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  • FCC's Wireless Wholesaling Requirement Would Kill Investment in Broadband Networks

    By TMCnet Special Guest
    Alton Drew

    As part of its ongoing crusade to regulate the mobile wireless industry, the FCC (News - Alert) on Thursday, Apr. 7, passed an order to require mobile wireless providers to open their broadband networks to their competitors. The FCC calls this “roaming,” which occurs when the subscriber of one mobile wireless provider (e.g., Cricket Wireless) uses the network of another mobile wireless provider (e.g., Sprint (News - Alert)-Nextel) without subscribing to that provider’s (e.g., Sprint’s) service. Put more simply, the FCC is proposing a mandatory wholesale requirement.

    In 2007, the FCC imposed mandatory “roaming” (i.e., wholesale) requirements on the voice services of all mobile wireless providers. But the FCC didn’t require them to open their networks to “roaming” in markets where their competitors hold spectrum (i.e., have access to the radio waves in order to build their own networks). The FCC found that “if a carrier is allowed to ‘piggy-back’ on the network coverage of a competing carrier in the same market, then both carriers lose the incentive to build-out into high cost areas in order to achieve superior network coverage.” In other words, a mobile wireless provider would have no reason to build its network if it can just use someone else’s network through government mandates. Even worse, forcing mobile wireless providers to give their competitors access to their networks prevents all providers from gaining a competitive advantage by expanding their coverage – leaving no provider with an incentive to build anything in any but the most lucrative markets.

    In 2010, the current FCC changed its mind and mandated “roaming” wholesale access for all voice networks – even in markets where mobile wireless competitors have access to radio waves. Rather than killing investment, this FCC found that mandatory wholesaling requirements would “promote investment, innovation, and competition in mobile wireless services." The FCC’s reason: it’s cheaper for a service provider to build its own network rather than pay for roaming. If that were true, why would a service provider with access to the radio waves ever need a roaming mandate? The FCC didn’t provide a satisfactory answer to this question.

    Until now, the FCC's wireless wholesaling requirement has applied only to legacy voice services. The FCC’s latest proposal is to apply wholesale mandates to wireless broadband networks as well. This investment-killing plan couldn't come at a worse time. Mobile wireless providers have just begun to invest heavily in mobile broadband networks. If their investments must be shared with all of their competitors, mobile wireless providers may rethink their investment plans.

    Data roaming is also throwback to a failed model of local telephone service provision: resale. That model did not work in the 1990’s; therefore, why should we expect it to work in the new millennium? Consumers were disserved by it, especially when they were experiencing network problems and their consumer complaints were brushed off by resellers as being the fault of an underlying carrier.

    The primary driver of ongoing wireless broadband investment is the need to satisfy consumer demand for faster broadband service and the desire of service providers to gain an advantage over their competitors. Mandatory wholesale requirements would slow wireless broadband speeds and wipe out competitive advantage. Because wireless broadband networks inherently share capacity among users, all users suffer from lower speeds as more users access the network. If a wireless broadband provider must share its network with its competitor, the additional users will slow down the network and customers of both providers will pay the price in slower speeds. This is a losing proposition for everyone except the competitor, who gets to sell wireless broadband service to its customers while avoiding the costs of investing in its own broadband network.

    Carriers whose networks are being employed may end up providing fewer services to consumers because rates, if set by regulation versus free market negotiation, may not cover the costs of actual service being provided. In short, not only will rural carriers not have an incentive to invest in new networks, but larger carriers may end up cherry picking where to build out. The FCC may be forced to increase subsidies to high-cost areas, which in turn means consumers pay higher rates; just as the Administration and FCC are trying to increase broadband adoption.

    This anti-consumer and anti-competitive result is particularly ironic in the mobile wireless context. Mobile wireless – with four nationwide competitors – is the most competitive sector the FCC regulates. In many markets, consumers can only choose from two wired providers – the cable company and the telephone company. Yet neither is required to give potential competitors wholesale access to their broadband networks.
    It’s also odd that, at the same time the FCC is proposing wholesale requirements that will destroy market-based incentives for investment in wireless broadband networks, it is proposing in another proceeding to require mobile wireless providers to build out their networks or face losing access to their spectrum. At every turn, this FCC is replacing market-based carrots with regulatory sticks. If the FCC continues down that path, it will soon be running the entire mobile wireless industry from its offices in Washington, D.C. That’s a scary thought.

    If the FCC is truly supportive of network innovation, competition, and consumer protection, the FCC should abandon roaming.


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    This article was originally published in forum thread: FCC''s Wireless Wholesaling Requirement Would Kill Investment in Broadband Networks started by MCF-News View original post
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