Hey, we might need that wall … to stop Mexico’s state-run 5G network

The Trump administration’s infrastructure plan brings Republicans and Democrats together. This flash of bipartisanship establishes something of a streak. The administration’s infrastructure proposal for a government-designed wireless network, leaked from the White House two weeks ago, was quickly denounced by those on both sides of the aisle.  

But the mobile technology gambit deserves a bit more explanation. The idea floated was considerably worse than commonly understood.

{mosads}To promote the coming wave of ultra-fast 5G (fifth-generation) technology and to counter Chinese rivals, the plan contends the government should seize the “commanding heights” of the mobile market by setting aside airwaves for a state-managed carrier. This operator, the report argued, would support U.S. innovation, expand U.S. consumer choice and improve American cybersecurity.

The means to these admirable ends were dubious and dangerous. A contemplated pivot away from market competition — the product of a longstanding consensus that dispatched the old, staid Ma Bell monopoly with an array of robust networks, devices and mobile app ecosystems — reached back into the dustbin of history, reprising methods that long stymied progress. And it undercut claims that Washington seeks to avoid micromanagement of the economy.

The 5G proposal, presented by Gen. Robert Spalding, then with the National Security Council, created two of the year’s greatest ironies not involving a tweet or the Dow Jones Index. First, not only did the clumsy anti-market idea emerge within a boastfully pro-market administration, but its “commanding heights” caption was lifted from the Marxist bravado of V.I. Lenin.

Second, the Trump administration, so happy to attack imports from South of the border, failed to note (or, perhaps, even realize) that it was marketing a public policy languishing in Mexico.

For five years, Mexican regulators have withheld a huge chunk of radio spectrum (90 MHz) from private carriers, reserving it for a state-crafted wholesale wireless network. The state’s creation — “Red Compartida” — was intended, policymakers said, to bring coverage to unserved areas and competition to the dominant mobile operator in Mexico, TelCel, which is owned by Carlos Slim, one of the world’s wealthiest people. Regulators mandate that Red Compartida — which the government calls “the biggest telecommunications project in the history of Mexico” — must be a “wholesale network” offering a platform to which providers might enjoy “open access.”

Alas, the venture so far has failed to bring broadband access to anyone, open or otherwise. The biggest winner of the government’s network plan? Carlos Slim.

The new platform has been crippled by political delays and red tape. The company the government hired to build the network has claimed a great success, however, by announcing that it will soon offer service to some 30 percent of the country’s population. It hopes to achieve that milestone in a resale deal with TelCel, which provides the actual service.

Thus, once again, Carlos Slim has outwitted regulators. He makes money by selling access to his network while the government blocks his actual mobile carrier rivals in Mexico, Telefonica (number 2 carrier) and AT&T (number 3), from using highly valuable bandwidth to compete.

Mexico is not the only proof of bad concept. Australia decided to build a state-run (fixed) broadband network in a project launched in 2009, aiming to run high-capacity fiber optic connections to 93 percent of households. Proponents argued that the National Broadband Network (NBN) would be the most efficient way to correct observed market failures. Instead, by 2016, fewer than 5 percent of homes could get NBN service, while just 78,000 (less than 1 percent of Australian homes) subscribed to a fiber connection.

Political partisans pointed fingers, as the NBN went terribly over budget, and looked to be a boondoggle. The program, repeatedly scaled back in speed and scope, has driven out private investment. Australia’s fixed broadband “coverage and adoption rates have slowed,” as per the NBN, according to a study by the Technology Policy Institute.

Not everything in the Trump administration’s 5G national security slide deck was wrong. It acknowledged two important truths. First, it takes far too long for spectrum to become available for productive use in the marketplace, as one of us explained in a recent book, “The Political Spectrum.” Second, 5G rollout is being delayed because of local regulatory barriers and bureaucratic red tape of the kind that have stymied innovation in the Mexico and Australia examples.

We should address these problems with more reasonable policy proposals. In 2016, the Aspen Institute recommended allowing rights holders to modify their licenses — to provide advanced technologies not originally contemplated by the Federal Communications Commission — unless requests are specifically denied within six months. This is meant to counter bureaucratic inertia in spectrum management, blocking dynamic market forces. Further, as Blair Levin and Larry Downes recently suggested, we need to resolve conflicts between local, state and federal governments on rules for locating cellular base stations and accessing rights-of-way.

Such approaches can promote competition and innovation, addressing legitimate challenges. Leaping backwards in time to embrace a regulatory structure that regularly fails to deliver — not so much. The Trump administration may not have the faintest idea that the mobile ecosystems of today owe so much to liberalization of the old telecoms regime. The idea that 5G will come faster, better, or more efficiently if launched by a federal strike force is risible — on either side of President Trump’s “big, beautiful wall.”

Thomas Hazlett is H.H. Macaulay Endowed Professor of Economics at Clemson University and the author of “The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone” (Yale, 2017).

Scott Wallsten is president of the Technology Policy Institute.