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Top Experts Sound Off on Sprint and T-Mobile Merger - Community Broadband Bits Podcast 366
The Sprint / T-Mobile merger has been in process for about a year now, with a series of odd, dramatic twists and turns. Recently, a group of state attorneys general sued to stop the transaction. This week, Christopher talks with telecom policy experts Gigi Sohn and Blair Levin to get their takes on the whole affair.
We originally recorded the interviews for the Institute for Local Self-Reliance’s Building Local Power podcast, but decided that we needed to share them with the Community Broadband Bits audience. Gigi Sohn is a Distinguished Fellow at the Georgetown Law Institute for Technology Law & Policy and Blair Levin is a Senior Fellow at the Brookings Institute. Both have been on the show before. You'll also hear Hibba Meraay, our Communications Manager, give Christopher a hand.
During their conversation, Christopher and his guests discuss how the T-Mobile and Sprint merger will likely end in higher rates, affecting low-income subscribers the most. They talk about the history of the companies' roles in the industry and how this merger, if it goes through, will shift the field. They also look back on precedent that provides a guidepost for blocking this merger, and compare the attitudes Wall Street and Washington take toward mergers.
You can download the report mentioned in the podcast, Cooperatives Fiberize Rural America: A Trusted Model for the Internet Era [PDF], here.
This show is 50 minutes long and can be played on this page or via Apple Podcasts or the tool of your choice using this feed.
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Thanks to Arne Huseby for the music. The song is Warm Duck Shuffle and is licensed under a Creative Commons Attribution (3.0) license.
Christopher Mitchell: Welcome to another episode of the Community Broadband Bits podcast. I'm Chris Mitchell from the Institute for Local Self-Reliance, and today I'm going to introduce a double interview special. We put together this show for the Building Local Power podcast from the Institute for Local Self-Reliance but thought you might enjoy it as well. I recommend subscribing to the Building Local Power show for provocative interviews that you cannot find elsewhere about stopping monopolies and reclaiming the power in our communities. You're about to hear me and my colleague Hibba setting up another interview about the T-Mobile and Sprint merger and then talking about 5G more generally as well as why policymakers and frankly lots of people should listen to what analysts on Wall Street are saying. That's even if we strongly prefer our main street businesses and we're worried about the power of Wall Street. It's still smart to listen to these analysts. We'll talk about that toward the end of the show. Too many people, I think, listen to what the big telephone and cable companies are saying in their advertising and to policymakers, but they're ignoring what those same big monopolies tell Wall Street but the reason we should listen to what they tell Wall Street is that they can get punished for lying to investors, while we know, if you've been paying attention, that there are very few consequences for lying to us or for lying to policymakers. You can walk into a state capitol and say whatever you want, but if you're a big monopoly lying, you're still gonna be able to take meetings, get meetings with anyone you want. That's just how it works out there. So the Wall Street analysts often have, I think, insight that would be useful. And so, we'll talk about it toward the end, but we're going to start off talking more about the T-Mobile and Sprint merger and work our way in that direction. So I hope you enjoy it.
Hibba Meraay: Hey everyone, it's Hibba, ILSRs communications manager, and today on the podcast we have Chris with me here. Hey Chris.
Christopher Mitchell: Hey, Hibba. How's it going?
Hibba Meraay: Good. How are you?
Christopher Mitchell: You know, I'm a little bit worried. I think we're talking about the 2020 election and I didn't prepare a whole lot. It's 476 days away and I'm getting a little bit nervous about it. I'm not 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. Like, I don't even watch the debates anymore. I just watch like the Daily Show recap of it. It's fine, but that's not actually our topic for today.
Christopher Mitchell: Oh, whew. I was really worried when I woke up.
Hibba Meraay: So you actually interviewed some folks to talk about the T-Mobile and Sprint merger, which is a topic we've touched on before. So my question for you is why isn't this over yet?
Christopher Mitchell: I would say because we've gotten to a point in time in which if you're powerful enough, you kind of can't lose. You can just drag it out. This merger I think is more than a year old now or approaching it, and 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. So, you know, in an ordinary time, we might've seen a decision made, but we are not living in ordinary times. I don't know if you noticed that.
Hibba Meraay: Yeah, I would say that's even an understatement right now. So you interviewed two people. A little bit later, we're gonna hear from Blair Levin, but first Gigi Sohn. Why her?
Christopher Mitchell: Gigi has very unique characteristics. I mean, not only is she very knowledgeable on these, but anyone who knows her knows that she's also has this characteristic of kind 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 gonna try to change her message based on who she's 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 spent a lot of time in public interest telecom and working at the FCC recently, the Federal Communications Commission. And so, I thought 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 drawn out, like we've said. Otherwise, do you think that's a fair comparison?
Christopher Mitchell: I think it is a fair comparison. I mean, kind of like in a soap opera, you might have a person that is buried alive and then they're crawling their way out — you know, something that you would think of as 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 better use of people's time.
Hibba Meraay: Of course.
Christopher 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. And I think changing the market structure could result in less of that. We're never going to know. You 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. And I think Gigi and Blair do a great job of making that case. Could you tell us a little bit more about Gigi?
Christopher Mitchell: Yes, so Gigi is right now the distinguished — and I think that's accurate — she is the distinguished fellow at Georgetown Law Institute for Technology, Law, and Policy, and 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, and we hold them in high regard. So, she's working for very well reputable organizations, you know, unlike me who is constantly trying to bring ILSR's reputation down. So, I think this would be a good time to jump into that interview.
Hibba Meraay: Sounds good.
Christopher 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 and 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, it was kind of interesting to be off the record all the time.
Christopher Mitchell: Sure. And 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 me out to be older than I am, but yes, I've been doing 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 the 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. You know, in those days, and I'm going to be dating myself, the issues were mostly around, you know, trying to promote diverse ownership of media and trying to make sure that broadcasters and cable operators served the public interest. The Internet was, you know, really only a dream in scientists and academics eyes. And it wasn't until about 1998 - 1999 when the Internet started to become a thing, and with it, my focus certainly shifted because I was kind of tired of trying to make, you know, top-down command and control media behave and saw the Internet as a way to empower individuals. And it does a lot of that. Obviously there's some other things we don't like. But from 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 a CEO for 12 years. And then I went off to the FCC for three years to work for Chairman Wheeler, and since then, I've been a fellow at Georgetown, and again a public advocate, but kind of like a public advocate without an organization. So I'm just kind of out there, you know, 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.
Christopher Mitchell: And so with regard to a major merger that you're working on, T-Mobile and Sprint, what is the big deal with that?
Gigi Sohn: Well, it's a huge deal because, you know, the wireless market actually started out with eight carriers and now we're down to four. And 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 are 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. And 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, you know, 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, you know the record at the Federal Communications Commission on this merger — and this merger now has been going on, the proceedings have 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 a maximum is just wrong quite honestly.
Christopher Mitchell: From weird to wrong.
Gigi Sohn: Yeah. But I mean wrong being kind, let's put it that way. But you know, the important thing is the records show that if these two entities combined, prices could go up as much as 15 percent
Christopher Mitchell: Right, and the part that I think 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 wire line market. And so, it seems pretty important.
Gigi Sohn: It's extremely important. So if you were to combine these two entities, Sprint owns Virgin mobile and Boost Mobile and they are what are called prepaid companies. So in other words, these are ones where, you know, you buy a number of minutes or you buy a certain amount, you know, you buy a card for $30 that you use for the month, as opposed to many of us who are postpaying, which means you know, you just get your bill and whatever it is, you just pay it. And those prepaid customers again are the value conscious customers and low income consumers. T-Mobile has Metro PCS. If you combine those two companies, they will control 60 percent of what's called the facilities-based prepaid market, so in other words, the prepaid market of companies that have their own facilities, have their own infrastructure. That's an awful lot of the market and that is absolutely gonna result in higher prices for the consumers who can bear it the least.
Christopher Mitchell: We know that going from four to three is mathematically 25 percent 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. So both in the Netherlands and Austria, they went from four to three, and prices went up by double digits. In Canada where there has now been over a decade where they've been trying to create a fourth new competitor, same thing: double digit increases. You know, the European Commission did a study showing that in markets that had, you know, three competitors as opposed to four, the prices were much higher. So 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 has resulted in huge price increases. So yeah, we have a lot of evidence in that regard, and again, even more compelling, the evidence on the record — which by the way, the merchant companies don't dispute. So what they say is, "Well, you're going to get more for your money." Right? So it will be a lower price per gig. But 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 it may or may not be, but the fact of the matter is these two companies serve a market that cannot bear 15 percent price increases.
Christopher Mitchell: People who know me can say that I am 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've spent most of my time working on fixed access, access to the home, 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 dunno what your fixed connection costs, but I can tell you that, you know, my triple play always creeps up to $200 a month and the broadband part is $80 a month. And I live in Washington, D.C., and I actually have three choices. So you know, 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, you know, gigabit speeds, but we are so far away from that. You know, 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 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, you know, for the heck of it. And I was getting, you know, five Megabits per second down and actually six up, which was interesting. I got more up and down. Those speeds are so poor, but that's the state of the market that we have today is that low income Americans rely on this low service.
Christopher Mitchell: Right, and I did say I was being provocative. I think it's incredibly important because the price of accessing the Internet is already far too high relative to its importance for the future of our democracy, let alone all the other benefits one gets gets from it. But one other thing I just wanted to ask regarding the potential of the merger and 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 having them merge, we could lose that.
Gigi Sohn: Well, absolutely. So, you know, T-Mobile was the first carrier to eliminate two year contracts and provide unlimited data. T-Mobile and Sprint with the first to allow subscribers to unlock their phones. You know, both companies fought to match AT&T and Verizon in coverage, s,peed and reliability. I mean T-Mobile especially, right? In some ways they kind of bought Sprint along with it. When the AT&T - T-Mobile merger was foiled — and that was another merger that I testified against — you know, T-Mobile all of a sudden became 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. And they just said, okay, we're just going to go toe to toe with the big guys, and that's been really important. And again, if Sprint goes away than T-Mobile would become just about as big in customer size. So Verizon has about 110 million customers. AT&T a little under a hundred million. And this combination, depending on whether their divestitures or not, would be again around a hundred 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 this soap opera that is this merger, you see that every time that there is 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. So 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.
Christopher Mitchell: One thing I'll say that we don't have time to get into is that you and Harold Feld and others who oppose the AT&T - T-Mobile merger made a number of predictions that came true. AT&T and T-Mobile at the time predicted that there would 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 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. 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 of Department of Justice, almost simultaneously announce it. You know, maybe it's a couple 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 the number one weird thing that happened. That was obviously to plate 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 block the merger and if Sprint wants to get out of the market, it could sell its assets to somebody else, is trying to, you know, kind of cobble a 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 reporter you listen to, either, you know, 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 FCC hasn't circulated — the FCC chairman has not sent around his decision approving the merger. And so, that's just really weird, and frankly I think that's wrong. I mean that's highly irregular, but you know, put the states' 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.
Christopher Mitchell: Well, I'm glad that we have you to give us some sense of history, although you have not been around since the dinosaurs, as you remind me.
Gigi Sohn: Chris, can I just mention one other thing? Because I do think it's important and it is history, and it's something that I have written about for the Benton Foundation. This is not the first time that there has been strong political pressure to basically, you know, drop a major antitrust proceeding, okay. So, during Reagan's time, the Justice Department was in court trying to break up AT&T, so this was like 1984 or so. And the head of the antitrust division at the time, so in other words, Makan Delrahim's predecessor, a guy named Bill Baxter, was litigating this case and he was getting pressure from Caspar Weinberger, who was 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 a attorney general, to drop the case. And he refused. He just absolutely refused. He said, we're going to litigate this to the eyeballs, and it led to the breakup of AT&T. And I've been urging Makan Delrahim to follow his predecessor and push away Ajit Pai's pressure, push away whatever pressure's 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.
Christopher 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: And 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 parallel 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 far more than what Delrahim is getting today. So you know, my message to Makan Delrahim, who I actually respect, is follow your predecessor Bill Baxter. Actually, Baxter is a hero of Delrahim's. He's mentioned Baxter in, like, 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.
Christopher Mitchell: Yes, exactly. And who knows which young lawyers may be watching Delrahim and be 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.
Christopher Mitchell: Right. Well, thank you so much for your time, Gigi.
Gigi Sohn: Chris, it's really been a pleasure.
Christopher Mitchell: So let me bring Hibba back into it. Hibba, what did you think about the Gigi discussion? Did you have any takeaways from it?
Hibba Meraay: 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?
Christopher 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 is really captures a lot. 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, you know, even a situation in which we lose this, the question will be how do we move on to the next thing? And I think people really have to think about these issues as a long-term fight to build local power, to stop monopoly. And 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 you know, the big centralized businesses or even centralized political power elsewhere. So, you know, 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: Great. That is our goal here at ILSR. So Chris, you also talked to Blair. What are we going to hear from him?
Christopher 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, and 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.
Christopher Mitchell: Now I'm talking with Blair Levin. Blair is someone who's given us a lot of advice over the years, someone I think who 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: Thank you very much.
Christopher Mitchell: So 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 a 5G type networks and in general better networks if the merger happens or if it's stopped and we remain with the four competitors.
Blair Levin: So 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 heights 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.
Christopher Mitchell: So to be clear then, enterprise meaning larger — medium sized perhaps, but larger businesses.
Blair Levin: Yeah, exactly. Big institutions. 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. You know, sometimes industry answers with a "We'll build 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 wanted 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 after 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 then the deal will almost certainly pass scrutiny by the Department of Justic, 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 networks, that could accelerate investment.
Christopher 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'd see more 5G faster or not. But I think this question, which is presented often to the public and to policymakers as, um, you know, "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 railed against it in many ways, would be an improvement over a lot of inside the beltway thinking in evaluating mergers and things like that.
Blair Levin: Yeah, I would say two things. First of all, Wall Street understands that the world is about probabilities, not certainties. And I think it's important that we understand that you can have a view that is 90 percent certain or 70 percent certain or 50 percent certain, but nothing in the real world that matters is 100 percent 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 percent certain of the correctness of your narrative, but that's just not the way 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 soundbites, 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 manage to keep their jobs. 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.
Christopher Mitchell: If someone's listening to this show and there's someone who has ambitions of being — you know, they probably already are maybe some kind of policymaker, but they really want to have good information. Should they read the Wall Street Journal? Like, where should they go to get some of the Wall Street, you know, thinking? Presumably New Street Research would be one place.
Blair Levin: I think pretty much all of my competitors, but particularly the competitors who do what I don't do, which is a fundamental analysis of 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 right 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 that, et cetera. 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.
Christopher 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've 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 like, 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 or $150 billion or $300 billion in coming years.
Blair Levin: It comes from investors who expect to get that money returned to them with significant profits. And this is actually a really important point that I think is often neglected by policymakers who somehow believe industry is gonna invest $150 billion sell services to exactly the same customers at lower prices,
Christopher Mitchell: Right?
Blair Levin: That's not going to happen. New Speaker: That's exactly what I wanted to ask you.
Blair Levin: I'm going to now contradict myself and say there is a certainty. It is 100 percent certain that no investor will invest money to be able to sell the service to the same customer at a lower price. Unless — and, you know, again there's lots of caveats — 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, you know, 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 one of the arguments T-Mobile makes is that Sprint cannot survive as a 5G competitor. This is not a failing from defense, but it's what we refer to as a flailing from defense, which is as the industry moves forward, Sprint won't be able to move forward.
Blair Levin: I think it's 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 you know, 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 bucks for 4G service cause 5G prices to be lowered? My point is simply that the money has to come from the sale of services in the future. And by the way, you know, as we're talking about investment, 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 . . .
Christopher Mitchell: I actually happen to be a person who uses Ting, which uses the Sprint network, in my case, and I can't remember the last time I was mad at my phone for taking too long to download something. I mean, it's just not how I use my phone.
Blair Levin: Right. People talk about things like remote surgery. A, that isn't a very big market. B, you can already do remotee 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.
Christopher Mitchell: It's a whole new level of complexity to the trolley problem. What if one of the people is doing surgery.
Blair Levin: Right? Oh god, law school would be so much more interesting. Another thing they tal about is autonomous vehicles. There is 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 percent certain that by the time the car was on the road, 100 percent 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 chose — 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 $3 billion, which in the context of a $100 billion, $200 billion, $300 billion 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, which are cities. Cities are part one of the few institutions that have tremendous mobility needs: police, fire, trash pickup, et cetera. It 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 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.
Christopher 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 are a little bit lost among policymakers. They get lost a little bit. And I can't imagine a lot of these promised things 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.
Blair Levin: 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 is a question that is it the car company, is it the software, is it the person who made the particular camera that malfunctioned, or is it actually a driver who did something? I mean, it will take at least 10 to 20 years for this kind of tort mitigation 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 failure of that service. Currently, you can't sue your phone company if there's some bad consequence of the service going down for five seconds and you know, the contracts — and like everyone else, I've never read the contract, but I'm 100 percent 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 reason why it's highly unlikely that a surgeon will rely on it or that they're going to rely on private networks that do make those kinds of guarantees as opposed to a best efforts network that simply says, we'll do our best.
Christopher Mitchell: Right. Thank you so much Blair. It's great to have you back on.
Blair Levin: Okay, good talking to you, Chris.
Christopher Mitchell: So Hibba, you know, I've had more time to reflect on this and I've talked with Blair many times about issues related to this. I'm curious, what do you take away from our discussion?
Hibba Meraay: Yeah, I think, it's really great to have another perspective on an economic argument. Like usually, a lot of times advocates focus on the moral argument. I feel like we at ILSR and other folks 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 [how] Wall Street is about probabilities, not certainties. Like, 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 he really opens up that world and was like, actually, we've got some indicators but we're always guessing and that's part of the game.
Christopher Mitchell: Yeah, I take a lot of that away as well. I mean, I feel like there are times when 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, but they get a vote too. You know, the best policy may not necessarily be the one that 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 we've been reminded of from the debates with Senator Harris and former Vice President Biden. But you know, at the end of the day, you know, everyone has a vote, and I'm not just talking about the ballot box. I mean how they react and their actions, and so thinking about things in terms of probabilities I think is very valuable and a reminder that, you know, 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 like 8 million people there. So, it's a good reminder to be humble I think 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. You know, I've opposed many mergers and they have not all been awful. And frankly, you know, 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, you know, 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.
Christopher Mitchell: I at least paid attention to the outcomes, definitely.
Hibba Meraay: Right. That's the important, right?
Christopher Mitchell: Yeah, you know, 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, you know, we're all getting sucked along in this, sort of the 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.
Christopher Mitchell: My colleagues, Katie, Hannah Trostle, and Hannah Bonestroo did really great work showing how much growth there's been. And 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 gonna be stuck with a 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: Yup. 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.
Lisa Gonzalez: That was Christopher speaking with Gigi Sohn and Blair Levin in separate interviews about the impending Sprint - T-Mobile merger. Chris had some help this week from our communications manager, Hibba Meraay. The interviews were originally broadcast as episode 77 of the Building Local Power podcast. One of our other informative shows from the Institute for Local Self-Reliance. We encourage you to subscribe to the Building Local Power podcast and the Local Energy Rules podcast. You can access them wherever you get your podcasts. We have transcripts for this and other podcasts available at muninetworks.orgs/broadbandbits Email us at email@example.com with your ideas for the show. Follow Chris on Twitter. His handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is at @muninetworks. You can catch the latest important research from all of our initiatives if you subscribe to our monthly newsletter at ilsr.org. While you're there, please take a moment to donate. Your support in any amount helps keep us going. Thank you to Arne Huseby for the song Warm Duck Shuffle, licensed through creative Commons, and thank you for listening to episode 366 of the Community Broadband Bits Podcast.