Big business spends billions of dollars on infrastructure. No matter whether the business is an airline or a telecommunications company, the economic theory is the same. To be able to provide good service to the public over a wide geographic area requires a huge investment in equipment.
A small business two-way radio dealer requires no such investment. They often operate hand-to-mouth by ordering equipment from manufacturers only after it is sold. Many times these dealers also operate repeater systems for use by their customers. They are usually small, family-run businesses that provide a local, very personalized service to these customers.
Big business makes a profit or loss depending on the level of utilization of its system by its customers. This is known as the load factor. A very small percentage difference in the load factor can make a huge difference in the profit or loss of the company.
A big business telecommunications carrier needs to sell minutes of talk time on its system. If the system is underutilized, the minutes cannot be stored for future use. The opportunity to profit from the sale of these minutes is lost forever with each tick of the clock.
Mobile communications carriers are now offering special incentives to attract new customers, such as giving away equipment or selling it below cost, and some are targeting the dispatch market by offering free air time for calls between their subscribers.
These special promotions have inflicted serious economic injury on the business of small two-way radio dealers. While the dealers argue that the promotions are an unfair trade practice designed to stifle competition, the carriers presumably would argue that their already high cost of staying in business would be even higher (Nextel loses $3 million to $4 million dollars a day) if not for the new customers attracted by these special promotions.
The telecommunications carriers are not philanthropists. They clearly expect to derive a long-term benefit from any loss-leader dealings with new customers. The key question is: Is the public ultimately helped or harmed by the anti-competitive aspects of the carriers’ pricing? The ultimate question is: Can the carriers be reasonably expected to keep prices low in the future after they have driven their small competitors out of business?
History tells us that the U.S. government antitrust lawyers ultimately broke up monopolies such as Standard Oil and AT&T long after their injurious anti-competitive conduct became widespread. In 1956, AT&T signed a consent decree with the U.S. government agreeing to get out of the private land mobile radio business. These government actions were designed to protect the public from monopolies.
The current question is: Is it in the public interest to allow antitrust law exemptions to be used to bail out an enterprise that cannot service and prosper on its own merits in a competitive marketplace? Any ingenious scheme can attract a lot of customers through hype and gimmicks such as giving away or selling equipment below cost, while paying for it all with shareholders’ money. At some point it must all come home to roost. Even if it doesn’t work out long term, usually by then the original promoters have all cashed out and sailed off into the sunset with a lot of money. If by some miracle it does work out long term, the original promoters remain in control of a tremendously successful company that has unfairly quashed all competition on the way to success.
In the larger sense, it is really an argument between communism and capitalism. It matters little to the customers whether the state owns all of the shares in everything, as was the case until very recently in Russia and China, or a large publicly traded corporation owns an entire industry, as used to be the case in the United States with AT&T and the long-distance telephone industry. Experience has shown that bigger is not necessarily better. Long-distance charges dropped dramatically after the AT&T breakup. Bloated bureaucracies (whether state-owned or private) do not have a good record of customer service in any country. China has recently been undergoing explosive growth in small, privately owned businesses, while the United States has been undergoing a period of mergers and consolidation that concentrates economic power in fewer hands. It seems that the United States and the communist world are trading economic models.
Nextel is now the dominant supplier to the land mobile radio dispatch market in many areas. It has achieved a much greater level of market penetration than AT&T ever reached 45 years ago, primarily as a result of its below-cost pricing of equipment.
Where are the antitrust regulators when we need them? Has something changed? If the public needed protection from AT&T in the past, why don’t we need protection from Nextel now? In 1996, the Federal Communications Commission voted to allow “bundling” of equipment and service for cellular, personal communications services and specialized mobile radio carriers. This was intended to spur growth in the interconnected mobile/portable phone market whose growth was slowing. The allegedly unintended side effect of this decision has been to create a Nextel monopoly in the non-interconnected, push-to-talk two-way radio business in major markets.
In the past, the government got involved in righting antitrust violations after the fact. In this case the government actually created the problem in the first place. Nextel now has the perfect defense to any charge of unfair trade practices by simply saying “the FCC told me to do it.” Most complaints to the FCC about Nextel have fallen on deaf ears.
Just as the family farm has been replaced by the large corporate operator, and the hardware store on Main Street has been replaced by Home Depot, it appears that the days of the small independent operator in the two-way radio business are numbered.
The depths of despair reach new lows when you consider the feelings of small business operators who are the true pioneers of the two-way radio industry, who have worked hard all their life to create something called the “American Dream,” only to have it all now jeopardized by government favoritism toward big business.
Those two-way radio dealers who are impacted by this problem must support a grass-roots effort to make their displeasure known to the FCC, the Federal Trade Commission and the antitrust regulators at the Justice Department. The laws are not designed to protect an individual business from competition, but they are designed to protect the public from monopolistic, anti-competitive practices. If you feel that your customers will see their costs rise and their quality of service decrease if you are not around to serve their needs, then you should say something NOW!
Ted S. Henry
Henry Radio, Los Angeles
