Regulatory "backdoors": act quickly, ask questions later

One of the recurrent themes of this blog is that firms use regulation strategically, summed up by the maxim, "make the rules or your rivals will." 

When they do, it is sometimes possible to circumvent regulatory barriers with what are known as "hacks" or "back doors."  

Nextel was one of the all-time great regulatory hacks. In the late 80s and early 90s, the FCC’s rules banned more than two cellular operators per city. As Nextel’s cofounder said, “the FCC thought a wireless duopoly was the perfect market structure”. Nextel (called Fleet Call at the time) circumvented these rules by acquiring local (e.g. taxi, pizza truck) dispatch radio companies, which they then connected to create a nationwide (non-dispatch) cell phone service.

 Predictably, the incumbent cellular companies responded tried to block Nextel's entry, arguing that  Nextel’s service would interfere with public safety frequencies and would be too expensive. Uncharacteristically, the regulators (the FCC) decided to let Nextel keep operating:

Nextel grew to become a top five US cellular operators before it was acquired by Sprint in 2004 for $35B. Their service turned out to be cost-competitive, high quality, and safe. The only thing endangered were the incumbents’ profits.

HT:  Lamar