Editorial Board

How T-Mobile and Aereo Will Change Your Life

T-Mobile, the underdog of the U.S. mobile-phone market, has caused a ruckus by offering to reimburse early termination fees for new customers who walk away from contracts with other U.S. carriers. John Legere, T-Mobile’s business-casual chief executive officer, unveiled the plan in an R-rated speech this month.

Leave it to the analysts to speculate about the effect of this plan on T-Mobile’s subscriber growth or revenue per user. Focus instead on Legere’s admirably succinct assessment of the market. “This industry blows,” said Legere, who has been in the telecommunications business for more than three decades. “It’s just broken. It needs change.”

It does. In many parts of Europe and Asia, consumers get faster networks at lower cost, and have more freedom to watch what they want, when they want. And there’s evidence T-Mobile’s plan may force some changes; AT&T Inc. made an offer similar to T-Mobile’s. The larger questions are why there isn’t more competition like this -- in the mobile-phone market and for Internet access more broadly -- and what if anything government can do to encourage it.

In that respect, it was a smart move for the federal government to prevent AT&T from gobbling up T-Mobile in 2011 in a proposed $39 billion merger. AT&T claimed the merger would cut costs, improve service and expand access to high-speed wireless Internet. The Justice Department and the Federal Communications Commission concluded the opposite: T-Mobile, as the low-cost alternative, was the only player able to take on the incumbents.

Yet T-Mobile remains hobbled by a lack of capacity -- that is, it needs more low-frequency spectrum to really compete. Spectrum, however, is scarce and expensive. When airwaves become available -- over the next few years, the government is expected to auction off big parcels of unused spectrum -- AT&T and Verizon Communications Inc. can easily afford to snap them up.

What to do? This is mostly a problem for T-Mobile, of course. It has to come up with the money it needs to compete. But the airwaves are public, so there is also a role for the FCC to play. It may want to consider, for example, limiting its auctions to bidders who aren’t already dominant in a market.

That spectrum, by the way, will become available because the government is asking television broadcasters to sell back any unused space. Which brings us to a tale of another market disruptor: Aereo Inc., an Internet startup that streams television shows to smartphones or tablets for about $8 a month.

Ordinarily Aereo would have to pay for the right to retransmit copyrighted programs, similar to the fees cable companies pay the networks. But Aereo has found a clever way around copyright law: Each subscriber gets a dime-size antenna, which picks up broadcasters’ over-the-air signals. The individual antennas, Aereo claims, are for private viewing. Copyright law requires payment only when programs are retransmitted for public viewing.

The U.S. Supreme Court has agreed to hear a lawsuit brought by broadcasters, who say Aereo’s runaround is illegal. Broadcasters are worried that cable operators will build their own Aereos, threatening $4 billion in retransmission fees, which are expected to double by 2017. At the same time, Aereo challenges the cable industry’s ability to bundle channels into costly take-it-or-leave-it packages. And Aereo could also upset the comfy network-affiliate model by making, say, CBS’s New York programming available to Los Angeles viewers.

Aereo’s CEO, Chet Kanojia, may be less colorful than Legere, but his aim is similar: to disrupt the cozy status quo that is lucrative for the big players yet leaves customers unsatisfied.

The U.S. Internet and telecommunications ecosystem works very well -- for those who can afford it. Big TV, Big Cable and Big Internet could use better competition. Vigorous antitrust enforcement and lower barriers to entry can help enable that disruption.