FCC: Gentlemen, Start Your Checkbooks

The FCC's recent decision to revise service rules related to the highly coveted 700 MHz spectrum was predicated on the notion that a more "open" wireless network would spur increased competition in the emerging market for mobile broadband data services. The spectrum being discussed won't be available until February 2009, but the FCC is under legislative mandate to hold an auction by January 2008.

That doesn't provide much time for potential bidders to get their acts—and their financing—together.

The guiding principle for this rule change, explicitly cited by FCC Chairman Kevin Martin, is the FCC's 1968 Carterphone decision that ended the Bell System's monopoly on phone devices. That judgment had a profound impact, not only on the telephony device market, but also on the data-modem and later, Internet-access markets. In developing new rules, the FCC is suggesting that shattering the link between mobile devices and specific service providers will unleash the competitive forces so beloved by capitalists, resulting in big benefits for consumers.

Problem is, it's far from clear how such a model of wireless network device neutrality would work. Suggesting that these new open networks will allow consumers to use any devices they want to access any applications they want may sound good, but in the real world of bits and hertz, it's largely a meaningless platitude. Wireless networks are built around standards, and devices need to conform to those standards. While it's true, as Martin states, that users in other countries face fewer constraints in migrating devices among carriers, that's largely the result of those carriers employing uniform standards.

Clearly, U.S. service providers have instigated these new FCC rules by embracing policies and business practices that infuriate consumers. While industry mouthpiece CTIA-The Wireless Association insists that existing FCC rules have "delivered benefits to American consumers that are nothing short of spectacular" (note the quotation marks), you'd be hard-pressed to find many mobile users who agree. Suggest such a thing and you'll more likely get an earful about dropped calls, poor customer service, high termination and switching fees, and overly restrictive usage policies—especially for data services. Policymakers hear these complaints from their constituents and often experience the frustration firsthand.And of course, U.S. carriers hear the complaints loud and clear as well. But because they use device exclusivity as a core competitive marketing mechanism—witness AT&T and iPhone—why would they willingly support regulations that facilitate device independence?

The reasons for the widening industry/consumer disconnect are understandable. Consumers have grown accustomed to the five-nines reliability of wired broadband networks, at work and in the home. These fat and relatively cheap pipes deliver an array of content and unlimited access to global Internet services.

Why shouldn't consumers apply the same service evaluation criteria to wireless? The short answer is that comparing wireless and wired data services is like comparing your background swimming pool to the Atlantic Ocean. No matter how much you try to expand your backyard pool, you'll quickly run out of space.

Wireless service providers face similar challenges. Although the new 700 MHz auctions open up valuable new network capacity, demand for service is still likely to exceed supply. Technical breakthroughs will help by increasing spectral efficiency, but those pesky laws of physics place constraints on innovation.

Bottom line, while the FCC's rule changes are steeped in hype, it's hard to ignore the Google connection and all it represents. In addition to developing excellent technology, Google has demonstrated political acumen and resolve not normally associated with emerging companies. Google didn't get all it asked for from the FCC, but by promising to meet the spectrum reserve amount, it certainly helped shape the policy debate. The FCC's decision not to require wholesaling of wireless services by winning bidders, a key element of Google's proposal, adds credibility to the commission's assertion of independence and increases the likelihood that incumbent carriers will participate. Absent wholesaling requirements, it's not clear whether Google will even bid on this new spectrum, but the company's refusal to blink in the face of criticism by telecoms has certainly made it clear that content providers will have a powerful say in the next generation of wireless Internet services. And that's good news for consumers and enterprises alike.0