The U.S. May Repeat Mexico’s Wireless Spectrum Mistake

Under the Trump plan, a private company would build and operate the system on a franchise basis. The U.S. government would supply the radio spectrum and impose an “open access” mandate—the network would have to host a range of wireless competitors. That would supposedly spur investment and promote innovation.

The plan has yet to be implemented in the U.S., but a similar plan was adopted in Mexico to establish a 4G network in 2013—and it has been a failure.

Mexico needs more competition in cell service. TelCel, owned by billionaire

Carlos Slim,

took in 70% of Mexican mobile revenue in 2013, when policy makers boldly attacked.

Mexico’s Federal Telecommunications Institute set aside a hefty chunk of prime frequencies for the exclusive use of Red Compartida, a “shared network.” Ninety megahertz of bandwidth and additional government subsidies were set aside to support the creation of a new state-of-the-art 4G system. That franchise was awarded to a private company, Altán Redes, in 2016.

Altán was to operate a mobile network to host mobile virtual network operators. These upstarts would use the infrastructure managed by Altán to serve retail users. The existing networks—TelCel, Movistar (owned by Spain’s Telefonica) and

AT&T

Mexico—were initially banned from the network, which was reserved for new entrants to foster competition.

The Economist hailed the plan when it launched service in 2018, citing TelCel’s overwhelming dominance and proclaimed: “Red Compartida will change that.”

Instead, the spectrum cache gifted to Red Compartida has chilled rivalry and forced consolidation. From 2017 to 2020, TelCel’s share of revenues increased. Its biggest rivals, Telefonica and AT&T, have been blocked from bidding on the spectrum donated to Red Compartida. Movistar, spectrum-poor, is in free fall. Its desperate exit strategy is to switch its subscribers to AT&T’s network, which has more bandwidth.

The gratis award hasn’t empowered the shared network, which has missed multiple coverage deadlines and gained few customers. The Economist bemoaned that mobile virtual network operators accounted for only 1% of the Mexican mobile market, compared with 10% to 15% in Europe and the U.S. Now the Mexican share has barely risen another 1%, and even that small nudge is in part because Altán, lagging behind its rural service targets, contracted with TelCel to serve outlying areas, expanding network coverage. One should marvel at how Mr. Slim finds a way to win from regulatory schemes designed to stop him.

Altán, even with subsidies, plunged into bankruptcy in 2021. Similarly, an “open access” network designed by regulators in South Africa, listed by the Economist as a model for Mexico, pulled the plug earlier this year. That venture failed to launch, despite being in the government planning process since 2011. A similar experiment in Australia has been “bungled,” per the New York Times, and “cost almost twice what was projected—for an inferior system,” according to a report from Australia’s The Saturday Paper.

The champions of a U.S.-style Red Compartida for 5G are led by investors in Rivada Networks, a firm that luckily lost its bid to become the government-anointed operator in Mexico. The firm declares an allegiance to free markets, attacks Federal Communications Commission license auctions for allowing three wireless carriers to buy up almost all the spectrum, and advances an open-access platform endowed with spectrum rights awarded not by money bids but by policy makers. They have cited my work showing how spectrum central planning was introduced, throttling competition, in the 1927 Radio Act.

I’m grateful, but the citation works against their plan, which would truncate markets, not open them. Wholesale transactions—which the Red Compartida model calls for—are already deployed by more than 130 U.S. mobile virtual network operators (Mint Mobile, GreatCall, Spectrum, Ting and Google Fi among them), which contract with

Verizon,

AT&T and

T-Mobile

for access to spectrum. To adopt a plan imposed by regulators would allocate bandwidth top-down—reprising the twist of the 1927 Radio Act, which centralized bandwidth control.

Meanwhile, 5G networks are spreading more rapidly in the U.S. than in any other nation, with 49% coverage in October 2021. (China was at 20% that month.) This rollout benefits from recent U.S. auctions for flexible-use spectrum rights, infusing networks with new capacity that lowers costs and spurs rivalry. Further liberalization should continue.

Regulators haven’t been able to divert frequencies to selected business models to increase competition. U.S. policy makers should avoid trying.

Mr. Hazlett is a professor of economics at Clemson University and a visiting scholar at Stanford’s Hoover Institution. He served as chief economist of the Federal Communications Commission, 1991-92, and is author of “The Political Spectrum: The Tumultuous Liberation of Wireless Technologies, From

to the Smartphone.”