Change has never been easy for the cell-phone industry. And it’s perfectly understandable. With the kind of wild success and wealth creation during its first three decades, cellular chieftains who collectively service more than 250 million subscribers have a history of being instinctively cautious about rocking the boat.
It is a well-worn pattern. First, there’s the-sky-will-fall opposition and indignant outrage to the chance of change to the status quo. Later, calm and reasoned criticism in regulatory filings and congressional input. Finally, if political winds are blowing against it and public outcry is loud enough, operators will relent and even enthusiastically endorse the new order as if they had always been for it. Why? Because it’s the right thing to do. Such was the case with local number portability, hearing-aid compatibility, wireless privacy and driver handheld cellphone bans. Now, open access.
Wu’s wireless explosion
What a difference a year makes. Maybe. It was about this time last year that Columbia University law professor Timothy Wu let rip with a provocative paper claiming carriers’ iron-clad control of networks was retarding innovation and hurting consumers.
“The wireless industry, over the last decade, has succeeded in bringing wireless telephony at competitive prices to the American public,” stated Wu at the time in paper released by the New America Foundation. “Yet at the same time, we also find the wireless carriers aggressively controlling product design and innovation in the equipment and application markets, to the detriment of consumers. In the wired world, their policies would, in some cases, be considered simply misguided, and in other cases be considered outrageous and perhaps illegal.”
Skype Ltd., the eBay Inc.-owned Internet phone software firm with mobile inroads in Europe and Asia, approached the Federal Communications Commission with a petition seeking to confirm the applicability of the 1968 landmark Carterfone decision — prompted by small businessman wanting to connect his a two-way radio system to the landline telephone network — to the wireless space.
“It has been 15 years since the commission last took a comprehensive look at the wireless industry and its practices that impact the commission’s Carterfone rule. It is an understatement to say that much has changed in the interim; it is time for another look,” Skype stated in its petition.
The iPhone and other hysteria
But the one-two punch of Wu and Skype might otherwise have lacked the sting and staying power it boasts today without help ironically from the nation’s largest mobile-phone carrier, AT&T Mobility, and its golden-boy wireless gadget, the iPhone. Apple Inc. put the iPhone on the street late last June, or about the time the open-access debate was reaching fever pitch. It was not long, however, until the hysterical hoopla turned sour in some quarters when consumers learned the paradigm-smashing wireless device they’d spent hundreds of dollars on was tethered to AT&T Mobility’s network. On top of that, a two-year service contract with a $175 early termination fee.
The Internet itself has played an insidious role in the ascendancy of the wireless open-access campaign. One the one hand, Web access capability has proved an incalculable, value-added feature for a $120 billion cellular industry whose revenue has been long driven by voice traffic. The flip side is consumers accustomed to wired and cable broadband access are apt to be disappointed by equipment and content restrictions, data speeds and ease of use of Web-enabled cellphones. They want parity. Thus, the disparity of consumer experience between wired and wireless Internet access has fueled the flames of the wireless open access debate.
Those factors and others combined to make the push for wireless open access combustibly more effective than anyone could have ever imagined. The wireless Carterfone debate had caught fire. The cause quickly attracted support from consumer advocates, public-interest groups, Democratic policymakers and Internet search engine giant, Google Inc. That was Inside the Beltway. Eventually a grass-roots movement materialized and manifested itself in tens of thousands of public comments at the FCC supporting wireless open access. The issue got top billing on Capitol Hill, even to the point of eclipsing a related net neutrality firestorm focused on the content gate-keeping behavior of the Bell telephone-cable TV broadband duopoly.
Fighting back
The mobile-phone industry vigorously opposed the Skype proposal, arguing that appending third-party devices and applications to wireless networks would reduce competition, increase prices, degrade service quality, reduce service and device options, decrease investment and decrease innovation. In other words, according to cellular trade group CTIA, an awful idea that would drive industry to its knees.
A key caveat in Carterfone is third-party devices cannot cause harm to the network, which tended to undercut the wireless industry’s fear that networks would coming crashing down if it was subject to an open-access policy. Still, wireless networks have far less bandwidth to accommodate seemingly ‘safe’ third-party devices and applications than is the case with wired and cable broadband networks.
The FCC steps in
With wireless open access having gained significant momentum during the first half of the year and a major wireless auction on the horizon, the Federal Communications Commission late last July imposed an open-access condition on a third of the auction-bound spectrum as part of its 700 MHz ruling. A major victory for open access advocates, tempered with an escape clause for operators not fond of having strings attached to auctioned wireless licenses. If the $4.6 billion reserve price is not collectively met for the C Block, the licenses would be promptly re-auctioned without the open access rule. That later led to speculation about 700 MHz bidding strategies of Google Inc., AT&T Mobility and Verizon Wireless.
“This auction provides an opportunity to have a significant impact on the next phase of wireless broadband innovation. A network that is more open to devices and applications can help foster innovation on the edges of the network,” stated FCC Chairman Kevin Martin when 700 MHz rules were adopted. “As important, it will give consumers greater freedom to use the wireless devices and applications of their choice when they purchase service from the new network owner.” CTIA challenged the 700 MHz ruling in the U.S. Court of Appeals for the District of Columbia, entering the legal fray after Verizon Wireless withdrew its suit regarding the same decision.
Martin months later was quoted as saying the open-access controversy had “melted away” in view of AT&T Mobility’s and Verizon Wireless’ commitments to permitting third-party devices and applications on their networks and the inclusion of Sprint Nextel Corp. and T-Mobile USA Inc. in the Google-led Android Open Handset Alliance.
Others insist open access is an open question, saying FCC oversight is essential to ensure that open-access opportunities are not foreclosed as a result of discrimination in terms of pricing, equipment certification and portability or service quality.
“The real proof will be in the pudding. If voluntary initiatives bring consumers the kind of choice and freedom that they’ve come to expect in other parts of the technology marketplace, then I will be fully supportive,” said Commissioner Michael Copps, a Democrat on the GOP-led FCC. “If not, then I see and will push for a greater commission role in protecting consumers and entrepreneurs from the power of the giant telecom providers that now dominate the wireless market.”
Google-y eyes
Some observers pin the hopes for wireless open access on Google.
“The auction’s major wild card is Google. Even if Google is outbid in the end, it could transform the wireless marketplace by bidding at least $4.6 billion, the reserve price that triggers open access and consumer choice conditions that the FCC has imposed on the winner of the largest, nationwide block of spectrum [the C Block], said Michael Calabrese, director of the Wireless Future Program and VP at the New America Foundation, when the auction began Jan. 24. Google’s bidding behavior will determine if this auction opens wireless networks so that consumers have a choice of devices, software and content in the future.
