are shut out of the auction, “it’s hard to imagine they can overcome that and compete with AT&T and Verizon over time.”

“Stupid, Arrogant, Broken”

Three years ago the Justice Department blocked AT&T from buying T-Mobile, arguing “consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers.” The government was soon proven right.

John Legere (pronounced Ledger), the trash-talking chief executive officer who took over T-Mobile in September 2012, has cut prices, eliminated two-year contracts and roaming charges, and offered to pay early termination fees for customers who switch to T-Mobile. Wearing his iconic hot-pink T-Mobile T-shirt and black leather jacket, the maverick CEO declared his industry “stupid, arrogant, broken” in a Jan. 9 interview with Yahoo Tech at the Consumer Electronics Show in Las Vegas, and said he doesn’t much care how his competitors respond to his changes.

“I don’t give a s--t,” Legere said, the expletive bleeped by Yahoo. “Ultimately, I’m deploying a set of capabilities or a way that the marketplace should behave on behalf of consumers.”

But respond they have. All three of his larger rivals—Verizon, AT&T, and Sprint—have cut prices, offered rebates, and instituted less restrictive plans.

“I don’t think the people at the Department of Justice are at all surprised at the new competitive options that have emerged in the marketplace,” said Gene Kimmelman, who worked in the antitrust division when it blocked AT&T’s purchase of T-Mobile and is now president of Public Knowledge. “This is what they hoped would occur and had strong reasons to believe could occur.”

The economic benefits to consumers may be short-lived, however. To remain competitive, smaller wireless carriers such as T-Mobile will need to win a significant chunk of the newly available spectrum, or they may never be able to compete with AT&T and Verizon, which as of August 2012 controlled a combined 74 percent of the prime spectrum according to statistics released by the FCC. If left unfettered, the two giants are in a position to buy much of what’s left.

“Depending on the outcomes of the spectrum auctions, it could get a whole lot worse in terms of a handful of companies being able to tilt the field in their favor,” said Matthew Hindman, a professor at George Washington University, who researches Internet politics.

Overcrowded Airwaves

Spectrum is the lifeblood for wireless carriers as Americans ditch their desktop computers for mobile devices. The share of people in the United States who own a smartphone increased from 35 percent in May 2011 to 58 percent in January, according to a survey by the Pew Internet and American Life Project. The percentage of adults 18 years old and older who own a tablet computer jumped from 8 percent to 42 percent during the same period, Pew reported.

Wireless gadgets are quickly becoming the devices Americans use to run their everyday lives, from making purchases, managing finances, working, studying, listening to music, or watching movies. The amount of data downloaded from the Internet using a wireless device will, for the first time, surpass the amount of online information flowing through wired connections in 2016, according to an annual report issued by Cisco Corp. All that data will ride on radio frequencies. The growth has caused the airwaves to become overcrowded, slowing data transmissions.

“It is unlikely that wireless carriers will be able to accommodate this surging demand without additional spectrum,” the White House Council of Economic Advisers reported in 2012. “Other approaches to expanding the capacity of wireless networks … will likely be insufficient to allow capacity to keep up with demand. In short, the projected growth in data traffic can be achieved only by making more spectrum available for wireless use.”

Beachfront Property

The airwaves to be auctioned next year are some of the most valuable that will ever, in the foreseeable future, be available to wireless providers. Most of the spectrum targeted for sale is in the 600 megahertz band of frequencies—what wireless carriers call “beachfront property.”

The frequencies are currently occupied by television broadcasters. The FCC will ask them to give up their airwaves voluntarily and if they don’t, some may be moved to another part of the spectrum. The FCC plans to share the proceeds of the auction with those television stations that choose to sell their licenses.

The 600 megahertz band is the kind of airwaves that wireless companies want and need. It travels farther than frequencies above 1,000 megahertz, can penetrate buildings, navigate hilly terrain, and more easily go through vegetation, all of which makes it less likely to lose a connection compared with those traveling on higher bands. It’s also cheaper to operate because it requires fewer towers.

As of August 2012, Verizon and AT&T together owned 74 percent of the low-band airwaves, according to calculations using the FCC’s most recent annual report on the competitiveness of the mobile wireless market. Sprint controlled 12 percent, and T-Mobile owned just 0.2 percent.

Most of T-Mobile’s and Sprint’s frequencies are in the higher bands. AT&T and Verizon argue that the high-band spectrum is equally good because it can carry more data, a characteristic that is desirable in urban areas where demand for wireless data is greatest.

Corporate accountants, however, put a higher value on the lower frequencies. Verizon says in its company filings that its frequencies are worth $75.7 billion, second only to the combined value of all of its plants, properties, and equipment. AT&T reports its licenses are worth $56.4 billion. Sprint owns more spectrum than any carrier but it is almost all above 1,000 megahertz. The company priced its spectrum at $41.8 billion. T-Mobile, which has about half the spectrum Verizon has, reported its wireless licenses are worth $18.1 billion.

Verizon and AT&T have used their low-band spectrum to build networks that cover much of the United States, allowing them to attract more customers. Verizon has about 119 million subscriptions, or about 35 percent of all U.S. wireless subscribers, and AT&T has 32 percent, according to the latest report by Strategy Analytics, a technology consulting firm. Sprint and T-Mobile, whose networks are spotty by comparison, trail a distant third and fourth with 16 percent and 13 percent of the market, respectively, according to the report.

Competition or Revenue?

When Congress ordered the FCC in 2012 to hold the spectrum auction, the goals were to increase the frequencies available to wireless carriers, raise money to build a nationwide emergency radio network, and pay down the national debt. The agency now is writing the auction rules to balance the need to raise money with the desire to maintain competition.

Verizon and AT&T argue that capping what they can buy will lower the price paid for the spectrum, cutting the revenue to the government, or worse, cause the auction to fail altogether.

Sprint and T-Mobile argue caps will allow them and other carriers to obtain low-band frequencies needed to compete against their two bigger rivals. The competition will lower prices and encourage the carriers to develop advanced technologies to decrease costs and improve services.

They also argue limits will encourage more bidders, because companies will believe they have a chance of submitting winning bids if AT&T and Verizon cannot bid in every market. More bidders, they argue, means more revenue for the government. The Justice Department agrees with Sprint and T-Mobile.

In a filing with the FCC in April that drew sharp criticism from supporters of an open auction, the department’s antitrust division argued “rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers.”

Lobbying War

Those opposing arguments are at the center of the lobbying war. AT&T and Verizon operate some of the most powerful influence operations in Washington.

Last year AT&T doled out $15.9 million for lobbying on a range of issues, according to the Center for Responsive Politics, which tracks lobbying spending. AT&T spent the 11th largest amount of all companies that year, while Verizon ranked 18th.

T-Mobile has increased its lobbying 74 percent in the past three years since its purchase by AT&T was blocked, but at $5.2 million it remains far behind AT&T and Verizon. Sprint doled out even less, spending $2.8 million in 2013.

The money pays for lobbyists to visit members of Congress, or to urge them to call or write the agency. Sen. Chuck Schumer, who sits on the Judiciary Committee, sent a letter Nov. 20 to FCC Chairman Tom Wheeler to urge Wheeler not to institute spectrum limits.

Schumer wrote that the caps “would simply … reduce the amount of spectrum offered for auction as well as the revenue that would be generated in return” as broadcasters would choose not to put up their frequencies for sale for fear that they wouldn’t be able to get the high price that the big carriers could offer—an argument found in FCC filings submitted by AT&T, Verizon, and their hired economists.

AT&T’s and Verizon’s political action committees gave Schumer a combined $18,000 between 2009 and 2013, compared with $10,000 from Sprint and T-Mobile PACs during the same period, according to CRP.

Six Republican House lawmakers—including Rep. Fred Upton, chairman of the Energy and Commerce Committee, which oversees the FCC, and Rep. Greg Walden, chairman of the committee’s communications and technology subcommittee—wrote FCC commissioners in April in response to the Justice Department’s filing, arguing that spectrum caps “will reduce the potential revenues from the auction and possibly cause the auction to fail.”

The six authors, who also included committee members Rep. Marsha Blackburn from Tennessee, Rep. Ed Whitfield from Kentucky, Rep. Billy Long from Missouri, and Rep. Robert Latta from Ohio, received among the largest campaign contributions in Congress from AT&T’s and Verizon’s PACs for the 2012 elections—a total of $107,000 from both carriers, according to CRP. T-Mobile’s and Sprint’s PACs gave the group as a whole less than half that much, a total of $42,000, according to the center.

Spokesman for Latta and Whitfield said AT&T’s and Verizon’s campaign donations didn’t influence the representatives’ positions on spectrum limits. The other members didn’t reply to requests for comment.

“AT&T and Verizon have put on a full-scale lobbying campaign and they’re spreading money all over town and writing op-eds,” said Michael Calabrese, director of the Wireless Future Project at the New America Foundation, which supports limits. “Each side is trying to pressure the FCC, sometimes with public letters, and sometimes with research, and equally often it’s with private phone calls.”

The spending also pays for lobbyists to visit the FCC, where they meet with the staff writing the auction rules and with commissioners who will ultimately vote on them.

Between October 2012, when the FCC issued its notice to develop rules for the incentive auctions, and Jan. 30, when the FCC held a public meeting to discuss its progress, the agency received more than 400 filings that include comments, papers, presentations, and information about visits, Gary Epstein, head of the commission task force writing the auction rules, said at the Jan. 30 meeting.

The outpouring ranks the incentive auction among the most active issues at the FCC in years, said a senior FCC administrator. “It’s a lot,” the administrator said. “A whole lot.”

T-Mobile, which views the auction as a make-or-break event for the company, has been a fixture at the agency. From October 2012 through March 13, lobbyists and executives for the company visited the FCC 36 times, and submitted 20 comments, presentations, letters, and research papers for a total of 56 filings, the most of any organization or company, according to data compiled by the Center for Public Integrity.

One of the biggest complaints T-Mobile gets from customers is the inability to get access deep inside buildings, which can be alleviated with low-band spectrum, said Tim O’Regan, a spokesman for T-Mobile. “Lack of low-band spectrum is the biggest challenge T-Mobile faces,” he said. “It’s critical to the future of our network and critical for the future of the company.”

AT&T and Verizon visited the FCC 15 times each during the same period, according to the center’s analysis, ranking the carriers as the fifth most active. Sprint met with commissioners and agency staff 11 times during the same period, which ranked it tied at 11th.

It’s not the number of FCC filings “that matters most, but rather the quality and depth of a stakeholder’s conversation and advocacy with FCC staff,” said John Taylor, a Sprint spokesman.

The Expanding Opportunities for Broadcasters Coalition, a group of more than 70 television stations that support the auction, had the second most meetings with the FCC, and the National Association of Broadcasters, which may lose members if stations choose to sell their frequencies, was the third-most active group. Other organizations that have often frequented the FCC’s offices in southwest D.C. have been the Competitive Carriers Association, a group that includes as members Sprint and T-Mobile and supports spectrum limits, and Dish Network Corp., which is considering launching its own nationwide wireless network.

Buying Academic Research

But tracking traditional lobbying doesn’t tell half the story of the spectrum influence game. Wireless carriers have hired economists from some of the most prestigious universities to conduct research to support specific positions and attend FCC meetings where they can explain arcane auction theories and rebut other economists’ papers filed by their rivals.

“With this [spectrum auction], the number of factors that go into what is right and wrong is very complicated and subject to debate,” Public Knowledge’s Feld said, “so this has been an extraordinary boon to academic economists. If you do spectrum auction research, you are making a lot of money now.”

AT&T has assembled the largest team of consultants and economists, most from top universities including Yale, Columbia, and the University of Pennsylvania. One of the key studies the company has cited during its meetings with the FCC, according to the center’s research, was conducted by Philip Haile, an economics professor at Yale University, with co-authors Maya Meidan, an economist at the consulting firm Compass Lexecon LLC, and Jonathan Orszag, also at Compass Lexecon, a former member of President Bill Clinton’s National Economic Council.

The authors conclude the government would lose up to $13.4 billion if the FCC institutes the mildest limitations and twice that if tougher restrictions are followed. In a footnote on the front page of the study, the authors disclose that the study “was supported by funding from AT&T.”

T-Mobile has the second-largest team, with Greg Rosston, deputy director of Stanford University’s Institute for Economic Policy Research and a former deputy chief economist at the FCC, figuring prominently. Rosston and another Stanford economist proposed a bidding process in which spectrum limits are sequentially eased if not enough revenue is raised under the caps. T-Mobile also paid Jonathan Baker, an economist at American University, who argued spectrum limits can increase auction revenue.

“We have retained a number of experts … to help us respond and provide expert guidance on complex issues,” said T-Mobile’s O’Regan. He declined to disclose how much T-Mobile paid the economists, saying the compensation was “consistent with what gets charged in the market and the field” for such research.

Enjoying Financial Support

Verizon also has paid a former FCC economist on its team, Leslie Marx, who researches auction theory at Duke University’s Fuqua School of Business. Marx concluded in her research submitted to the FCC that an auction with no limits increases revenue and the amount of spectrum applied for mobile use.

AT&T and Verizon didn’t reply to repeated requests to comment on its spending on spectrum lobbying and support of research and associations.

Sometimes relationships are less obvious. Economists at Georgetown University’s Center for Business and Public Policy Research—including a former undersecretary of commerce in the Clinton administration and a former director of the Congressional Budget Office, Congress’ economic research arm—published a study in April 2013 that found spectrum limits would result in “a less robust and competitive auction and reduce auction revenues by as much as 40 percent” and slow the transition to faster networks, all arguments that are similar to AT&T’s and Verizon’s.

The center states on its website that it “has enjoyed the financial support” of AT&T and the Verizon Foundation and more than a dozen other organizations. John Mayo, an economics professor and executive director of the center, said the financial support didn’t lead to the study or influence its conclusions. He declined to say how much AT&T and Verizon gave to the center.

Spectrum caps “is an important topic that the Center’s experts in telecommunications policy proposed would be ripe for research, ultimately leading to our study,” Mayo said in an email. “The research methods, analysis, and findings in all Center studies are designed and determined solely by the authors and are released subject to internal quality review with no external input.” The authors state on the front page of the study that their research “is not dependent upon any of the policy positions of current, previous, or prospective Center supporters.”

“You can have a peer-reviewed journal article with good data by distinguished scholars that comes to a conclusion that goes to a corporate point of view, and that’s fine,” American University’s Thurber said. “But we should clearly know that it does [support a corporate view], and then we can make a judgment about whether there is a conflict of interest.”

Sprint has been much less active. The company filed a study by two European economists who found “restrictions on the amount of sub-1 GHz spectrum operators can acquire at auction have not resulted in any reduction in auction revenue in the myriad European nations that have adopted them.”

Sprint and T-Mobile also have funded groups supporting spectrum limits. The two carriers and Dish each gave between $10,000 and $24,999 in 2013 to the New America Foundation, which has met with the FCC to argue for caps on frequencies, according to the New America Foundation website.

“As always we are aligned with the other consumer groups and we are all in a coalition with the smaller carriers,” the foundation’s Calabrese wrote in an email. The financial support from T-Mobile, Sprint, and Dish, however, was “not for any research papers or anything in particular.”

Free Press, a consumer advocacy and journalism organization in Washington that supports restricting spectrum purchases and has testified before Congress, doesn’t accept money from corporations and has funded no independent research, according to the group’s website. Public Knowledge has received donations from all four carriers for an awards program, and Sprint gave money to the group to analyze FCC spectrum data to develop Public Knowledge’s position on limits, according to Feld.

But consumer groups are outgunned by AT&T and Verizon. With their big spending on traditional lobbying and funding of associations, think tanks and universities, the corporations play the influence game better than anyone else, said Kevin Werbach, who studies Internet and communications policy at the University of Pennsylvania’s Wharton School of Business.

“This is their core competency, and they have been playing this game for a long time,” Werbach said. “These are companies that support foundations and other groups that do a lot of good work, but in the end are strategically designed to advance [AT&T’s and Verizon’s] interests.”

Two Sides of Wheeler

FCC commissioners are scheduled to vote on proposed auction rules, including whether it will include limits, at its May 15 meeting. That could open another round of public comments, and at that point the lobbying “will hit its peak,” said an executive at one of the wireless carriers.

Two of the Democrats on the commission, Jessica Rosenworcel and Mignon Clyburn, are likely to support limits. The two Republicans, Ajit Pai and Michael O’Rielly, are less likely to.

That leaves the affable FCC chairman, Tom Wheeler, whom President Barack Obama appointed last year, to decide. Wheeler knows a lot about lobbying, having headed up the National Cable Television Association, one of the biggest lobbying spenders in Washington, and the Cellular Telecommunications & Internet Association.

Wheeler, who wields a lot of power as chairman, hasn’t indicated how he would vote. At a speech at his alma mater, Ohio State University, he described himself both as “a rabid believer in the marketplace” and as “an unabashed supporter of competition.”

“A key goal of our spectrum allocation efforts is ensuring that multiple carriers have access to airwaves needed to operate their networks,” he then said.

It remains to be seen which Wheeler will show up to vote—the former lobbyist who fought federal regulations and whom an AT&T lobbyist called “an inspired pick to lead the FCC” or the Obama appointee who believes that the wireless market needs more, not less, competition.

This story was published by the Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C.

Allan Holmes covers broadband and Internet governance for the Center for Public Integrity. He has written and edited on technology policy for 20 years, most recently for Bloomberg News and Atlantic Media.

  Slate Plus
Working
Dec. 18 2014 4:49 PM Slate’s Working Podcast: Episode 17 Transcript Read what David Plotz asked a middle school principal about his workday.