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The Secret $8 Billion Wireless Scam: How AT&T, T-Mobile and Verizon Game the System

Telecom giants Verizon and AT&T have gamed the system, using regulations designed to foster competition to snatch up ever more of the wireless spectrum.

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The scam continued after the first round of spectrum auctions took place. However, the scheme did not escape the notice of all FCC commissioners. For example, in April 2006, Commissioner Jonathan Adelstein noted:

We missed a real opportunity to shut down what almost everyone recognizes has the potential for the largest abuse of our Designated Entity program: giant wireless companies using false fronts to get spectrum on the cheap.

Commissioner Michael Copps echoed this assessment:

News reports indicate that, in prior auctions, entities with deep pockets helped themselves to discounts they were never meant to enjoy. This unacceptable behavior threatens the integrity of our auctions and, worse, it cheats consumers. … It also means that spectrum goes to those most willing and able to manipulate the rules of the game, rather than to the entities Congress actually intended to benefit...

Obviously, AT&T, Verizon and the rest of the telecom trust are not very small businesses. Nor can one honestly claim that dummy “small businesses” – or, better yet, false fronts for the majors – should be entitled to the benefits set aside for truly small companies in the name of competitiveness.

Failure to address this issue during the AT&T/T-Mobile merger process will only encourage further duplicity.

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While Adelstein and Copps made comments about this practice, it is clear that the FCC’s role in this was – and is! -- to foster deception. It does this by using market analytic data that is more than a decade old. In 2011, the FCC data about small business wireless spectrum markets is from 1997, 1999, 2000 and 2001. And it uses this same out-of-date data in every docket pertaining to broadband Internet, net neutrality and wireless spectrum. The FCC is required to undertake a “Regulatory Flexibility Act” analysis to examine how their regulations will impact small businesses.

A telling insight into how this plays out is revealed in a 2011 FCC docket about the wireless auction in 1997 for very small business wireless spectrum:

Wireless Communications Services. This service can be used for fixed, mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission established small business size standards for the wireless communications services (WCS) auction. A "small business" is an entity with average gross revenues of $40 million for each of the three preceding years, and a "very small business" is an entity with average gross revenues of $15 million for each of the three preceding years. … In the auction, held in April 1997, there were seven winning bidders that qualified as "very small business" entities, and one that qualified as a "small business" entity.

The FCC is the overseer of nation’s wireless spectrum. It has avoided an investigation to fix this data because they would find that the large companies essentially gamed the regulatory system, costing the government billions of dollars and harming both American consumes and wireless competitors.

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Is a wireless duopoly in our future?

For those with short memories, old Ma Bell, the original AT&T system of local and long-distance services, equipment manufacturing and research, was broken up in 1984 into seven companies know as RBOCs: Regional Bell Operating Companies.

Over the intervening three decades, federal regulatory policies have helped propel the RBOCs into what Victor "Hu" Meena, the president and CEO of Mississippi-based Cellular South who spoke in opposition to the Senate merger hearing, identifies “a duopoly made up of Ma Bell's two behemoth descendants."

Meena was joined by Sprint’s CEO Daniel Hesse in opposing the merger. He addressed Sen. Leahy’s concern for the needs of rural customers. “If AT&T’s real goal was to reach more people in rural areas,” he said, “it could invest the $39 billion it is spending to buy T-Mobile to build out service to rural areas rather than raise the prospect of rural development as a pretext to swallow a competitor.”