Some of the most significant transactions singled out recently for intensive federal review involve the communications industry. These include the merger of Comcast and NBCUniversal, the failed merger of AT&T and T-Mobile USA, a multi-billion purchase of spectrum by Verizon from a consortium of cable companies and, just recently, the announced acquisition by T-Mobile USA of rival MetroPCS and Softbank's offer for Sprint.
The predominance of communications transactions is not surprising. With the remarkable boom in mobile devices and applications that took off with the 2007 release of the first Apple iPhone, mobile broadband has emerged as the fastest-growing and most dynamic consumer category in an otherwise sluggish economy. Today, consumers are gobbling up an expanded range of devices and operating systems, downloading billions of apps and moving massive amounts of data-including high-definition video-through the cloud.
Unfortunately, communications providers face serious and potentially fatal problems of supply. Radio spectrum-the chief input and most severe constraint on the ability of carriers to support more users and more data-is essentially unavailable at any price.
That's because the Federal Communications Commission ("FCC"), which oversees the licensing of public airwaves, has run out of usable, unassigned spectrum to license. Moreover, a century-old allocation scheme that earmarks different bandwidths for specific applications makes it difficult for carriers to acquire more capacity from secondary markets, even when doing so would put underutilized frequencies to better and higher use. Reassigning frequencies for different technologies (e.g., satellite to terrestrial), as companies including Dish Network and LightSquared can testify, requires extensive, time-consuming, and politically charged agency rulemaking.
As consumers pull orders of magnitude more data to their smartphones, tablets, and notebook computers, carriers are becoming desperate. Network operators, already experiencing what the FCC warned in 2010 as an imminent "spectrum crunch," have little choice but to acquire spectrum assets from other mobile operators, whose licenses can be put to immediate use once the agency approves the transfer. They have been doing so as quickly as possible, attempting or completing over a dozen major transactions since 2007.
As the urgency of spectrum-related transactions has increased, the FCC has come to play an increasingly problematic-and largely unstructured-role in the government's review of transactions in the communications industry.