May 2010

FCC Releases Wireless Competition Report

On May 20, the Federal Communications Commission released its 14th annual report on the state of competition in the mobile wireless industry. The report -- which reflects the agency's commitment to upgrading all competition reports -- will create a solid foundation for predictable, fact-based wireless policy.

Unlike previous reports, which examined competition in the provision of Commercial Mobile Radio Services (CMRS), this year's report integrates CMRS into the broader mobile ecosystem, including mobile voice, messaging, and broadband services. For the first time, the report also includes data on the many interrelated "upstream" and "downstream" market segments of the mobile ecosystem -- including spectrum, infrastructure, and devices -- each of which has the potential to affect competition.

The report, which reflects market conditions existing in 2008 and much of 2009, identifies the following key trends, among others, in the mobile wireless industry:

Innovation in and around devices and applications: Handset manufacturers have introduced a growing number of new smartphones -- 67 in 2008 and 2009 -- that provide mobile Internet access and other data services, and provide many of the functionalities of personal computers.
Transition to a data-centric market: Data traffic has grown significantly, with the increased adoption of smartphones and data consumption per device.
Role of spectrum for mobile broadband: Especially as mobile wireless broadband usage grows, access to spectrum becomes increasingly important for competition. While many wireless service providers have access to significant amounts of mobile spectrum, most of the spectrum below 1 GHz, in both the cellular band and the 700 MHz band, is not widely held.
Maturation of the mobile voice segment: As of the end of 2008, 90 percent of Americans had a mobile wireless device.
Continued industry concentration: There appears to be increasing concentration in the mobile wireless market. One widely-used measure of industry concentration indicates that concentration has increased 32 percent since 2003 and 6.5 percent in 2008.
Robust capital investment but declining relative to industry size: Providers continue to invest significant capital in networks, despite the recent economic downturn. One source reports capital investment at around $25 billion in both 2005 and 2008, while another shows that capital investment declined from around $25 billion to around $20 billion during the same period. Because industry revenue has continued to grow, both sources show that capital investment has declined as a percentage of industry revenue over the same period (from 20 percent to 14 percent).

FCC Chairman Julius Genachowski said, "This Report does not seek to reach an overly-simplistic yes-or-no conclusion about the overall level of competition in this complex and dynamic ecosystem, comprised of multiple markets. Instead, the Report complies with Congress's mandate to assess market conditions by providing data on trends in competition and choice over time - an approach that fits best with the role of the FCC as a fact-based, data-driven agency responsible for promoting competition and protecting consumers, and fostering investment and innovation."

While praising some aspects of the report and the wireless industry, FCC Commissioner Michael Copps also raised some concerns: "Unfortunately this report's findings are not always encouraging. Some are downright sobering-and worrying, too. Specifically, the Report confirms something I have been warning about for years-that competition has been dramatically eroded and is seriously endangered by continuing consolidation and concentration in our wireless markets. One number sticks out like a sore thumb: the Herfindahl-Hirschman Index-a widely-recognized and highly-credible measurement of industry concentration-shows that the concentration of mobile wireless service providers has skyrocketed to a weighted average of 2848. That's a jump of nearly 700 since we first calculated this metric a mere 7 years ago! So without denying those things that are right in the wireless world-and they are many-the facts also tell us that some things are not right. And that should flash a bright caution light for this Commission as we go about the business of advancing competition and consumer well-being in the Broadband Age. We are going to need an extra dose of vigilance going forward and use whatever policy levers we have available to ensure good outcomes for American consumers."

Commissioner Robert McDowell said, "[W]e have not identified new or particularly revealing information that would prevent us from opining as to 'whether or not there is effective competition,' as the statute requires. Further, by its terms, the report seeks to identify 'areas where it would be fruitful to inquire whether policy levers could produce superior outcomes.' This point in particular is outside the scope of our statutory mandate to produce the report, and appears to lay the foundation for more regulation. Furthermore, I cannot support this new theory as it suggests that government policy would manufacture a better result than the everyday choices made by consumers in a competitive marketplace. If nothing else, the report shows that the wireless sector is dynamic, ever-improving and responsive to consumer demand. Thus, we all should tread cautiously - especially industry players. Keep in mind that seeking regulation of your competitor today may well harm your company tomorrow."

FCC Makes More Spectrum Available for Broadband

The Federal Communications Commission adopted rules that will make available 25 megahertz of spectrum for mobile broadband service in much of the United States, while protecting adjacent satellite radio and aeronautical mobile telemetry operations.

Mobile broadband promises to be a significant contributing factor for economic growth and job creation in the 21st century. To promote mobile innovation and investment, the National Broadband Plan recommends that the Commission make 500 megahertz of spectrum available for broadband use in the next 10 years, including 300 megahertz for broadband use in the next five years. The Report and Order adopted amends the Wireless Communications Service (WCS) rules to immediately make 25 megahertz of spectrum available for mobile broadband services. The existing WCS rules constrain operations to fixed services, but the Commission found today that those rules can be revised to allow mobile broadband services without risking harmful interference to neighboring operations. To provide certainty for licensees while maintaining high-quality satellite radio services to the American public, the Commission adopted rules permitting the use of terrestrial repeaters by Satellite Digital Audio Radio Service (SDARS) licensees at the same time. The Commission also adopted enhanced build-out requirements for WCS licensees, to ensure that the promise of mobile broadband is realized. These requirements are designed to spur investment that will promote the deployment of innovative mobile broadband services across the country. Together, the Orders establish a regulatory framework for the co-existence of WCS and SDARS licensees in the 2.3 GHz frequency band.

FCC Proposes E-rate Updates

The Federal Communications Commission took further steps toward ensuring universal access to affordable, high-quality broadband by proposing updates to the highly successful "E-rate" universal service program.

The proposals further the FCC's National Broadband Plan goal of connecting schools and libraries to world-leading broadband by modernizing and improving the Universal Service Fund. E-rate has been instrumental in expanding opportunities for schoolchildren and communities across the country. Through the E-rate program, 97 percent of American schools now have Internet access. But the National Broadband Plan found that many schools will need significant upgrades to meet future broadband speed and capacity demands, and that many E-rate policies are out-of-date. In the Notice of Proposed Rulemaking, the FCC explores ways the E-rate program can become a more effective educational tool for teachers, parents, and students. Broadband connectivity in the classroom and at home will enable educational advances, economic growth, government delivery of services, and civic engagement.

FCC Adopts New Pole Attachment Rules

The Federal Communications Commission adopted an Order and Further Notice of Proposed Rulemaking that implements key recommendations of the National Broadband Plan for promoting broadband deployment and competition. The Order and Further Notice will make broadband more affordable and available by speeding and reducing the costs of access to an essential piece of infrastructure: utility poles.

Currently, access by service providers to poles can be slow, costly, and mired in long disputes. The National Broadband Plan recognized that one way to lower the costs of telecommunications, cable, and broadband deployment and promote competition is to reduce the cost of access to infrastructure. The Plan found that the impact of utility pole attachment rates on broadband can be particularly acute in rural areas, where there often are more poles per mile than households.

The Order will reduce costs and speed access to poles by clarifying the statutory right of communications providers to use the same space- and cost-saving techniques that pole owners use, such as placing attachments on both sides of a pole. The Order also establishes that attachers have a statutory right to timely access to poles.

The Further Notice seeks comment on revising pole attachment rates to make them as low and as close to uniform as possible, reducing the disparity between current telecom and cable rates. Different rates for different types of firms using the same space on a pole makes little sense when the cost of providing the space is the same to the utility pole owner. Disparate rates can affect investment decisions and product offerings, resulting in fewer competitive choices for consumers. The Further Notice also seeks comment on a specific timeline to govern each step of the pole attachment process, while still providing flexibility to accommodate safety concerns and special circumstances, such as natural disasters.

FCC Adopts New Phone Number Portability Rules

The Federal Communications Commission adopted new rules that will allow consumers to transfer their phone numbers to new providers much more quickly.

The action makes markets more competitive since delay in "porting" a phone number -- moving it from one provider to another -- can inconvenience consumers and cause them to abandon efforts to switch providers. Last May, the Commission adopted an Order that reduces the time allowed for transferring a number from four business days to one. The change affects most transfers of a phone number from one wireline provider to another, or between a wireline and a wireless provider, or between a Voice over Internet Protocol (VoIP) provider and another provider. Completing the task begun last May, today's Order streamlines the number porting process by standardizing the information that providers must exchange, based upon recommendations from participants in the proceeding.

The deadline for compliance is August 2 for all but small providers, which must comply by February 2, 2011.

The Chairman's Award and An Online Problem-Solving Commons

This is the second in a series of posts seeking public input on the new Accessibility and Innovation Forum ("A&I Forum" or "Forum") that we will be launching in July.

One recommendation in the National Broadband Plan is to establish a Chairman's Award for Accessibility and Innovation to recognize innovations "that have made the greatest contribution to advancing broadband accessibility." We seek your input on the best way to structure such an award. One possibility is to set up the award so that the first part of the awards cycle is focused on identifying and prioritizing problems to be solved. For this part of the cycle (perhaps with a deadline of December 1, 2010), the Commission would solicit submissions from people with disabilities, students (including those work in legal clinics and technology programs, as well as college and high school students), grassroots advocates, researchers, and others to identify barriers to technology faced by people with disabilities. We would encourage presentations through on-line videos, blog posts, or other means and would be particularly interested in presentations that would help educate and inspire those who have not been widely exposed to accessibility issues. We would expect such presentations to highlight technology barriers faced by people with disabilities and applications needed to make technology more usable or relevant.

Broadband and a Clean-Energy Economy

Broadband will play a major role in realizing a sustainable environmental future. Broadband-based technologies will help build a smarter grid, smarter homes and buildings, and help empower consumers to make smarter and greener decisions with their energy consumption. A recent Department of Energy study found that the Smart Grid can reduce greenhouse gas emissions by as much as 12% by 2030, the equivalent of removing 65 million cars off of roads today. When consumers are empowered to interact with their own energy data, studies have found reductions in consumption as high as 15% -- annual savings opportunities in hundreds of dollars for households across America. Though it often feels like the technology and possibility of tomorrow, the FCC's Clean Technology summit showed that tomorrow is arriving right now. The private sector will unleash green-tech innovation upon the country if we achieve more ubiquitous broadband deployment and empower consumers with their energy-data.

Common carriage is an ancient idea being applied to a modern problem -- Internet access

Excerpts from Justinian's "Digest" of Roman law suggest that 6th-century sea captains, innkeepers and liverymen could not refuse board to any cargo, man or horse. William Blackstone, in his 18th-century "Commentaries on the Laws of England", was more explicit: to open a house for travellers implied "an engagement to entertain all persons who travel that way". English common law came to see innkeepers, boatmen, warehouse owners and granary operators as "common carriers": transport trades compelled to serve all comers, and to charge reasonable rates.

Telecoms operators argue that America does not need common carriage for Internet access, because the country's unique network of local cable monopolies competes against its last-mile copper-wire monopolies. True, the promise of high returns has encouraged Verizon, a telecoms giant, to build fibre networks in some densely populated areas without government subsidy. But in practice America's regulatory approach has left much of the country with a cable monopoly for truly fast broadband access. The single largest reason given for failing to purchase broadband access in America is price, and many non-adopters are stymied by hardware fees, a lack of billing transparency and the extra cost of bundled services that providers often add to Internet access. The Federal Communications Commission's current plan—to ask last-mile providers to subsidize rural service, and to ensure equal treatment of packets of information—is a mild intervention by global standards. America's modern-day common carriers should count themselves lucky.

Hutchison Disappointed in FCC's Broadband Reclassification

Sen Kay Bailey Hutchison (R-TX), the ranking member on the Senate Commerce Committee, has written a letter to Federal Communications Commission Chairman Julius Genachowski asking that he identify which elements of the National Broadband Plan are at risk from the Comcast-BitTorrent decision, and says she thinks Title II reclassification is not about that plan, but about buttressing expanded and codified network neutrality rules, which the FCC has proposed.

Disappointed with Chairman Genachowski's decision to try reclassification, Sen Hutchison said the move would lead to "lengthy appeals" and regulatory uncertainty that could hurt broadband investment. She urged him to reconsider the move, but in the meantime wanted him to clear up "conflicting reports" about the impact of the BitTorrent decision. She cited a comment by FCC General Counsel Austin Schlick that the decision has "no effect at all on most of the plan," then a Genachowski statement that reclassification was necessary "so that the commission can implement important, common sense broadband policies."

Sen Hutchison requested a list of all the recommendations in the national broadband plan that Genachowski believes can't be implemented based on its existing authority, a justification for that conclusion for each, and the number of investigations or enforcement actions involving alleged violations of the FCC's Internet Policy Statement.

Scream 2 Now Playing At The FCC?

[Commentary] For the Federal Communications Commission (FCC), this summer's big rerun is being brought to you by AT&T, which first broadcast its blockbuster "shock and awe" show last fall. Now AT&T is doing it again.

While the FCC may have been spooked by this exercise in intimidation the first time around, there's no excuse for the Commission panicking, screaming, or getting weak in the knees again. Last September, FCC Chairman Julius Genachowski gave a fine speech at the Brookings Institution in which he announced the Commission would move forward with a rulemaking on Net Neutrality - four existing principles and two new ones to make sure consumers were protected from the telephone and cable companies changing the Internet from one where the consumers determine what and how they see online content to one where the companies set priorities for consumers. In response, the telecommunications industry, led by AT&T, decided to show the new FCC who was the old boss. They unleashed an unprecedented "shock and awe" campaign dedicated to making certain the FCC backed down before it ever got started. To some degree, it worked. Now AT&T is once again swarming all over Capitol Hill getting their pet members of Congress to sign yet another disingenuous letter. This one is sponsored by Rep. Gene Green (D-ATT). This time, AT&T is claiming that consumer protection, Universal Service and other items the government needs to do to help people are simply a "distraction." Once again, they threaten the future of investment if the FCC goes forward.

Message to the FCC: You have seen this before and you know the score. It doesn't matter how many Democrats sign these put-up letters. You are doing the right thing. Stay strong. This rerun is as meaningless now as it was during the first showing.

Benton

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