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A new decision could force AT&T and Verizon to allow their towers to be used by smaller companies, a major step towards breaking their tight grip on the U.S. phone market.  (Source: Wikimedia Commons)

Republican FCC Commission Robert McDowell, who worked as a telecom lobbyist and policymaker before his appointment, was one of two Republicans opposing the measure. The measure passed, on party lines, by a narrow 3-2 vote.  (Source: FCC)

Verizon says the decision to open the market will prevent "true" competition.  (Source: Hot Cell Phones)
Monopolies are getting harder and harder to maintain today

The U.S. Federal Communications Commission has approved a measure that could force wireless operators to open their towers to competitors, including small operators, for the first time.  The vote was divided directly on party lines with the Democratic majority voting to approve the measure.

Ostensibly the new rules are designed to promote competition comes at a time when America will soon have only three big wireless operators -- Verizon Communications, Inc. (VZ); Sprint Nextel Corp. (S); and the merged AT&T, Inc. (T)/T-Mobile (DTE).  These players tend to make decisions, including pricing in mass, forming a virtual oligopoly or triopoly -- depending on your preferred term.

The decision to force them to relinquish part of their chokehold on America's communications services isn't news that they took kindly to.  But it represents the latest step in a long and reoccurring federal effort to try to break the large wireless carriers that the feds allowed, and even promoted the formation of.

I. Opening the Lines -- A Brief History

The year was 1956 and it was an important time in pop culture.  Icon Jackson Pollock died in a tragic car crash; Elvis Presley introduced the controversial burner "Hound Dog"; and Bob Barker made his debut on the game show circuit.  But for the corporate world it was also a landmark year.

The first major event was the passage of the Federal Highway Aid Highway Act, which gave birth to the Interstate Highway System (today known as the National Highway System).  Many conservatives viewed the move at the time as an inordinate and burdensome expansion of government, but Republican President Dwight D. Eisenhower's decision to break ranks left a lasting legacy that is today an integral part of our society.

Equally important was the year's U.S. Supreme Court decision in the case Hush-a-Phone v. United States, in which the court ruled that third parties could legally connect their devices to the telephones of the American Telephone and Telegraph company.  That decision opened the doors to the possibility of competition at a time when AT&T held a monopolistic death grip on the U.S. phone market.

A following decision in a 1968 Cartfone case allowed third parties to directly attach equipment like phones to AT&T wires.  And just like that, small players could enter the market, without having to worry about gathering billions in capital to build wires.  The decision also somewhat lessened AT&T's ability to locally undercut nascent operators in prices in a bid to force them out of the market.

Then in 1976 the U.S. Department of Justice decided to break up AT&T (known as "Ma Bell" at the time) into seven smaller companies -- regional "Baby Bells".  This approach worked -- somewhat.  The resulting companies were small enough to offer some competition on a national scale.  But at a local scale they were still big enough to use their power to try to force would-be competitors out of town.

Thus many of the areas of the U.S. were still stuck with a monopoly/duopoly.

In 1996, under Democratic President Bill Clinton, the Federal government yet again tried to do something about the lack of competition.  It passed the Telecommunications Act of 1996 that forced the phone giants to clear the way for smaller third party operators to interconnect with their networks.

Before, the burden was on the carriers to figure out how to connect their devices -- now it was on the networks.  And the bill gave a legislative backbone to the 1968 Cartfone decision, which had served as an early mandate for interconnectedness.

But for all that work, the efforts were largely washed down the drain.  By the turn of the twenty-first century cell phones were fast looking to surpass landlines and early implementations of mobile data networks were starting.

All those rules mandating interconnectedness for landlines did not apply to cell phone towers.  In other words, it was virtually impossible for a small player to enter the market and provide a decent service to customers.

Meanwhile, the wireless operators began consolidating.  By 2005 there was only four players in the market -- Verizon, Sprint (who acquired Nextel and Boost Mobile), AT&T, and T-Mobile.  Now it looks like there will only be three.

And the market has hardly become more open to new entrants.

II.  Trying (Again) to Break the Monopoly

Much like the T-1000 in the film Terminator 2, the communications companies have an uncanny ability to remerge and find new ways to escape federal mandates and block any hope of true competition in the market.

The FCC hopes to change that.  The new measure will force cell phone operators to allow third parties to improve their towers.  

It is also expected to strengthen the quality of service, even for subscribers to major networks.  For example, Verizon could use AT&T's strong data network and AT&T could leverage Verizon's stronger voice network. 

While some such provisions of inter-use (otherwise known as "roaming") were in place, they were typically expensive and rare.  States FCC Chairman Julius Genachowski [profile], "Roaming deals are simply not being widely offered."

The plan would force telecoms to reach a mutually acceptable roaming agreement with third-parties.  If an agreement were not reached, the FCC would step in and play moderator, likely deciding on a cheaper service rate than the big carriers would want.

The Republican Party has backed communications monopolies both on a federal and a state scale.  Republican Party candidate Sen. John McCain (R-Ariz.) accepted millions in campaign donations from AT&T and free service to his ranch.  

In North Carolina, Arkansas, and South Carolina, state legislators have received thousands in campaign donations from communications firms looking to maintain their local monopolies.  These states are contemplating bills that would block funding or approval of municipal projects that might offer competition to the local monopoly/duopoly.  In the process they look to essentially block local governments' right to self-governance.

Thus it is perhaps not a surprise that the two Republicans on the five-member FCC board dissented.  They argued that the provision was unfair and that the FCC lacked the authority to regulate it.  Stated Robert McDowell [profile], a Republican commissioner, "The commission simply does not have the legal authority [to back these rules]."

Mr. McDowell had worked as a telephone lobbyist and policy brain at America's Carriers Telecommunications Association (ACTA), before his appointment to the FCC.

The telecoms are also ardently opposed to the measure.  Both AT&T and Verizon have banded together to fight it.

States Tom Tauke, Verizon executive vice president of public affairs, policy and communications to BusinessWeek, "[The decision] is a defeat for both consumers and the innovation fostered by true competition [and brings] a new level of unwarranted government intervention in the wireless marketplace."

AT&T's chief privacy officer and senior vice president of federal regulatory, Robert Quinn, similarly comments, "A data-roaming mandate is unwarranted and will discourage investment. Proponents of a roaming mandate were seeking government intervention, not to obtain agreements -- which are plentiful -- but rather to regulate rates downward."

Sprint Nextel, the smallest of the wireless "Big Three", did not comment.  Analysts say it may actually approve of the measure, as it lags behind Verizon and AT&T in infrastructure, nationally.  The new rules could help it to catch up in service quality, making its unlimited data plans even more attractive to consumers.

III. What's Next

For Verizon and AT&T this will be a bitter pill to swallow.  The unspoken truth here is that while some roaming arrangements do occur, they're typically expensive and rare.  What the telecoms won't say outright, but Mr. Quinn's statements indicate that infrastructure is expensive, so they don't want to share it.

Temporarily the telecoms may be right -- the measure may slow the expansion of wireless networks, as the big players drag their feet on new infrastructure spending, complaining about the burdens of licensing their towers to competitors.

Ultimately consumer pressure will likely eventually force them to adjust and continue deployment, though.  If they don't, their newfound competitors will.

But that scenario is still uncertain.  The legality of the FCC rules will likely be challenged.  There are two places that the FCC could get that authority officially confirmed from -- the U.S. Supreme Court or the U.S. Congress.

Congress is currently divided with Republicans controlling the House and Democrats controlling the Senate.  The Supreme Court is also considered relatively conservative.  Thus the FCC may find its ambitious effort to break big wireless's monopolies futile, as the courts may rule, like they did with its efforts to block internet throttling, that it does not have the authority to enforce its rules.

If that happens the nation -- and its wireless consumers -- are back to square one.  As they say, history has a tendency to repeat itself.





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