I’ve been following the ongoing debate over the AT&T/T-Mobile merger with interest. As regular readers have probably guessed, I have a lot of sympathy for the arguments of merger opponents. Going from four national wireless carriers would represent a significant loss of consumer choice, and I think it would also make the wireless industry less hospitable to innovation. T-Mobile’s relatively open policies serve as an escape hatch for both consumers and handset vendors whose needs are not being met by the larger carriers.
But against these concerns, some of my fellow libertarians offer a compelling counterargument: let the free market work. It’s hard to predict how the mobile market will evolve, but there are strong economic and moral reasons to think that the unfettered free market will produce better outcomes than government meddling in the private sector.
As a libertarian, this is an argument I take very seriously, but I think it’s misguided here. To understand what’s wrong with it, we need to go all the way back to one of the founders of classical liberal thought, John Locke. In Chapter 5 of his Second Treatise of Government, Locke articulated a moral theory of property rights that continues to be influential to this day:
Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others.
In Anarchy, State, and Utopia, Robert Nozick dubbed this last caveat the Lockean Proviso. Taken literally, the proviso doesn’t make much sense. Surely, American property claims didn’t all become illegitimate the day the frontier closed and there was no longer land “left in common for others” to homestead.
Still, I think the proviso captures an important moral intuition. The legitimacy of a property rights system depends on it being open to everyone. True, we’ll never have a society in which everyone is a landholder. But our system of land ownership gives everyone the opportunity to purchase land at market rates. And the diversity of land titles means that those who don’t own themselves have many landlords from which to choose.
And this is an important safeguard for liberty. In a society with highly concentrated land ownership, people with unusual or unpopular housing needs—interracial couples in the 1950s, gay couples in the 1980s, people who want to throw loud parties or own unusual pets—might have trouble finding housing that allowed them to live in the way they chose. But in a world with thousands of landlords, almost everyone can find somebody willing to rent to them, no matter how unusual their demands might be. The diversity of landholdings doesn’t just hold rents down, it has direct implications for individual liberty.
Land ownership has been so decentralized for so long that we aren’t in the habit of thinking of it as an issue of liberty. But it is. A real estate market in which three landlords owned all the land would be less free than a real estate market with 3000 landlords. And the same is true of most other natural resources. The liquidity of commodity markets protect our rights to do as we please with oil, gold, copper, and other natural resources we purchase. My gas station doesn’t try to dictate what brand of car I drive because it knows there are lots of other places I can buy gasoline.
Spectrum is different. If I want to use the electromagnetic spectrum in a novel way, at power levels above those allowed by the unlicensed bands, I need to buy (or more likely rent) spectrum from someone. And in the contemporary American market, there are only a handful of firms to choose from. These firms are vertically integrated and place tight restrictions on what kinds of signals can be transmitted.
In other words, there is not “enough, and as good” spectrum “left in common for others” to use for their own purposes. A handful of parties have claimed for themselves all the available spectrum and tightly constrain how it’s used.
It’s not obvious what should be done about this. Maybe the distinctive characteristics of spectrum make it impossible to allocate in a way that’s consistent with the Lockean Proviso. There are economies of scale in mobile service, and so I don’t expect we’ll ever have dozens—to say nothing of thousands—of wireless carriers.
But one thing the government can do is make sure the problem doesn’t get worse. As I mentioned in my last post, the Clinton FCC used to prohibit any single company from holding too large a share of the spectrum available for use by mobile phone companies. The Bush administration dropped this rule, and the Obama FCC has not resurrected it. I think they should.
The debate over the merger has largely focused on whether prices in the post-merger world will be higher than they are now. That’s a relevant question, but I don’t think it’s the most important one. The real dangers of the merger is to the liberty that the Lockean Proviso is designed to protect. The merger will harm consumers who are no longer free to use wireless spectrum in ways allowed by T-Mobile but not AT&T. And it will harm future innovators who are unable to find a spectrum owner willing to allow their innovations on its network.
I appreciate the explanation of the Lockean Proviso, but I’m not sure Locke’s conception of property even applies in the first place? In what sense hath wireless carriers mixed their labours with the spectrum? Wireless signals are inherently impermanent. Only so long as carriers labour to operate their transmytters do they have any effect on the electromagnetic spectrum at all. Within seconds of their shutting down, no one on Earth will be able to tell they ever transmytted anything. The spectrum is in precisely that common state nature hath placed it in. All the broadcasters who ever broadcast have changed Maxwell’s equations not an iota.
To be clear, this means they have even less claim to continued exclusive access to spectrum than they would if only the Lockean Proviso applied. I’m sure that some people (the wireless microphone yokels?) will claim that building a device that broadcasts on a frequency is enough labour-mixing to own that frequency forever, but such a claim will be ridiculous. Locke’s conception of property encompasses fashioning trees into furniture, or minerals into tools, but these are real objects which exist durably and independently. Processes such as sound, visible light, radio broadcast, etc. are not durable and I don’t see how they can be considered property under this theory. Perhaps other theories might apply, but those theories seem less legitimate than Locke’s.
What Jess said – “property” conceals a lot more than it reveals here.
The same goes for “free market.” “[G]overnment meddling in the private sector” starts as soon as the government makes exclusive grants of spectrum in the first place. Obviously there may be perfectly good reasons for government to do that – left to their own devices, private individuals might not be able to co-ordinate effectively to make the most efficient use of the spectrum. But the basic premise here is that the free market has failed and government needs to step in.
After that, the whole discussion is about the merits of competing regulatory schemes: it’s disingenuous for fans of a particular scheme represents the “free market”, and that everything else is unwarranted interference.
Tim, By what process do you determine how much spectrum is enough for one part to own? How do you make amendments to the decided “enough” amount as technology advances? Is it a “bottom up” process or a “top down” process?
It would be a mistake to re-impose spectrum and artificially limit the provision of spectrum by carrier or by market. The FCC enforced spectrum caps for many years until economists finally convinced them to largely abandon them. You may also recall that, in the mid-90s, the FCC played market-carving games with cellular markets and limited who could own what in regional markets.
You can talk about “Lockean Provisos” all you want, but how about looking at the hard evidence of what such restrictions gave us: an artificial constraint on the growth of robust, nationwide spectrum markets. It took years to undo this mess, but thank God we did. That new Verizon 4G phone I am lusting after right now probably wouldn’t be available today in world of artificial spectrum constraints.
I enjoy thinking in abstract philosophical terms, too, and Lockean theory has also been influential on my own thinking. But there are limits to natural law theory and there are practical implications that must be taken into account when we seek to translate those theories into concrete policy proposal.
In this case, the net result of your advocacy for a Lockean Proviso for spectrum would be a newly empowered bureaucratic regulatory regime imposing a top-down, command-and-control vision on wireless markets. Somehow I don’t think that is consistent with the traditional “bottom-up” thinking at work on this blog!
Preemptive, “Mother-May-I?” regulation isn’t the way to go. For better or worse, antitrust law will probably be with us forever, and if things go disastrously wrong in this market, presumably antitrust officials will intervene. But isn’t it better to let the experiments continue and see what the natural evolution of the marketplace brings us? The burden of proof is on you to show why 5 unelected bureaucrats should micro-manage markets and resources.
I think it’s great to start from first principles and work to apply them to spectrum. But I think there are some logical gaps in your thinking.
A philosopher would probably struggle with your postulate that the legitimacy of a property rights system rests on its openness, if only because “openness” is itself so “open”! But the number of owners of a given commodity, be it land or anything else, doesn’t tell us anything about the sufficiency of freedom/openness in the market for it. If there were sufficient economies of scale to landholding (there aren’t), a free market could certainly produce three or fewer landlords.
Having set up the premise, though, that multiple holders is evidence of freedom, you claim to abandon it because “spectrum is different.” I don’t think you actually do. The spectrum market is different, I think you mean—which begs the question whether there is even much of a market.
Spectrum itself is different from land in some ways, but not that different. Imagine what rules and tools for dividing up spectrum might have emerged had the federal government not assumed power over that function. The FCC (or some other body, governmental or non-governmental) could be a relatively simple registry of rights to use spectrum along the dimensions of frequency; latitude, longitude, and elevation; time; and possible directions of arrival (azimuth and elevation). Common law courts could have evolved rules for resolving disputes about infringements on these property rights.
I’m not the world’s chief expert on spectrum management, but you’ve characterized the controllers of spectrum as “a handful of firms.” Are they controllers? Maybe some have the control to rent out or subdivide spectrum the FCC has allocated them, but I used to represent a company that spent a good deal of time and money asking the FCC for permission to use its own spectrum in ground-based repeaters, a use unaccounted for in their license to use it for satellite communications. It might be the FCC, not firms, placing the “tight restrictions” on spectrum use—by the firms themselves or firms acting as “landlords.”
Which brings me to a small, but important shift in focus that amounts to a rather vast leap to your conclusion about the merger.
“It’s not obvious what should be done about this.” Roger that. “But one thing the government can do is make sure the problem doesn’t get worse.” Also agreed.
But I thought the “problem” you were referring to was the substantial absence of market force in allocating spectrum. Instead, the “problem” seems to be an insufficient number of owners, which, as I said, is a poor proxy for the market freedom that produces efficient allocation. Your solution to the “problem” of insufficient numerousness in owners is to block market force yet again, compounding what I see as the more significant “problem.”
Needless to say, you’ve written something important. There’s evidently no lack libertards caring about what you have to say! 😉
By what process do you determine how much spectrum is enough for one part to own? Is it a “bottom up” process or a “top down” process?
This is necessarily a judgment call, and reasonable people can disagree about where the line should be drawn. But judgment calls are inevitable in this area. The decision to allocate the spectrum to exclusive rather than unlicensed use is a judgment call. So are decisions about power levels, guard bands, etc.
Obviously, everything the government does is “top down” in some sense. But I think a spectrum cap fits comfortably into Hayek’s conception of the rule of law. It’s a clear, general rule that allows private market actors broad lattitude to make their own plans. There’s much less danger of a “fatal conceit” than (say) the “open access” conditions on the 700 MHz auction or the white spaces proceeding.
Blocking mergers is a much easier task for government than trying to regulate monopolies in a way that simulates a vibrant market.
Adam, where can I read more about the problems created by the Clinton-era spectrum regulations?
The “problem” seems to be an insufficient number of owners, which, as I said, is a poor proxy for the market freedom that produces efficient allocation.
With respect, I think this gets things backwards. Freedom is the end, markets are a means. Most of the time, markets promote freedom. But markets and freedom aren’t identical.
My claim isn’t that the concentration of the spectrum market is a symptom or proxy for mis-regulation of the spectrum market—though I suspect it is. My claim is that the concentration of ownership directly affects consumers freedom. Again, go back to my land example. If Philadelphia had 4 landlords, and all of them decided to implement a “no shacking up before marriage” rule for their tenants, that would be a direct loss in Philadelphias’ freedom to live as they please. It would probably be the case that this concentration of ownership was the result of bad government regulations. But you wouldn’t need to prove that that’s the case in order to say the concentration of ownership limits your freedom. The inability to live the way you want is, in itself, a loss of freedom.
By the same token, I think the lack of competition in the wireless market is probably attributable to bad government policy rather than “market failure.” But I’m interested in promoting freedom in general, not just in defending freedom from encroachment by government. I think post-merger America will be less free than pre-merger America, and so I think blocking the merger will be freedom-enhancing whether or not the underlying problem was originally caused by the government.
While the FCC did eliminate “spectrum caps” in the context of auctions, they have not eliminated the use of “spectrum screens” in the context of merger review. In other words, whatever the merits of your argument, it will be dealt with as part of the merger, which everyone understands will be subject to the screen. The more interesting questions revolve around precisely what bands should go into the denominator for that screen.
Enough of Lockean distractions. I’d like to argue against this throwaway line:
I maintain that it is not in fact hard to predict how this market will evolve. VZN and ATT will increase backhaul fees until Sprint succumbs (via falling profits and eventual merger) just as all previous competitors have. Then VZN and ATT will either merge, or not, based on how many billions their execs may steal from shareholders thereby. And then we’ll be back to the Ma Bell that we had at the beginning of this several-decades regulatory dog-and-pony show, except that Ma Bell will have divested herself of all those yucky unprofitable rural ILECs, and will only have over a barrel those valuable consumers she really wants over a barrel. Not that she’ll countenance any wireless innovation in the hinterland anyway; those bumpkins ought to learn they’ll have to move to the city if they want decent service.
After that we may expect more regulatory adventures, targeted at longer-range threats like Google Android, Vonage, and those few WISPs that have somehow eked an existence at the margins of our all-American monopoly carrier.
Sounds like a great time to be a consumer! I’m sure we’ll get that shiny new Princess phone any year now!