The Trump administration surprised everyone in 2018 by pushing industrial policy to win the 5G race. Proponents called the proposed 5G national wholesale network a disruptive reform that would spur progress by challenging existing mobile operators. Writing in the New York Times that year, Kevin Werbach, a telecommunications adviser to Clinton and Obama, welcomed the idea: “Forward-thinking Democrats and public interest advocates have been pushing it for decades. .
Under the Trump plan, a private company would build and operate the system on a franchise basis. The US government would provide the radio spectrum and impose an “open access” mandate – the network would have to host a range of wireless competitors. This would supposedly stimulate investment and promote innovation.
The plan has not yet been implemented in the United States, but a similar plan was adopted in Mexico to establish a 4G network in 2013, and it failed.
Mexico needs more competition in cellular service. TelCel, owned by billionaire Carlos Slim, captured 70% of Mexico’s mobile phone revenue in 2013 when policymakers boldly attacked.
The Federal Institute of Telecommunications of Mexico has reserved a good part of the main frequencies for the exclusive use of Red Compartida, a “shared network”. Ninety megahertz of bandwidth and additional government grants have been set aside to support the creation of a new state-of-the-art 4G system. This franchise was awarded to a private company, Altán Redes, in 2016.
Altán was to operate a mobile network to host mobile virtual network operators. These new entrants would use the infrastructure managed by Altán to serve retail users. Existing networks – TelCel, Movistar (owned by Spain’s Telefonica) and AT&T Mexico – were initially banned from the network, which was reserved for new entrants to foster competition.
The Economist hailed the plan when the service launched in 2018, citing the overwhelming dominance of TelCel and proclaimed: “Red Compartida will change that.
Instead, the cache of spectrum offered to Red Compartida chilled rivalry and forced consolidation. From 2017 to 2020, TelCel’s revenue share has increased. Its biggest rivals, Telefonica and AT&T, were barred from bidding on the spectrum given to Red Compartida. Spectrum-poor Movistar is in freefall. Its desperate exit strategy is to switch its subscribers to AT&T’s network, which has more bandwidth.
The free price did not bolster the shared network, which missed several coverage deadlines and gained few customers. The Economist lamented that mobile virtual network operators accounted for only 1% of the Mexican mobile market, compared to 10% to 15% in Europe and the United States. Now, Mexico’s share has barely increased by another 1%, and even that small boost is partly because Altán, lagging behind its rural service goals, contracted TelCel to serve outlying areas, expanding network coverage as well. One should marvel at how Mr. Slim finds a way to win over regulatory regimes designed to stop him.
Altán, even with subsidies, plunged into bankruptcy in 2021. Similarly, an “open-access” network designed by regulators in South Africa, listed by The Economist as a model for Mexico, earlier unplugged this year. This venture could not get off the ground, although it had been in the government’s planning process since 2011. A similar experiment in Australia was “botched”, according to the New York Times, and “cost almost double what was expected – for an inferior system,” according to the New York Times. a report from the Australian newspaper The Saturday Paper.
The champions of a US-style Red Compartida for 5G are led by investors in Rivada Networks, a company that fortunately lost its bid to become the government’s anointed operator in Mexico. Company declares allegiance to free markets, attacks Federal Communications Commission license auction for allowing three wireless carriers to buy nearly all spectrum, and offers open-access platform with spectrum rights allocated not by monetary offers but by political decision makers. They cited my work showing how central spectrum planning was introduced, limiting competition, into the Radio Act 1927.
I’m grateful, but the quote goes against their plan, which would truncate the markets, not open them. Wholesale transactions – which the Red Compartida model calls – are already deployed by more than 130 US mobile virtual network operators (Mint Mobile, GreatCall, Spectrum, Ting and Google Fi among them), which contract with Verizon,
AT&T and T-Mobile for spectrum access. Adopting a plan imposed by regulators would allocate bandwidth from top to bottom, emulating the twist of the Radio Act of 1927, which centralized control of bandwidth.
Meanwhile, 5G networks are spreading faster in the United States than in any other country, with 49% coverage in October 2021. (China was at 20% that month.) This rollout benefits from recent auctions US for flexible-use spectrum rights, infusing networks with new capabilities that lower costs and spur rivalry. Further liberalization should continue.
Regulators have been unable to divert frequencies to selected business models to increase competition. US policymakers should avoid trying.
Mr. Hazlett is a professor of economics at Clemson University and a visiting scholar at the Hoover Institution at Stanford. He was Chief Economist of the Federal Communications Commission from 1991 to 1992 and is the author of “The Political Spectrum: The Tumultuous Liberation of Wireless Technologies, From Herbert Hoover to the Smartphone”.
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