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SoftBank's CEO Wants U.S. Mobile Industry to Follow Japan's Lead. Um, No Thanks.

Mar 10 2014, 2:03am CDT | by

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SoftBank's CEO Wants U.S. Mobile Industry to Follow Japan's Lead. Um, No Thanks.
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SoftBank's CEO Wants U.S. Mobile Industry to Follow Japan's Lead. Um, No Thanks.

SoftBank CEO Masayoshi Son is visiting the U.S. this week to tell Washington how the U.S. can learn from Japan’s example to improve its mobile broadband infrastructure.

Still smarting from early indications that U.S. regulators are skeptical of a possible merger of SoftBank’s Sprint subsidiary with Deutsche Telekom’s T-Mobile USA, the real purpose of the trip is to make the case that combining the #3 and #4 U.S. mobile networks would help rather than harm competition in the U.S. market.

Son’s argument in favor of the merger is a curious one, however.  He believes the merger is the only way to raise U.S. mobile broadband networks to the level of its counterparts in Europe and Japan.

At an earnings briefing last month, for example, Son deflected questions about a possible Sprint/T-Mobile deal.   “What I can say is that the United States’ mobile industry is not competitive compared with other countries and its network is not good,” he said.

Those comments continued a theme Son has played before.  “Every time I make a business trip to the U.S., I am reminded how terrible connections are there,” he said at a press conference February. “The U.S. has one of the world’s highest mobile fees,” and the principles of competition aren’t working, he said.

How’s that again?

International rankings of broadband pricing and performance are notoriously squishy, making their manipulation an irresistible tool for advocates for all manner of government intervention and policy change.  Different geographies, population densities, and histories of government investment and ownership in communications infrastructure make apples-to-apples comparisons impossible.

Japan, for example, is a fraction the size of the U.S., with a far more centralized, urban and culturally similar population.  There, SoftBank competes primarily with NTT DoCoMo, a former government-operated carrier that is still over a third owned by Japanese taxpayers, its original investor.

Still, even lopsided comparisons suggests that if anything it is Japan that would most benefit from applying the U.S. model of broadband innovation.  On every relevant measure of competitiveness, the U.S. Internet ecosystem outstrips that of Japan and Europe.   (Even the FCC is forced by overwhelming evidence to agree, as I noted in detail last year. )

For example, according to the multilateral Organization for Economic Co-Operation and Development, the U.S. already has a higher penetration of standard mobile broadband subscriptions than Japan, with the U.S. at over 90 subscriptions per 100 inhabitants.   According to OpenSignal, real-world tests of actual download speeds show that Japan’s latest 4G LTE networks perform the worst.

Even more overwhelming data comes from CTIA, The Wireless Association.  A few data points worth noting from CITA’s most recent findings:

  • U.S. carriers’ investment represents a quarter of the total worldwide spend on mobile infrastructure, averaging six times more per subscriber than global counterparts.
  • By the end of 2013, nearly 20% of U.S. connections were on high-speed 4G LTE networks, compared with less than 2% in Europe.  The U.S. holds half of the world’s LTE connections despite having only 5% of the total mobile customer base.
  • Data prices per megabyte have fallen 93% in the past five years, while usage has exploded.  While the Consumer Price Index increased nearly 17% since 2006, mobile prices overall fell 8%.

Following Sprint’s acquisition of Clearwire and T-Mobile’s merger with MetroPCS, the U.S. now has four major mobile broadband providers providing 4G LTE coverage (Japan has only three).  There are also dozens of regional providers and virtual networks, including Wal-Mart’s Straight Talk and Boost Mobile, who offer pre-paid plans that operate using the networks of other carriers.  Satellite maverick Dish Network may be preparing to enter the market as well.

While pro-regulatory U.S. academics torture this data in an effort sing the praises of broadband utopias in the rest of the world, Europeans at least see just the opposite.  Neelie Kroes, the EU’s senior communications regulator, has repeatedly bemoaned the failure of interventionist EU policies that have made Europe uncompetitive on every measure with U.S. mobile broadband.  “EU companies are not global internet players,” Kroes recently reminded her colleagues.

According to Roslyn Layton, a European researcher who has been studying the mythologizing of Europe’s supposed mobile victory, the reality is that “Europeans roundly complain about the quality of their broadband, and there is no European who would say that the US is falling behind Europe.”

And of course it is U.S. companies that dominate the explosive growth of content, services and apps used on mobile networks worldwide.  Of the ten largest Internet companies, seven are U.S.-based; only one, Rakuten, is Japanese  Of the ten most visited websites in the world, the top six are U.S. firms.  None are from Japan.

Moreover, despite the fact that half the world’s Internet users are in Asia, a recent study from The Economist found that Asian companies are hobbled by regulatory and culture obstacles that consistently keep them from competing in the global market.  “Asia is not alone in struggling to export home-grown Internet services,” the report noted.  “If anything, Europe has had an even harder time — despite lesser regulatory, linguistic and cultural hurdles to international expansion.”

I could go on, but I think the point is more than made.  However the U.S mobile ecosystem might be improved, the solutions will not be found by importing the inapplicable and largely failed business practices and regulatory policies of other countries.

Simply put, the mobile broadband market in the U.S. is generating, more than in any other country, what my co-author Paul Nunes and I call “Big Bang Disruption,” inspiring enterprises of all sizes to launch innovative new products and services at a remarkable—and accelerating—pace.  It is  creating value, jobs, and economic activity at perhaps the fastest pace of any new technology since the Industrial Revolution.

The Real Limits on U.S. Mobile Competition:  Less, not More, Regulatory Intervention

Which is not to say that the U.S maker it perfect, or even that a merger between Sprint and T-Mobile might not make good economic sense.  Reducing the number of nationwide carriers from four to three could nonetheless create a stronger third carrier, putting even more effective competitive pressure on Verizon and AT&T than the two smaller carriers can apply on their own.

If SoftBank is to make that case, however, Son will need to drop his disingenuous and unconvincing U.S. bashing, and take a closer look at the real reasons Sprint and T-Mobile lag so far behind their competitors.

Though the carriers have different histories, for example, both Sprint and T-Mobile are struggling with the legacy of a series of strategic blunders by current and former owners.  Both companies, for example, sat out the last major spectrum auction for bandwidth below 1 GHz, and now complain that their ability to build out LTE networks beyond their urban strongholds are constrained by that decision.

More to the point, both companies have badly under-invested in network upgrades over the last several years.  According to data compiled by the FCC in its 2013 Mobile Competition Report,  both carriers lag dangerously behind in capital expenditures on their respective networks.

For Sprint, the failure is the legacy of a long history of mismanagement and lack of focus, which allowed SoftBank to acquire the carrier in 2013 for a bargain basement price.  (SoftBank outbid Dish, which saw Sprint as an easy way into the market.)  SoftBank promised regulators it would make major investments in Sprint’s outdated technology, for which its consumers and other proponents of enhanced competition should be grateful.

Source:  Federal Communications Commission

T-Mobile USA, on the other hand, has been hamstrung by the on-again, off-again, on-again interest of its parent company, Deutsche Telekom, the former national phone company which is still owned in significant part by the German government.  By 2011, DT had dramatically cut its investment in the U.S. subsidiary.  But after failing to convince U.S. regulators to allow it to sell T-Mobile to AT&T, DT has shown renewed interest, spending at least some of the $3 billion breakup fee it received from AT&T on marketing—if not network—upgrades.

DT’s long-term commitment to T-Mobile, however, is still very much in doubt.  It is entirely possible that renewed attention to T-Mobile is simply an effort to gussy up the company to improve the purchase price it can negotiate in the near-future with SoftBank.  That, in any case, is what SoftBank’s Son himself believes, according to a recent report in the Wall Street Journal.

Aside from poor management at some U.S. mobile broadband companies, the real limits on even faster expansion and improvement of mobile services in the U.S., ironically, are not competitive, but rather regulatory.  It’s not more government interference that’s needed, in other words, but less.

Today, the two limiting factors on how quickly all mobile broadband carriers can deploy even faster technology are a lack of available radio spectrum and approvals for cell tower and antenna siting, both under the control of slow-moving regulators.

In the teeth of FCC rules requiring state and local authorities to decide quickly on permit requests for new equipment, proceedings to build new towers or even to replace existing antenna already on utility poles continue to drag on.

Even in Northern California, the home of leading technology companies, my local community north of Berkeley has been considering for over a year permit applications by AT&T to place six new antennae on existing utility poles.

At nearly a dozen meetings of a local advisory council, the county planning commission and recently, the county board of supervisors, well-organized outside agitators delay the inevitable by repeating unscientific claims regarding the health risk of radio waves—a factor they know perfectly well is the exclusive domain of federal authorities to consider in any case.

And despite repeated calls from both the White House and Congress to free up more frequencies for mobile consumers before a “spectrum crisis” causes irreparable damage, the FCC and the Department of Commerce continue to proceed at a glacial pace to clear and redeploy unused or underutilized bands from both private and public license holders—notably over-the-air television broadcasters and the Department of Defense.

Even when spectrum is auctioned, the FCC’s efforts to improve the competitive position of the lagging carriers inevitably backfire.

Last month, for example, the FCC concluded its first significant spectrum auction since 2008, licensing some of the last bits of unassigned frequencies in its inventory, known as the H Block.  Though both Sprint and T-Mobile had expressed enthusiastic interest in the H Block, in the end neither company bothered to participate in the auction.

Sprint’s decision not to bid was especially surprising.  After demanding—and winning—numerous concessions from the FCC on both the design and structure of the H Block auction, Sprint abruptly pulled out at the last minute, leaving Dish Network as the sole nationwide bidder.

Realizing the worst fears of FCC Commissioner Jessica Rosenworcel, the H Block auction became not an auction but rather a retail sale, with Dish winning all 176 local lots for the minimum bid price of just over $1.5 billion.  Now, the two carriers are both pressuring the FCC to give them advantages in the delayed incentive auctions for reclaimed broadcast spectrum, threatening to undermine the incentives needed to get broadcasters to participate.

While both Sprint and T-Mobile’s foreign owners pay lip-service to the value of competitive markets, both seem content to rely in reality on intended and unintended government largesse, just as they do in their home countries.

If that’s the kind of game-playing SoftBank has in mind in its continuing efforts to sell Washington on its competitive imperative to acquire T-Mobile, CEO Masayoshi Son may as well stay home.  The results speak for themselves.

Follow my on Facebook and Twitter.  To learn more about my new book, co-authored with Paul Nunes, visit the Big Bang Disruption website.

Source: Forbes


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