25 YEARS: Rules, regulations have been instrumental in wireless industry’s story : The (sometimes) invisible hand of regulation

Editor’s Note: Welcome to our coverage of 25 years in wireless. RCR Wireless News is celebrating with a package of stories detailing the advances of the past three decades. For full coverage please visit RCRWireless.com/25years.
Policymakers must have done something right over the past 25 years. With nearly 266 million subscribers using powerful, feature-rich mobile devices that now constitute the outermost edges of the Internet, the $144 billion cellular industry remains competitive – though steadily consolidating – in a telecom world otherwise used to spoon-feeding by monopolies and duopolies.
In this case, the government was a big part of the solution in leveraging cellular technology in a way that attracted Wall Street investment – and eventually proved massively disruptive in its own right – and as a powerful enabler of solutions for business, education, healthcare, public safety and other sectors. In many respects, this has been a wildly successful public-private partnership.
But make no mistake; there was no grand plan. And it wasn’t always pretty. Like democracy, cellular policymaking resembled making sausage. On the outside, it was like the Wild, Wild West for insiders and those with enough foresight to realize a huge opportunity – cellular licenses represented veritable money-making machines – was at hand even if corporate wizards at Old Ma Bell thought the technology was for the rich and famous and bravely predicted maybe a million subscribers by the turn of the century.
Adjusting on the fly
The only constant in policymaking has been recalibration, as the Federal Communications Commission, Congress, the executive branch and the courts have wrestled with one novel issue after another as cellular technology moved from the automobile to the briefcase to a modular appendage of nearly every citizen.
Largely overlooked in the explosion of the cellular industry is the fact that the policy regime created for it was itself revolutionary.
“With the beginning of cellular service 25 years ago, the FCC revolutionized personal communications, but it also made huge changes in how it regulates,” recalled Michael Sullivan, a former FCC official who was the lead drafter of the cellular proposal and final order and now a partner at the law firm of Wilkinson Barker Knauer L.L.P. “The cellular rules were the beginning of the end of the era of ‘command and control’ FCC regulation. Before cellular, channels were doled out by the FCC a channel or two at a time, based on demand studies and held orders. (Carriers used held orders – customers they couldn’t connect to the network because they didn’t have enough capacity – to justify the need for another channel to the FCC.)
“With cellular, the FCC got out of the business of managing channel loading. Before cellular, the FCC regulated mobile services site by site; cellular marked the beginning of geographic area licensing. Before cellular, the FCC regulated what were permissible uses for a wireless network; cellular introduced flexible-use allocations. All of these regulatory concepts have been refined over the last 25 years, of course (how many different geographic licensing area schemes has the FCC tried?), but they were all significant departures from the traditional way of regulating a radio service, and they are now standard practice.”
Still, in the beginning, cellular policy was as clunky as the first brick portable phones. The original duopoly licensing scheme guaranteed a landline telephone company would have a franchise in every market, while a free-for-all ensued for the other licenses. As such, wireline carriers were typically first to market. Choosing a licensee was an expensive, time-consuming beauty contest that played out in FCC comparative hearings, where a decision could turn on an applicant’s inclusion of a single cell site. The FCC came to resemble a warehouse, as truckloads of boxes filled every nook and cranny of the agency’s former headquarters in downtown Washington, D.C.
Luck of the draw
To speed up the process, the FCC boldly moved to a low-tech ping-pong-ball lottery system to award cutting-edge cellular licenses. But what the commission gained in processing efficiency it lost in licensing integrity. Scandals erupted as applicants attempted to hedge their bets in creatively deceptive schemes that got more than a few applicants in hot water with federal regulators. Those playing by the rules – or lucky enough not to get caught – won. It was a lawyers’ game, with marathon sessions of horse trading for licenses in Washington and New York.
During the early cellular licensing antics, FCC chairmen serving in the Reagan administration – beginning with Mark Fowler – would make annual pilgrimages to Capitol Hill to float the idea of auctioning licenses along the lines suggested by a handful of economists. Like clockwork, congressional Democrats summarily shot down an idea regarded as highly radical and symptomatic of trickle-down, supply-side Reaganomics. The National Telecommunications and Information Administration, which advises the president on telecom policy and manages federal government spectrum, recommended spectrum auctions in a 1991 report. Still nothing. And then came Bill Clinton, who campaigned as a pro-business, New Democrat and subsequently came to occupy the White House in 1993. Then, like today, there was a massive federal budget deficit. Suddenly the concept of generating big bucks through the sale of spectrum rights gained currency. The Democratic Congress at the time had a religious conversion and cheeringly approved the 1993 budget bill that authorized spectrum auctions and revamped the regulatory regime for cellular and other wireless services.
Game changer
Indeed, the 1993 act was arguably the single biggest policy action for the cellular industry in the past 25 years – even bigger than the landmark 1996 telecom act. The consequences of the 1993 law continue to play out to this day. In addition to making spectrum auctions the law of the land, the act established a national framework for wireless carriers by pre-empting state regulation of rates and market entry, while leaving to states limited oversight of cellular carriers and others in the new commercial mobile radio services category. The wireless industry wanted broader federal pre-emption, but had to settle for a compromise with cities and states.
Had a deal not been struck, “it [the 1993 act’s federal pre-emption provision] would not have gone through,” said Tom Wheeler, then president of cellular industry association CTIA and now a managing director at Core Capital Partners. Wheeler also played a key role during his tenure at CTIA (1992-2004) in persuading Congress to pass legislation outlawing cloning phones and giving carriers (as well as suppliers) liability protection for enhanced 911 service on par with that accorded to landline telephone companies.
It is also worth noting what legislation Wheeler and the cellular industry prevented from being enacted. The industry fought off a campaign in the mid-1990s to give resellers access to cellular networks along the lines of what Congress required of Bell telephone companies in the 1996 telecom act. “It would have been our CLEC [competitive local exchange carrier] disaster,” Wheeler said.
While the 1996 telecom act was not as significant as the 1993 law, the former’s emphasis on competition had repercussions for a cellular industry that enjoyed duopoly status during its first 12 years. Former FCC chairman Reed Hundt, serving in the Clinton administration, used new auction powers to bring competition to the cellphone industry though the sale of personal communications services licenses. It became a tougher business for cellular operators, but consumers benefited by way of lower monthly bills and greater choice. It got even better in 2004, when the Republican-led FCC, under then-chairman Michael Powell, allowed consumers to keep their phone numbers when switching wireless providers. The local number portability controversy and others that followed highlighted how difficult it has become for the wireless industry to maintain a united front, owing to differing corporate agendas in a market where the number of competitors has dwindled steadily.
Collateral damage
The cellular industry’s gains came at the expense of the users of private wireless systems, which saw their clout and opportunities to secure additional spectrum decline as auctions of commercial wireless licenses rang up billions of dollars for the U.S. Treasury.
“While other user groups continue to receive additional allocations of spectrum, the private radio industry actually has had to do more with less,” said Jack Richards, a former FCC private wireless official and a partner at the law firm of Keller and Heckman L.L.P. “Many of the channels that have been allocated for private radio use are being cut in half and then some. The FCC calls it ‘narrowbanding,’ and it requires private radio licensees to reduce their bandwidths according to a government-mandated schedule. It’s an odd concept in a broadband world.”
Added Richards: “There’s no question that the private radio users – electric utilities, oil and gas companies and the like – have gotten the short end of the stick for a long time from the agency charged with protecting their welfare. Why? One word: auctions.”
Regulation returns
In the past, the cellular industry tended to get the benefit of the doubt in policy matters; no one wanted to unnecessarily stunt the growth of an emerging business. But times have changed. Today the cellular industry finds itself a victim of its own success.
“Increased wireless penetration and convergence has led to greater regulation of wireless carriers and more focus on consumer issues (often driven by content providers), while greater consolidation has increasingly divided the industry between the very large carriers and the smaller rural providers,” said Michele Farquhar, a former FCC and NTIA official and currently a partner in the law firm of Hogan & Hartson.
Indeed, some lawmakers are considering wireless consumer-protection bills in Congress. Consumer lawsuits against wireless operators have mushroomed. The cellular industry, which once prided itself on charging up to Capitol Hill for legislation to help carriers, is increasingly forced to play defense. If industry could achieve its top legislative objective – expanded federal pre-emption – many of its current problems might go by the wayside. But from the look of the political landscape – now and what could transpire in the November elections – getting states completely out of cellular affairs does not appear to be in the cards. In fact, if Democrats strengthen their hold on Congress and win the White House, the wireless industry could face a harsher environment at the federal and state levels. Wireless carriers could face even more pressure to open their networks to third-party devices and applications.
While the Communications Assistance for Law Enforcement Act of 1994 required cellular operators to install upgrades to enable law enforcement to wiretap digital networks, the Sept. 11, 2001, terrorist attacks and the flurry of hurricanes four years later effectively made carriers partners in protecting the homeland. The FCC and Congress pushed forward initiatives to give first responders and government officials priority access on wireless networks during emergencies; wrote rules to make emergency alerts available to wireless subscribers; and mandated that carriers install backup power sources at cell sites. Moreover, the FCC is working with public-safety groups to improve the accuracy of location-based E-911 service and is trying a second time to attract a bidder to purchase spectrum rights for either a national public-safety/commercial network or a collection of regional systems.
It’s a whole new ballgame for policymakers insofar as regulating cellular networks, the networks of the future.
As such, it’s unclear what the next 25 years holds in store on the wireless policymaking front. The first 25 years got the industry this far.
“It has been tremendously exciting to witness the advancements in wireless in the 25 years that I have been involved in this industry, both as a government policymaker and in the private sector,” said Tom Sugrue, a former FCC and NTIA official and now VP for regulatory affairs at T-Mobile USA Inc. “In our wildest dreams 25 years ago, I don’t think we could have predicted the wireless revolution that has resulted in over 260 million Americans owning a cellphone today. Plenty of good government policymaking and robust entrepreneurship helped fuel this revolution and the success of wireless is a testament to what innovation, strong competition and deregulation can achieve.”