August 09, 2007

FCC, 700 MHz, Wireless Carriers, and the Mobile Internet

As part of the impending 700 MHz spectrum auction, The Federal Communications Commission has circulated a proposal that included a requirement that the new mobile internet spectrum would be accessible to new applications and devices in a similar fashion as the existing internet today. The FCC Chairman has stated publicly his goal is to allow any wireless device to download any mobile broadband application, with no restrictions, if the software itself is not illegal or poses a threat to a network. At the same time, CTIA, a wireless industry association, is disputing any requirement that the new network carriers would be required to resell bandwidth at wholesale rates to perceived competitors, specifically Google, that would seek to create a competitive offering without incurring the cost of deploying network infrastructure.

At some level this argument sounds reminiscent of a little over a decade ago when the various carriers were arguing with Enhanced Service Providers about who had to connect to whom and who had to sell what to whom and at what price in the context of the Internet, and later VoIP, and then DSL and cable, and so on. At one level it is a revisitation of the Bell Heads vs. the Net Heads drama vintage 1996 but the basis of the discussion remains strikingly similar, namely who has to pay for building the network, and what rights do others have to access this network at a “fair” price.

Rightfully, the carriers are arguing not only do they have to pay to construct the network; they also had to pay off Uncle Sam for the right to use the spectrum, and all of this costs a lot of money that will be recouped slowly over time. At the same time, Internet juggernauts such as Google are eyeing any network as a delivery platform for their content and services and want to ensure that they are not locked out of the game, as so many content providers find themselves in the locked down envrionment of mobile telephones in the USA.

In a more cynical view, I think we can see an US vs. THEM mentality, in that much of the venture money chasing this opportunity is coming from Silicon Valley while the carriers are traditionally an East Coast affair. Yes, this may be simplistic, but it underscores just one of the many differences between the Bell Heads and Net Heads, two groups of players who have managed some sort of relative peace during the past decade as the Internet grew in importance to both communities and the population at large. However, in the case of mobile Internet access, things have been less sanguine as carriers attempt to or even mandate that customers access their services, not those of competitors. While there may be perfectly good corporate reasons for doing this, it does hinder the customer’s choices in what services they can purchase and how they may wish to go about using them.

Net neutrality proponents argue that unfettered access to networks is the only way to guarantee that carriers won’t limit access or propose usury tariffs to ward off the competition. Yet at the same time, it is unrealistic to believe that corporations would continue to invest in new technologies if they know that they must bear the cost of design and deployment, yet a competitor could use the network solely on a usage-based fee, without assuming any of the risk of the initial investment. While I could accept either of these arguments in a vacuum, the reality is that the marketplace will not benefit from either extreme, and this is what I consider to be the ultimate consideration.

In the “good old” days, spectrum was licensed with the pursuit of the public good as a significant factor. During the past couple of decades, public service has been displaced by a revenue generation scheme whereby auctioning spectrum to enrich the Federal coffers has become the goal. In some cases, for totally private use, this may make some sense similar to royalty payments made by lumber, mineral, oil, and many other interests when extracting wealth from publicly owned lands.

But in the case of broad based communications, perhaps it would be better to take some of that auction money and use it to build out/maintain a minimum portion of the network that could be secured as access points for the competitors that the carriers fear. To protect against those seeking massive access, there could be prescribed limits to how much they could purchase through the minimum network, the rest they can treat as a commercial endeavor, just like the carriers, pay the prevailing burdened cost of delivery. But for those smaller entities, their access could be protected. Perfect? No. Better than monopoly or forced subsidization of the competition, I think so.

Still, the auction process is not complete, and the final rules have not been written. It will be interesting to see how it all plays out. I for one hope that we do not end up with another closed/proprietary network, but at the same time realize that without investment and the chance for a positive return on that investment, the network is unlikely to be built.

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