Wednesday, December 12, 2007

700 MHz and Tim Wu's Wireless Declaration of Independence

In January 2008, a valuable swath of wireless spectrum will be auctioned off by the FCC. During the summer of 2007, the reconstituted telco monopoly prepared to bid any amount to lock out potential competitors.'s most likely that the incumbent telcos and cable companies will win the auction, simply to insure they don't have any competition...

Tim Wu is a professor at Columbia University best known for articulating the principles of network neutrality.

In the run-up to the auction, Wu published a seminal policy statement that deftly questioned the egregious behavior of the legacy telephone companies and advocated "open access" principles for the new spectrum.

...wireless carriers in the United States aggressively [control] product design and innovation in the equipment and application markets, to the detriment of consumers. In the wired world, their policies would, in some cases, be considered simply misguided, and in other cases be considered outrageous and illegal...

By controlling entry, carriers are in a position to exercise strong control over the design of mobile equipment. They have used that power to force equipment developers to omit or cripple many consumer-friendly features. Carriers have also forced manufacturers to include technologies, like “walled garden” Internet access, that neither equipment developers nor consumers want. Finally, through under-disclosed “phone-locking,” the U.S. carriers disable the ability of phones to work on more than one network. A list of features that carriers have blocked, crippled, modified or made difficult to use, at one time or another include:

• Call timers on telephones
• Wi-Fi technology
• Bluetooth technology
• GPS Services
• Advanced SMS services
• Internet Browsers
• Easy Photo file transfer capabilities
• Easy Sound file transfer capabilities
• Email clients
• SIM Card Mobility

Reeling from the sudden scrutiny and outrage, the FCC -- and its full-time telco apologist-slash-chairman, Kevin Martin -- decided to offer token levels of "open access" to auction winners. In general terms, the modest open access rules include:

• Carriers must allow the attachment of any compatible and non-harmful network device.
• Carriers must allow any application deemed non-harmful to the network to run.

The FCC also attempted to prevent collusion between telcos, which many observers believed had occurred in prior auctions.

Even with the changes, FCC Commissioner Michael Copps complained that the concessions amounted to only minor carrots:

Even though the device and application openness principles are indeed good news, the Order does not go far enough in one important respect. We all know that America’s broadband performance leaves a lot to be desired. To me, the culprit is clear: a stultifying lack of competition in the broadband market, which in the words of the Congressional Research Service is a plain old “cable and telephone … duopoly.” [The new] spectrum is uniquely suited to provide a broadband alternative, with speeds and prices that beat current DSL and cable modem offerings. Maybe this can happen yet in this spectrum, but by declining to impose a wholesale requirement on the 22 MHz C-block, the Commission misses an important opportunity to bring a robust and badly-needed third broadband pipe into American homes.

A wholesale requirement would have been sound policy for several reasons. First, requiring licensees to offer network capacity on non-discriminatory terms would have been an enormous shot in the arm for smaller companies—including those owned by women and minorities—that aren’t interested in or capable of raising the huge sums necessary to build a full-scale network. Smaller entrepreneurs deserve an alternate path to wireless access. Wholesale would have been good news for them—and for consumers.

Second, a wholesale requirement would have leveled the playing field for companies that want to get into the network business but cannot break through the defenses erected by the massive incumbents who dominate the industry. It is not hard to see why companies with extensive networks and millions of customers are generally able to outbid new entrants, even deep-pocketed ones. After all, the incumbents are (quite rationally) willing to pay an enormous “blocking premium” just to discourage new competitors. And their existing network infrastructure gives them a huge cost advantage when it comes to building a new network. Our current spectrum rules are tilted too much toward companies with built-in, competition-killing advantages.

Moreover, due to the Commission’s short-sighted decision a few years ago to eliminate spectrum caps, we have seen a wave of consolidation among wireless incumbents that has substantially increased the hurdles facing potential new entrants. And now we live in a world where the two leading wireless companies are owned in whole or in part by the leading wireline telephone companies. It is no knock on these companies to say that they may be more than a little reluctant to employ their spectrum holdings to put price and quality pressure on their wireline broadband products. What else would we expect them to do? The solution is to encourage an additional wireless competitor that has no affiliation with a wireline provider. A wholesale requirement would have given unaffiliated companies the fighting chance they need.

Third, the record in this proceeding clearly demonstrates a strong business case for the wholesale model. Some parties initially raised doubts about whether a wholesale business model could be economically self-sustaining. I believe that the record compiled in this proceeding answers that question. Several sophisticated companies and financial institutions have concluded that wholesale is indeed a viable economic model.

In other words, the FCC could have structured the auction to have the highest return-on-investment (ROI) by requiring the winner of the auction to wholesale service to other carriers. This "unbundled" model has worked spectacularly well in Europe.

But FCC Chairman Kevin Martin's agenda is so transparent, he could have written the order on plexiglass.

So thanks to Martin and the rest of the telco apologists, America looks to remain a wireless backwater controlled lock, stock and barrel by "Ma Bell 2.0".

Recommended: Go to Save the Internet and take action.

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