There was a major flutter in DC before the State of the Union following a report from Axios claiming the Trump Administration is considering nationalizing cell phone service. The FCC quickly threw five cabanas worth of shade on the suggestion, with all commissioners decrying the idea, while the Trump Administration said the memo was outdated and just an idea. It turns out the idea may only be “mostly dead,” and still slithering around White House (via Breitbart).
While the administration is not considering nationalizing the nation’s wireless infrastructure, officials are moving ahead with discussions to build a 5G network outside of the traditional wireless carriers, according to people familiar with the matter. These officials have met with some of the biggest technology companies to discuss a fast, nationwide rollout of a 5G network…
The plan recently discussed would have the government award a huge block of spectrum to a company outside of the traditional bidders for wireless spectrum, such as telecom giants AT&T and Verizon. The new spectrum owner would then be responsible for building the network, most likely contracting with American manufacturers for domestically made hardware and software. The administraiton remains concerned that foreign components, especially those made in China, could contain malware that could be used compromise the security, privacy, and integrity of the network.
The administration was seeking to partner with a technology company outside of the traditional telecom industry because officials believe that a fast build of the network would require such a large amount of broadband that awarding it to a single telecom company would amount to giving a government granted monopoloy to one of the big players. In the model now under consideration, the owner of the network would not directly provide telecommunications services to consumers. Instead, it would build and maintain the network and rent access to the likes of AT&T and Verizon.
So, let me get this straight…the government is only funding the rollout by giving the spectrum to a technology company, making sure it’s centralized, then have providers rent from them. Oh…kay?
It’s not necessarily nationalization, but it depends on the language of whatever contract the government gives to this mysterious “company outside of the traditional bidders.” It also depends on how “separate” the tech company is from the government itself. I reached out to Ryan Radia at Competitive Enterprise Institute on the issue, and he’s got more concerns about the government-funded centralization.
“It might actually be worse if the federal government co-develops the network with a private firm that is the putative owner/operator, as compared to an outright nationalized network,” Radia wrote in an email. “The resulting entity might well be exempt from laws governing federal agencies, such as FOIA, the Administrative Procedure Act, the Paperwork Reduction Act, and so forth. And the network operator’s liabilities would presumably be considered off the government’s books for purposes of calculating federal liabilities.”
Radia cited Fannie Mae and Freddie Mac as two issues where public/private hybrids end up being scarfed up by the government when things go bad. “The companies were actually held mostly by private shareholders until Treasury took over in 2008, yet that’s exactly what capital markets assumed would occur if the firms were ever at risk of going under.”
There are also major security concerns if the 5G network becomes centralized because it would end up being a one size fits all type of construction. The Administration may believe a “Made in America” only product would strengthen the ability to protect the network from hackers at the gate, but a huge centralized network is still vulnerable to hacking, even if run by the private sector.
“Although the current major wireless carriers operate relatively similar networks, there are meaningful differences among the carriers in terms of how they handle information security,” Radia told me, while also explaining the distinctions tend to be hidden from public eyes. The Trump Administration’s idea of letting telecoms lease 5G capability from whatever this tech company building could end up being wouldn’t increase security. It’s completely possible the hackers could get through the “leased” systems by hacking the main 5G network.
There’s also this weird theory by the Administration which claims the huge centralization would actually encourage innovation. At least that’s what Breitbart, which is back in the good graces of the Administration after Steve Bannon’s ousting, is reporting.
It might also encourage more innovation, inviting companies such as Facebook and Google to purchase the spectrum and provide it directly to their users
“Put this together with the end of net neutrality, and you have the beginnnings of a system where someone like Facebook buys spectrum and gives it away their users to incentivize spending more time on Facebook,” a person familiar with the ideas behind the plan said.
The counter to this is the fact Google is already rolling out Fiber across the country, so they’re already in the ISP business. The centralization plan could also backfire and hurt innovation. “Competing carriers foster innovation by trying to leapfrog one another in terms of service quality, pricing, availability, etc. Government monopolies tend to achieve the opposite result,” Radia pointed out, then turned to two other government-run businesses which aren’t doing great. “The postal service and Amtrak aren’t models of innovation and risk-taking.”
Radia is obviously echoing comments made by Ed when the nationalized 5G idea first surfaced. But his other statements on the issues with getting a private company to build the network, and leasing to telecoms just doesn’t work, and could put more users at risk.
This entire thing strikes me as another trial balloon, much like the original nationalization plan, leaked into the public eye. The Trump Administration wanted to see how it’d fly with the rest of the country. Columbia law professor Tim Wu wrote in The New York Times it wasn’t necessarily a bad idea, especially if it gets 5G service to smaller communities. Considering the fact Wu is considered the “father of Net Neutrality,” it might be a good idea for the Administration to ax the plan for good, and just let the free market handle 5G rollout.