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The 5G Auction: Boon or Trap?

Behold the 5G mid-band auctionThe trade press and the FCC itself have touted the auction, concluded late August 2020, as a long-overdue boon to the U.S.  But something about it gives me that “Watch Out” feeling.

That something is the 19th Century predatory monopolism of that tag-team combo Standard Oil and the railroads.

The winning corporate bidders will get access to the mid-band frequencies of the electromagnetic spectrum.  Their licenses will let them carry video, audio and all manner of data locally to cell phones, laptops and a wide array of other electronic devices.  In the mid-band particularly, 5G technology can deliver information exponentially faster than 4G technology could.  But in a given territory that channel has limited carrying capacity.  The competitiveness of the auction reflects that — over $4.5 billion bid in this latest round.

Now about that Standard Oil-railroads combo.

In the second half of the 19th Century, John D. Rockefeller built up Standard Oil (later known as Esso and Exxon) into an empire. “The Standard produces only one fiftieth or sixtieth of our petroleum,” wrote Henry Demarest Lloyd in an exposé of that company “but dictates the price of all, and refines nine tenths.”  The secret to Standard Oil’s monopolistic success was the highly favorable rates on oil transportation it got clandestinely from the owners and managers of railroads such as the Pennsylvania, the New York Central and the Erie.  Sometimes, the railroads even kicked back a share of Standard Oil’s competitors’ fees to the company.

Thus did Standard Oil force its competitors to forgo shipping or production or even to sell out to the company at a heavy discount.  Rockefeller’s outfit bought off judges, state legislators and Congressmen, thwarting the efforts of other oil companies to have the laws against such practices enforced.  Standard Oil could therefore charge the public monopoly prices for products such as kerosene, then the world’s major source of lighting.

Regarding the railroads’ own monopolistic power, Lloyd observed “The movement of the railroad trains of this country is literally the circulation of its blood.”  The Great Railroad Strike of 1877 bears him out. 

The Strike got underway on July 16 of that year in response to the Baltimore & Ohio Railroad’s announcement of a 10% wage cut.  At its height, the strike spread to the Northeast and Midwest and halted more than half the freight in the country.  Through the end of that July, the Strike involved as many as 100,000 workers and resulted in the jailing of about 1,000 people and the death of around 100.  Local militias and, later, Federal troops, were called in to end riots.  They fired on crowds, crowds fired on soldiers, mobs set buildings on fire, looting was rampant.  Pittsburgh was particularly chaotic.  It’s likely that the Great Strike, occurring during a six-year depression, brought a number of cities to the brink of societal collapse.

As to my “Watch Out” feeling, then:  Ignore the digital wizardry of 5G technology or the possibility that IT moguls are modern-day Robber Barons.  Just focus on the fact that Ajit Pai is, at least until the Biden administration is seated, the chairman of the FCC.

Before entering government service, Pai worked for several years as Associate General Counsel for Verizon.  As a behemoth data communications service provider, Verizon is the kind of outfit the FCC ought most to regulate.  But Pai tends to advocate against regulation.  Indeed, shortly after his FCC appointment he, vowed to end net neutrality.

Standard Oil and the railroads were challenged.  Lloyd’s writing influenced Ida Tarbell, whose writing in turn influenced the U.S. Supreme Court in 1911 to order the break-up of Standard Oil into 34 companies and, more importantly, gave impetus to antitrust policy.  And like technological improvements before it, 5G will surely enhance our ability to produce wealth and render services to each other.  All these developments are hopeful.

But how hard is it to imagine one or a group of the mid-band auction winners using their data-carrying franchise to play the railroad to a content-providing Standard Oil?  Then a small group of players will be empowered to determine how freely this or that type of information gets to us or whether it gets to us at all.

In 1883, in Social Problems, the anti-monopolist reformer Henry George wrote “We are steadily differentiating a governing class, or rather a class of Pretorians, who make a business of gaining political power and then selling it.”  (Accordingly, in Protection or Free Trade, George advocated for public control of “businesses in their nature monopolies.”)  The sell-off is still going on.  It carries the same threat to the public interest today that it did in the 19th Century.  Case in point: the largest bidder by far, among the winners of the 5G mid-band auction, was Verizon Wireless Network Procurement LP. Unrestrained industrial monopolies which prey, as they so often do, on the public, thereby contribute to income inequality.   The more powerful and extensive and numerous such monopolies are, the more they contribute to that state of affairs.  It is ironic that the resulting strain that such predation puts on public prosperity contributes to the widespread need for governmental assistance — the welfare state or, as it is also called these days, often contemptuously, socialism.  The irony there is that it is the monopolists, whether themselves or through their spokespeople, who decry socialism most loudly and widely, to the very public that they prey upon.

Like the railroads, the mid-band is a conduit.  Like transportation, data transmission is a crucial flow.  The conduit may have changed, but our need has not.  We have to oversee the flow-keeper.

2 thoughts on “The 5G Auction: Boon or Trap?”

  1. Amen! I agree completely. Whether it is the common roads or the cable communication lines, as Henry George proposed, all businesses that are in their natures monopolies must be run by the government for the benefit of he people

    1. Thanks, Mike. Here’s hoping Congress and/or the courts or relevant government agencies understand the public harm wrought by predatory monopolies, and will act to prevent it.

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