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