Fighting AT&T-Mo Is Fighting the Wrong War

Tomorrow, members of the Senate Judiciary subcommittee will question the CEOs of Sprint (s S), AT&T (S t), U.S. Cellular and T-Mobile, as well as member of consumer groups and antitrust experts,on the topic of AT&T’s proposed $39 billion buy of T-Mobile. Unfortunately, the hearing will likely be a farce, as the witnesses stick to their predetermined talking points, and our elected officials grandstand for the voters back home.

Meanwhile, in the back offices, the lobbyists, aides and political figures will hash out the deals that will largely reinforce the status quo and deliver a merged AT&T and T-Mobile with a long list of concessions and an even longer list of loopholes. For consumers, the deal will likely improve their AT&T service in the relative short term, while delivering a wireless duopoly that will likely slow (although not outright halt) innovation through high prices for wireless broadband and hurdles for various network services.

René Obermann, Chairman and CEO, Deutsche Telekom and Randall Stephenson, Chairman and CEO, AT&T

But when it comes to regulatory issues around the wireless merger or many of the big telecommunications battles fought, those aiming to stop the big ISPs from choking off or merely charging the hell out of access to the web are playing a loser’s game. Much like the telecom industry has had to react defensively to the onslaughts of IP communications, new business models, and new services that impinge on their revenue, upstarts and those hoping to build their businesses on broadband have let the big service providers define the regulatory game. And as most tacticians know, you can’t just react to the market in order to win; you must redefine the market.

And that’s what folks bemoaning the lack of competition caused by the AT&T and T-Mobile merger must do. The problem isn’t the merger, it’s that this merger will be decided by a Department of Justice and an FCC that’s playing by the old rules. Those rules don’t take into account the future needs of the mobile industry; how different the relationship between the players in that industry have become; nor how those changes affect competition.

For example, on the future needs of a network, it’s generally assumed today that folks wanting to get the most efficiency from their LTE deployments will require 20 MHz of spectrum or even 30 MHz to deploy in even 10 MHz upstream and 10 MHz downstream-style chunks. In a decade, next-generation networks that want to achieve gigabit speeds would require 100 MHz chunks of spectrum. That’s not something our policy today is taking into account. For an example of how that plays out for the consumer, compare Verizon’s LTE network deployed in 10×10 MHz chunks to MetroPCS’ (s pcs) network, which is deployed in half that much.

If one simply views it from that point of view, then limiting the number of players in the wireless market makes sense because it then consolidates spectrum to players that have the experience and capability to deliver those advanced services. But that view ignores that there are other companies and ways to deliver service that the current generation of wireline and wireless companies have either ignored or actively tried to quash. For example, protocols such as peer-to-peer file sharing, mesh networking and even Wi-Fi are alternatives to cellular that can cost less to deploy or help make more efficient use of networks, but are actively discriminated against or have only been reluctantly embraced. Alternatively, new gear or different network topologies might offer a cheaper alternative to the networks in place today.

However, the FCC has been unable to extricate itself from the regulations and politics of decades-old regulations in this space. And the big wireless companies know exactly how to work those regulations to their advantage, so playing on that ground means companies are destined to lose. In a way, that’s one of the real tragedies of the tie-up between Google (s goog) and Verizon (s vz) with Android: It somewhat neutered a real innovator and agitator for a different wireless future. Apple, (s aapl) which has pushed the envelope, may be another innovator, corrupting the model from within with its plans for a universal and programmable SIM card, but Apple isn’t exactly an activist company.

Instead of focusing on the debate over short-term issues such as market divestitures, trying to extract concessions on pricing, or the fees that wireless companies pay back to AT&T and Verizon for access to their wireline networks, the broader goal in Silicon Valley and in D.C. needs to be a bottom-up view of the telecommunications industry’s future. As consumers and companies that dependent on it, we need to figure out what we want the nation’s broadband infrastructure on the wireless and wireline side to look like, while understanding how the transition to all-IP networks and the multiplicity of networks has changed the game. We also need to look at where the game has stayed the same despite all the changes in the last decade, and figure out what has impeded progress. Then we need to address that with the long-term view in mind.

That isn’t something that can happen in a merger review, but it’s something that needs to happen, especially if we’re about to have one less player in the wireless market.