[Senate Hearing 113-223]
[From the U.S. Government Publishing Office]
S. Hrg. 113-223
STATE OF WIRELESS COMMUNICATIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JUNE 4, 2013
__________
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
MARK PRYOR, Arkansas MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK WARNER, Virginia DAN COATS, Indiana
MARK BEGICH, Alaska TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
BRIAN SCHATZ, Hawaii DEB FISCHER, Nebraska
WILLIAM COWAN, Massachusetts RON JOHNSON, Wisconsin
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
------
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY,
AND THE INTERNET
MARK PRYOR, Arkansas, Chairman ROGER F. WICKER, Mississippi,
BARBARA BOXER, California Ranking Member
BILL NELSON, Florida ROY BLUNT, Missouri
MARIA CANTWELL, Washington MARCO RUBIO, Florida
FRANK R. LAUTENBERG, New Jersey KELLY AYOTTE, New Hampshire,
CLAIRE McCASKILL, Missouri DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota DAN COATS, Indiana
MARK WARNER, Virginia TIM SCOTT, South Carolina
MARK BEGICH, Alaska TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
C O N T E N T S
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Page
Hearing held on June 4, 2013..................................... 1
Statement of Senator Pryor....................................... 1
Statement of Senator Wicker...................................... 2
Statement of Senator Thune....................................... 57
Statement of Senator Klobuchar................................... 59
Statement of Senator Heller...................................... 61
Statement of Senator Warner...................................... 63
Statement of Senator Fischer..................................... 65
Statement of Senator Johnson..................................... 67
Statement of Senator Nelson...................................... 69
Statement of Senator Rubio....................................... 71
Statement of Senator Blumenthal.................................. 73
Statement of Senator Ayotte...................................... 77
Witnesses
Steve Largent, President and CEO, CTIA--The Wireless Association 3
Prepared statement........................................... 5
Steven K. Berry, President and Chief Executive Officer,
Competitive Carriers Association............................... 8
Prepared statement........................................... 14
Doug Webster, Vice President, Service Provider Routing, Mobility
and Video Marketing, Cisco Systems, Inc........................ 19
Prepared statement........................................... 21
Thomas F. Nagel, Senior Vice President, Comcast Corporation...... 23
Prepared statement........................................... 25
George S. Ford, Ph.D., Chief Economist, Phoenix Center for
Advanced Legal and Economic Public Policy Studies.............. 32
Prepared statement........................................... 34
Delara Derakhshani, Policy Counsel, Consumers Union.............. 49
Prepared statement........................................... 51
Appendix
Response to written question submitted by Hon. Amy Klobuchar to
Steven K. Berry................................................ 81
STATE OF WIRELESS COMMUNICATIONS
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TUESDAY, JUNE 4, 2013
U.S. Senate,
Subcommittee on Communications, Technology, and the
Internet,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:32 p.m., in
room SR-253, Russell Senate Office Building, Hon. Mark Pryor,
Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARIZONA
Senator Pryor. I'll go ahead and call this to order.
I want to say welcome and good afternoon to everybody. I
know we have a lot of people in attendance, and we understand
that some people may be watching this on their mobile devices
out in the hallway.
[Laughter.]
Senator Pryor. But, nonetheless, we want to say thank you
to all of our witnesses for being here. Thank you for your
preparation.
This is the third in our, ``state of'' hearings in which
we're trying to inform members about issues going on in the
industry, but also hear from industry about what's going on,
not just in the industry, but, really, around the world, and
what all the trends are.
Wireless communication is the focus of today's hearing.
We're going to hear from panelists who represent wireless
providers and equipment manufacturers, as well as other
panelists who analyze and monitor the industry and who advocate
on behalf of wireless customers.
As we all know, wireless communications are used more and
more. If you can say there is such a thing as the ``traditional
cell phone''--but, from traditional cell phone that many of us
have relied on for the last several years, which was primarily
voice communications, to now we see an increase in the use of
Internet through wireless devices, and even things that we are
beginning to just take for granted, these wireless devices,
like garage door openers, TV remotes, Wi-Fi, Internet
connectivity. These--the--licensed or unlicensed, this is
becoming ubiquitous and ever present in today's world. In fact,
with a smartphone or tablet, someone in this room could have a
video chat with a family member, turn on or off their home
entertainment system, and even purchase tickets to tonight's
Washington Nationals baseball game.
I'm looking forward to hearing from our panelists. There
are many new developments and new services that the industry is
providing, and we are cognizant of that, and very appreciative
of that, and appreciative of all the private investment that we
see, and the many, many services that are being provided. And
we, obviously, are concerned and we understand about the
greatly increased need for the use of spectrum. We will all be
interested to know the panelists' thoughts on the spectrum
crunch and how it can be effectively addressed as both demand
and technological innovations increase.
So, are the administration and Congress doing enough, and
are they doing it in the right way? How can we ensure that
spectrum, a public good, is being maximized for consumers and
for businesses, and ultimately the taxpayers? The panelists
before us today will provide their insights to these questions
and many others.
I'm pleased to be joined today by Senator Wicker, my
Ranking Member on the Subcommittee, and also we're going to
have many, many of our Subcommittee Members come in and out
today. This is a busy day on the Senate floor, so----
Senator Wicker.
STATEMENT OF HON. ROGER F. WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Thank you very much, Mr. Chairman. I am
glad to join you on this, our third, hearing on the state of
the industry.
Today, our focus is on the state of wireless communications
in the United States. There is perhaps no platform for
broadband delivery as dynamic and rapidly growing as mobile
wireless communications. Consumers are turning to mobile
technology in droves, making it their primary way of access to
the Internet.
Last year, global mobile data traffic grew 70 percent. When
it comes to voice services, American consumers are consistently
cutting the cord and transitioning from traditional landline
service to wireless as their primary means for voice
communication. According to a recent CDC study--interestingly,
Mr. Chairman--Mississippi and Arkansas are leading the way in
wireless-only households, with 42.3 percent of adults in
Mississippi and 44.4 percent of adults in Arkansas making a
full conversion. That same study found that, by the second half
of 2011, one in three households had only wireless phones. The
rapid migration to wireless raises a number of critical issues
for policymakers, many of which will be mentioned and discussed
by the witnesses on our panel today.
As the Chair mentioned, one of the key issues for Congress
to consider is how to maximize commercial access to spectrum in
order to meet consumer demand for high-speed service and
content-rich applications. One of the main avenues to achieve
this goal is making the 1755-1780 megahertz band available for
commercial services. This band was identified in the FCC's
National Broadband Plan for its commercial potential. When
paired with the AWS-3 band, this spectrum can be quickly used
to expand existing systems, spur innovation, and drive economic
growth.
I understand the wireless industry and Federal agencies
have been working together to study this issue, and that the
industry has recently proposed a roadmap for clearing Federal
systems out of the band. I urge DOD and other government
entities currently using the band to continue to work together
productively and in a quick, conclusive fashion to relocate
operations and free up this spectrum for commercial and,
ultimately, for consumer use.
This committee also needs to monitor, closely, the progress
of the FCC's impending incentive auction of wireless broadcast
spectrum. The success of this auction is critical to
construction of the National Public Safety Broadband Network
established in the Spectrum Act. It also would free up spectrum
and raise much-needed revenue for deficit reduction. To achieve
success, it is imperative that there be widespread all-
inclusive participation in the auction. This is the best way to
maximize revenues going forward, as Congress mandated.
I would like to thank our witnesses for testifying today.
We look forward to hearing your views on the issues of spectrum
availability, the incentive auction, and the overall state of
wireless services in this country.
Thank you again, Senator Pryor, for holding this hearing,
and I thank the members of our Committee, for their attendance
and interest.
Senator Pryor. Thank you.
Let me say that what we'll do is, we'll dispense with our
opening statements, and everybody's opening statement will be
made part of the record. But, we would like to move quickly to
our panel.
We have a very distinguished panel today. I will recognize
each one of them for a 5-minute opening.
We would really appreciate it if you could keep it to 5 so
that the Subcommittee would have plenty of time to ask
questions.
What I'll do, just to save time, is, I'll just go right
down the list and then turn it over to Mr. Largent.
First, we're going to have the Honorable Steve Largent,
President and CEO of CTIA, The Wireless Association. Second,
we're going to have Mr. Steven Berry, President and CEO of
Competitive Carriers Association. Third, we're going to have
Mr. Doug Webster, Vice President, Service Provider Routing,
Mobility and Video Marketing, Cisco Systems. Fourth, we will
have Mr. Thomas F. Nagel, Senior Vice President, Business
Development and Strategy, Communication and Data Services for
Comcast Corporation. Next, we will have Mr. George Ford, Chief
Economist of the Phoenix Center. And last, and certainly not
least, we'll have Delara Derakhshani, Policy Counsel for
Consumers Union.
So, again, welcome, all of you. And again, thank you, for
the Subcommittee, for being here.
Mr. Largent, if you'd lead us off. Thank you.
STATEMENT OF STEVE LARGENT, PRESIDENT AND CEO,
CTIA--THE WIRELESS ASSOCIATION
Mr. Largent. Mr. Chairman, Ranking Member Wicker, and
members of the Subcommittee, thank you for this opportunity to
testify on behalf of CTIA.
As we meet today, I've just returned from our annual spring
show, and I really wish you could have joined us. You would
have seen a great testament to the state of the wireless
industry. It's a vibrant, dynamic ecosystem that's innovative
and competitive at every level. It's also an environment in
which U.S. leadership is a consistent and defining
characteristic.
Perhaps the best indicator of the wireless industry's
vibrancy is its investment record. If you believe that
businesses commit capital to markets that are open and
competitive, then the $30 billion that America's wireless
carriers invested in 2012, alone, is a very good sign. This
massive investment serves as a catalyst for what we, at CTIA,
like to call ``the virtuous cycle of wireless investment and
innovation.'' Here's what I mean by that: To start, capital
expenditures drive the creation of networks capable of
supporting greater speeds and functionalities. Those new
networks create a demand for new and more powerful devices,
which then drive the development of new applications and
content. That leads the--to more consumer usage, and, as that
grows, so does the need for more spectrum.
This virtuous cycle is spinning at an incredible rate in
the U.S. and is the reason why we are the world's leading
wireless market. We have more than 50 percent of the world's 4G
subscribers--let me repeat that--50 percent of the world's 4G
subscribers, in spite of the fact that the U.S. is home to just
5 percent of the world's wireless subscribers. These
subscribers use sophisticated phones and tablets that run on
chips and operating systems developed by great American
companies, like Qualcomm, Apple, Google, and Microsoft. And
these networks and devices serve as the foundation for a U.S.-
based applications industry that is creating jobs and
transforming the way we consume information and engage in
commerce.
Along with changing the way consumers communicate, advanced
wireless networks are enabling whole new vertical markets to
emerge. Mobile commerce and finance, intelligent
transportation, smart grid, and mobile health services and
applications, are all made possible by the existence of robust
wireless broadband capabilities. And each of these
opportunities helps to transform our economy in positive ways.
So, as I hope I've demonstrated, there are a lot of great
things emanating from the U.S. wireless communications
industry. The benefits of those developments are felt
throughout our society. However, success is hard to achieve,
and can be still harder to maintain. As a result, there is a
vital role for Congress and other government entitles to enact
smart policies that help the private sector to continue its
hard work and innovation to advance U.S. leadership in this
critical industry.
Without question, the area where policy leadership is most
important is access to spectrum. Carriers must have access to
additional licensed spectrum in order to keep up with
Americans' demand for mobile broadband. Fortunately, Congress
recognized this when it included provisions in last year's
SPECTRUM Act, authorizing the FCC to conduct incentive
auctions. Although the FCC is moving to implement that
legislation, it is critical that the incentive auction process
move forward expeditiously. But, even if the incentive auction
process yields the full 120 megahertz called for in the
National Broadband Plan, numerous projections on increased
network traffic clearly indicate we're going to need more
spectrum to keep up with the demand. In fact, much more.
To address that difference, Congress should, as it has in
the past, look to repurpose bands held by Federal users for
commercial use. It has worked well before, and it can work well
again. One band that's especially important in enabling
wireless companies to meet expanding demand is the 1755-1780
megahertz spectrum. While that band is currently used
domestically by DOD and other Federal agencies, it is used
internationally for commercial mobile services. Harmonizing the
U.S. allocation with international use will produce significant
economies of scale and scope, and, importantly, make it
possible for consumers to use their wireless devices outside of
North America. There is a broad industry support for pairing
the 1755 band with the spectrum currently available for
licensing at 2155-2180. Current law requires 2155 band to be
licensed by February 2015, and it's our hope that the 1755 band
can be made available so that the two bands can be auctioned
together.
Pairing these bands will ultimately maximize their value to
the industry, consumers, and also to the government, as the
auction of the two bands, together, will deliver significantly
more revenue to the Treasury than would an auction of just 2155
band.
CTIA looks forward to working with you to achieve this
important objective. Thank you for your time today.
[The prepared statement of Mr. Largent follows:]
Prepared Statement of Steve Largent, President and CEO,
CTIA--The Wireless Association
Chairman Pryor, Ranking Member Wicker, and members of the
Subcommittee, thank you for this opportunity to testify on behalf of
CTIA--The Wireless Association.
As you begin today's hearing, I have just returned from CTIA 2013,
our annual spring trade show, which draws thousands of attendees from
around the nation and around the world. I wish you could have joined
us. Had you been able to do so, you would have seen a great testament
to the state of the wireless industry--a vibrant, dynamic ecosystem
that is innovative and competitive at every level. It is also an
environment in which U.S. leadership, and the competitive advantage
that leadership confers upon our national economy, is a consistent and
defining characteristic.
Perhaps the best indicator of the wireless industry's vibrancy and
competitiveness is its capital investment record. If you believe, as I
do, that businesses commit capital to markets that are open and
competitive, and where they have a chance to earn a compelling return
on what they invest, then the $30 billion America's wireless carriers
invested in their networks in 2012 \1\--a nine percent year-over-year
increase from 2011--is a very good sign. This investment, which
according to Bank of America Merrill Lynch equals a quarter of global
wireless investment last year,\2\ is all the more remarkable given the
fact that the U.S. market includes just five percent of the world's
wireless subscribers. It's a striking ratio: the U.S. comprises just
five percent of the global wireless market but our investments outstrip
that by five-fold.
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\1\ http://www.ctia.org/advocacy/research/index.cfm/AID/10316.
\2\ Didier Scemama, ``Global Wireless CapEx: Increase 2013 Forecast
by 7 percent,'' Bank of America Merrill Lynch, January 6, 2013.
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And, while the numbers are impressive, last year was not an
anomaly. The wireless industry has always been an active investor.
Since 2001, wireless carriers in the U.S. have invested nearly $300
billion in their networks, and this figure does not include more than
$35 billion in carrier expenditures on spectrum auctioned by the FCC.
This massive capital investment serves as a catalyst for what we at
CTIA like to call ``the virtuous cycle of wireless investment and
innovation.'' Sustained capital expenditures facilitate the creation of
networks capable of supporting greater speeds and functionalities,
which, in turn, bring about new and more powerful and useful devices.
The availability of new devices encourages the development of new
applications and content, which help to drive consumer usage. And as
usage grows, so too does the need for ever-more robust networks and
more spectrum.
This ``virtuous cycle'' phenomenon is seen most vividly in the U.S.
market, where the world's most advanced Long-Term Evolution deployments
have produced more than 50 percent of the world's 4G subscribers.\3\
These subscribers use sophisticated devices that run on chips and
operating systems developed by great American companies like Qualcomm,
Apple, Google, and Microsoft. And these U.S.-derived networks and
devices serve as the foundation for a fertile applications development
industry--again, with its hub here in America--that is creating jobs
and helping transform the way we consume information and engage in
commerce.
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\3\ As of March 2013, the U.S. was estimated to have 52.5 percent
of the world's LTE subscribers, according to the Informa Telecoms &
Media Group's World Cellular Information System (WCIS) database.
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America's wireless subscribers are the beneficiaries of this
virtuous cycle. Carriers' fourth-generation network deployments and
device vendors' launch of advanced handsets and tablets in the U.S.
market put American consumers at the vanguard of global wireless users,
all in an environment where the Bureau of Labor Statistics Wireless
Price Index has declined in each of the last five years, and by nearly
40 percent over the last 15 years.\4\ It is unquestionably the best
story in the telecom sector.
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\4\ BLS Consumer Price Index Databases (not seasonally adjusted).
Source: BLS Consumer Price Index Databases (not seasonally
---------------------------------------------------------------------------
adjusted).
As functionality has expanded and price has declined, adoption and
usage have simultaneously exploded. Wireless subscriber units--that is,
active devices associated with subscriptions or prepaid accounts--
totaled 326.4 million separate devices at year-end 2012. That's equal
to 102 percent of the total U.S. population, a greater and greater
percentage of which is making their wireless phone their only phone. In
Arkansas and Mississippi, for instance, more than 40 percent of the
population is now ``wireless-only.'' \5\ By comparison, just eight
percent of the population in those states is ``wireline-only.'' \6\
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\5\ Centers for Disease Control and Prevention, ``Wireless
Substitution: State-level Estimates From the National Health Interview
Survey, 2010-2011,'' National Health Statistics Reports No. 61, October
12, 2012.
\6\ Ibid.
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Similarly, many people are making their wireless device their on-
ramp to the Internet. This is particularly true among Hispanics and
African-Americans, where ownership of a home computer lags the total
population and the mobile device is a critical tool for closing the
``digital divide.'' Data shows that Hispanics and African-Americans are
significantly more likely to use their mobile devices to go online.\7\
Overall, 55 percent of wireless users (and 74 percent of those under
age 50) now use their mobile devices to access the Internet,\8\ with
aggregate data usage now exceeding 1.5 trillion megabytes.\9\
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\7\ Pew Research Hispanic Center, ``Closing the Digital Divide:
Latinos and Technology Adoption,'' March 7, 2013. Available at http://
www.pewhispanic.org/2013/03/07/closing-the-digital-divide-latinos-and-
technology-adoption/.
\8\ Pew Research Center, ``Teens and Technology 2013,'' March 13,
2013. Available at http://pewinternet.org/ /media/Files/Reports/2013/
PIP_TeensandTechnology2013.pdf.
\9\ http://www.ctia.org/advocacy/research/index.cfm/AID/10316.
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Beyond changing the way that consumers communicate, the prevalence
and power of 4G wireless networks is enabling whole new vertical
markets to emerge. Mobile payment, intelligent transportation, smart
grid and mobile health services and applications are made possible by
the existence of robust, ubiquitous wireless broadband capabilities.
Each of these opportunities can help transform our economy in positive
ways, helping to drive additional investment and job creation. The last
of these verticals, mobile health, is particularly exciting, as
innovative m-health technologies and applications have enormous
potential to improve the efficiency of health care delivery in the U.S.
and around the world through more personalized care for patients, by
reducing health care costs, and by eliminating geographic and economic
barriers to the delivery of health services.
So, as I hope I've demonstrated, there are a lot of great things
emanating from the U.S. wireless communications industry and the
benefits of those developments are felt throughout our society.
However, as you know, success is hard to achieve and can be still
harder to maintain.
As a result, there is a vital role for policymakers--chiefly
Congress, but also including the FCC, NTIA and other government
entities--to complement the great work being done in the private sector
with smart government policies that create an environment in which the
private sector can work hard, innovate and advance U.S. leadership in
this critical, ever-expanding industry.
Without question, the most important area where continued policy
leadership is necessary is access to spectrum. In order to keep pace
with the demand Cisco will describe in its testimony, the wireless
industry needs access to more spectrum.
Spectrum is the resource on which all of the benefits that spring
from wireless communications are founded. While manufacturers have
tenaciously devised and used advanced technologies to get the most out
of existing spectrum allocations and though carriers have innovatively
used unlicensed Wi-Fi spectrum to ``offload'' traffic from carrier
networks, those efforts are simply not enough. Carriers must have
access to additional licensed spectrum in order to keep up with
technological requirements and exploding consumer demand for mobile
broadband.
Fortunately, Congress recognized this when it included provisions
in last year's Middle Class Tax Relief and Job Creation Act which
authorized the FCC to conduct incentive auctions that may result in the
conversion of some television broadcast spectrum for wireless broadband
use. The FCC is moving to implement that legislation and it is vitally
important that the incentive auction process move forward
expeditiously. It is equally important that the Commission get it
right. But even if the incentive auction process yields the 120 MHz
called for in the National Broadband Plan, that and other bands
identified for auction by last year's legislation will only represent a
portion of what is needed for the industry to meet consumers' and
businesses' need for wireless bandwidth.
To address the difference between what the incentive auctions yield
and what is necessary to achieve the five-and ten-year spectrum targets
set by the National Broadband Plan, Congress should, as it has in the
past, look to repurpose bands held by Federal users for commercial use.
It has worked well before and it can work well again. According to a
2011 GAO study, the Federal Government operates in approximately 70
percent of the spectrum below 3 GHz--18 percent on an exclusive basis
and 52 percent on a shared basis with non-government users. Just as it
is appropriate to ensure that spectrum available to the private sector
is being used efficiently and for the most highly valued services, the
Federal Government must evaluate the use of its own spectrum and free
spectrum for commercial operations wherever possible. The far-reaching
benefits to our national economy are too vital to do otherwise.
One frequency band currently occupied by Federal users that would
be particularly helpful in allowing wireless companies to meet rapidly
expanding demand is the 1755-1780 MHz spectrum. In the U.S., that band
is currently used by the Department of Defense and other Federal
agencies. However, the band is identified internationally for
commercial mobile services and is used for that purpose throughout most
of the world. Reallocation of the band would harmonize U.S. allocation
of spectrum with international use, produce economies of scale and
scope, and, importantly, make possible consumer use of their wireless
devices outside North America by alleviating compatibility problems.
The 1755-1780 MHz band is also immediately adjacent to existing
domestic wireless commercial spectrum and would therefore fit
seamlessly into the current mobile broadband spectrum portfolio,
allowing for more immediate equipment development and deployment as
well as facilitating easy migration of existing and developing
technologies to these bands.
There is broad industry support for pairing the 1755-1780 MHz band
with spectrum currently available for licensing at 2155-2180 MHz.
Current law requires the 2155-2180 MHz band to be licensed by February,
2015 and it is our hope that the 1755-1780 MHz band can be made
available so that the two bands can be auctioned together. Pairing
these bands will maximize their value not only to industry, but also to
the government. A study by the Brattle Group found that auctioning the
2155-2180 MHz band by itself would yield $3.6 billion, but when paired
with the 1755-1780 MHz band, the pairing could generate $12
billion.\10\ Given the budget realities facing Congress and the
country, a difference of that magnitude should not be ignored.
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\10\ http://www.brattle.com/_documents/UploadLibrary/Upload938.pdf.
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To be clear, CTIA recognizes that there are legitimate Federal
spectrum needs that must be protected, and we believe that last year's
improvements to the Commercial Spectrum Enhancement Act provide an
appropriate framework for Federal relocation. Handled appropriately,
relocation of Federal users from prime bands below 3 GHz can facilitate
movement to state-of-the-art technology. This will reduce ongoing
maintenance and procurement costs for Federal agencies and free up
scarce resources under current budget caps. Wireless carriers can then
use the relinquished spectrum to provide services and grow the economy,
resulting in a win-win-win outcome for Federal users, wireless
carriers, and the American public. For these reasons, CTIA urges the
Subcommittee to remain focused on spectrum policy.
Beyond a continued focus on bringing spectrum to market, two other
areas where policy matters are regulation and taxation. With respect to
the former, Congress established a deregulatory framework to govern
wireless services twenty years ago and given the industry's record of
investing, innovating, and competing, there is abundant evidence that
charting that course was the right decision. Congress and the
Commission should continue this long-standing commitment to ``light
touch'' regulation and avoid imposing regulatory mandates that will
raise costs and inhibit competitive differentiation among providers.
Another area where policy can have a significant impact is
taxation, and though tax policy is not necessarily within the province
of this Committee, it is so important that it merits mention in this
discussion. Corporate tax reform, keeping Internet access free from
taxation, and the idea that wireless service and digital goods should
benefit from clear rules preventing discriminatory taxation are all
issues this Congress may address, and getting these issues right is
vitally important. We need to retire the regressive, inefficient system
of telecommunications taxation designed for Ma Bell and replace it with
a 21st century tax system that reflects the reality that communications
connectivity is central to virtually every aspect of our economy.
Together, the right spectrum policies, regulatory restraint and
sound tax policy can combine to support the investment and innovation
that are pervasive in the wireless ecosystem, and which so demonstrably
benefit the American public and economy. CTIA looks forward to working
with you to achieve these objectives.
Thank you for your time today.
Senator Pryor. Thank you.
Mr. Berry.
STATEMENT OF STEVEN K. BERRY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, COMPETITIVE CARRIERS ASSOCIATION
Mr. Berry. Thank you, Mr. Chairman, Ranking Member Wicker,
and members of the Subcommittee. Thank you for inviting me to
testify today about the competition in the wireless industry.
I'm here today on behalf of the Competitive Carriers
Association, representing over 100 wireless carriers and nearly
200 vendors and suppliers that support that competitive
wireless ecosystem. My membership believes and includes
innovative competitors of all sizes, from Sprint to Bug Tussel
Wireless, in Wisconsin, and every members' district in every
members' state that's here today.
I'd like to talk about competition and what is needed to
have a competitive wireless industry for years to come, and I
may differ a little from my colleague sitting next to me. We
are at a crossroads. Policymakers have two choices. One path
leads down a dangerous road of continued concentration, the
other creates a new framework for competition. Without a
competitive framework, increased regulation will be needed to
artificially replicate the benefits of competition. And none of
us want that. The virtuous cycle that Steve refers to may
become the vicious cycle if the small carriers can't get access
to spectrum and devices. AT&T and Verizon dominate a wireless
industry that's already heavily concentrated, more so than the
auto, oil, or banking industries. The two largest wireless
carriers control 70 percent of all revenue in the wireless
industry, compared to the two top automakers controlling 35
percent, oil controlling 25 percent, the top two largest banks,
only 20 percent of the wireless--of the industry revenues.
Policymakers should focus on a framework to create the next
generation of competition.
At CCA's spring event, I, too, met with my members and a
diverse membership at CCA, and one of the main themes of our
expo was growth. And with the right framework, our competitive
carriers believe we're prime for economic growth, job creation,
expansion of mobile broadband throughout the Nation, and a
competitive framework that supports continued light-touch
regulatory regime.
There are three things the FCC can do today to help make
this happen. First, the FCC should immediately restore
interoperability into the lower 700 megahertz band.
Interoperability has been fundamental to the wireless industry
since its inception, and has supported the devices and roaming
relationships. That all changed after auction 73, when AT&T was
allowed to carve out a unique band plan in the lower 700.
Mr. Chairman, in 2008, following the auction, you said,
``History will show that the way the FCC structured the auction
basically helped the two big wireless companies, to the
detriment of competition in this country.'' History has proven
your concerns to be accurate, Mr. Chairman. Yet, history need
not repeat itself.
The lower 700 megahertz band, unlike Humpty Dumpty, can be
put back together again. It requires immediate action from the
FCC. And the record is now complete, and the FCC must
immediately act to restore interoperability, which will allow
competitive carriers to utilize over $2 billion invested in
beachfront spectrum. This will allow access to devices, data
roaming, expandable broadband, especially in rural America, and
spark new competition in the industry.
Second, but maybe more important in the long run,
competitive carriers must have access to spectrum. The FCC must
revise its broken decade-old spectrum screen and apply those
new rules to the upcoming incentive auction, using the
authority the Congress just reaffirmed. Congress got it right,
set the right tone; now it's up to the FCC to implement a
competitive auction. Spectrum must be made available in small
geographic areas so that the greatest number of carriers can
participate, sized for bidding by all carriers. This means that
it should be in CMAs, cellular market areas, in blocks of
spectrum. This would maximize revenue to the Treasury, and the
U.S. taxpayer will thank you.
Let me be clear. All carriers, including Verizon and AT&T,
should be allowed to participate in the auction. However,
limiting how much spectrum any one carrier can obtain in a
particular market just makes sense. No one or two carriers
should be able to walk away with the entire pie. Some have
claimed that DOJ's analysis tries to rig the auction. I don't
read it that way, and nor does Attorney General Dick
Thornburgh, who served under five Presidents. He recently wrote
the DOJ and the FCC, and suggested that that policy is
consistent with the competition policy under Republican and
Democratic administrations, alike.
I'd like to have his letter included in the record, if
that's OK, Mr. Chairman.
Senator Pryor. Without objection.
[The information referred to follows:]
Mr. Berry. And speaking about spectrum, incentive auctions
should not be the only source of additional spectrum. Carriers
need a functioning secondary market, and Federal holdings must
be reviewed and, where possible, reallocated for commercial
use. I totally agree with Mr. Largent that the 1755-1780 and
2155-2180 needs to be paired and sold, and we ought to do it
today.
Finally, access to the networks is critical. As the
transition to all IP networks move forward, the bedrock
technology-neutral interconnection principles directed by
Congress in the 1996 Act must be reaffirmed.
Mr. Chairman, CCA and our members stand ready to help you
and the Committee restore competition, spur investment and
innovation, create jobs, and expand mobile broadband in rural
America.
Thank you.
[The prepared statement of Mr. Berry follows:]
Prepared Statement of Steven K. Berry, President and Chief Executive
Officer, Competitive Carriers Association
``Competition at the Crossroads: Preventing Duopoly in Today's Wireless
Marketplace''
Chairman Pryor, Ranking Member Wicker, and members of the
Subcommittee, thank you for inviting me to testify about the state of
competition in the wireless industry. I am here today on behalf of the
Competitive Carriers Association, the nation's leading association of
competitive wireless carriers, with over 100 carrier members ranging
from small, rural providers serving fewer than 5,000 customers to
regional and national providers serving millions of customers. We also
represent almost 200 Associate Members--small business vendors and
suppliers that serve carriers of all sizes and employ your
constituents. The entire mobile ecosystem serving competitive carriers
is dependent on vibrant competition in the wireless industry at all
levels. CCA's diverse membership is bound together by a shared goal for
competitive policies and a shared concern over the growing market power
of the ``Twin Bells''--AT&T and Verizon. Through a steady stream of
acquisitions, these two dominant carriers have turned what once was a
robustly competitive wireless marketplace into an industry marching
towards duopoly. I know that several members of this Subcommittee, as
well as the Federal Communications Commission and the Department of
Justice, have voiced the same concerns.
In my testimony today, I will provide a snapshot of today's
wireless industry, elaborate on the challenges facing competitive
carriers, and offer proposals for restoring wireless competition going
forward. Indeed, policymakers have two distinct and different paths for
the future of the wireless industry--allow continued market dominance
by two carriers and cement a duopoly in the industry, which will
ultimately result in a heavy regulatory regime to attempt to replicate
the benefits of competition, or establish a new competitive agenda for
the next generation which will fuel economic investment, job creation,
innovation, and increased consumer access to all the benefits of mobile
broadband. Our members are prepared to invest, innovate, and create
jobs, but need access to critical inputs to expand and grow their
businesses.
To fully appreciate where we stand as an industry, it is important
to take stock of how we got here. The wireless industry in the United
States actually began as a duopoly in 1981, when the Federal
Communications Commission (``FCC'') divided a total of 50 MHz of
cellular spectrum in each local area between just two providers, one of
which was the incumbent wireline telephone company. Even with this
duopoly, policies required the incumbent to support connectivity--
interoperability and roaming--to prevent a monopoly. Congress broke-up
this original duopoly in 1994, when it provided the FCC with auction
authority that led to making available 120 MHz of PCS spectrum. That
auction, along with later auctions in other spectrum bands, gave rise
to a host of new wireless carriers and sparked increased competition.
For many years, until the late 2000s, the wireless industry was a
shining example of robust competition, with numerous carriers at the
national and regional level competing to deliver steadily improving
services at declining prices. In the FCC's first 13 reports on the
state of competition in the wireless industry released between 1995 and
2009, the agency was able to conclude that the industry was
characterized by either growing competition or ``effective
competition.'' Policymakers hailed the wireless industry at the time as
``one of the great success stories'' resulting from Congress's and the
FCC's efforts to establish and maintain a regulatory framework in which
competition could thrive.\1\
---------------------------------------------------------------------------
\1\ See CTIA, Interview with Kevin Martin, at 6, Wireless Wave
(Fall 2005), available at http://www.ctia.org/advocacy/index.cfm/AID/
10522.
---------------------------------------------------------------------------
Today, however, the gains in wireless competition over the past two
decades are in danger, as the Twin Bells threaten to drag the industry
back towards a duopoly. The Twin Bells have gobbled up numerous
competitive carriers in recent years, including ALLTEL, Dobson,
Centennial, Rural Cellular Corporation, and a long list of others. And
as AT&T and Verizon have grown, so too has the level of industry
consolidation. According to the FCC's latest competition report, the
wireless industry's Herfindhal-Hirschman Index (HHI) value--a common
measure of consolidation--had grown to 2,873 by the end of 2011.\2\ To
put that in perspective, that figure is 373 points higher than the
level considered ``highly concentrated,'' and 722 points higher than
the level measured in 2003, the first year the FCC calculated HHIs. The
report also found that the Twin Bells together account for an
astounding 67 percent of industry revenue.\3\ That combined share is
far higher than the combined shares for the top two firms in other
``consolidated'' industries. By comparison, the top two firms in the
auto industry hold a 35 percent share of total revenue; the top two
firms in the oil industry hold a 24 percent share; and the top two
firms in the banking industry hold a 20 percent share.\4\ Not
surprisingly in light of these figures, the FCC has been unable to find
``effective competition'' in the wireless industry in any of its last
three annual competition reports.
---------------------------------------------------------------------------
\2\ Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993, Annual Report and Analysis of Competitive
Market Conditions with Respect to Mobile Wireless, Including Commercial
Mobile Services, WT Docket No. 11-186, Sixteenth Report, FCC 13-34, 2
(rel. Mar. 21, 2013) (``16th Mobile Wireless Competition Report'').
\3\ Id. 52.
\4\ See Free Press, Why the AT&T-T-Mobile Deal Is Bad for America,
Mar. 22, 2011, at 1, available at http://www.freepress.net/sites/
default/files/fp-legacy/ATT-TMobile.pdf.
---------------------------------------------------------------------------
The Twin Bells are not content merely holding a dominant position
in the wireless marketplace; they have also abused their dominance by
blocking competitors' access to key inputs that are necessary for a
competitive market to exist. For instance, AT&T and Verizon each
continue to aggregate massive amounts of wireless spectrum--which the
FCC calls ``the lifeblood of the wireless industry''--by using their
vast resources to purchase large swaths of spectrum. Since the start of
2012, these two carriers have filed to gain access to almost 800
licenses in bands used to offer mobile services, including nearly 300
licenses in bands below 1 GHz. Some of the most significant wireless
deals in recent memory have been spectrum-only transactions, such as
Verizon's 2012 acquisition of AWS-1 licenses from the four largest
cable companies, AT&T's 2012 acquisition of NextWave Wireless and its
substantial WCS and AWS spectrum holdings, and AT&T's 2011 acquisition
of Qualcomm's nationwide licenses in the Lower 700 MHz band. The Twin
Bells' spectrum holdings below 1 GHz--``beachfront'' spectrum in bands
ideally suited for new entrants and smaller carriers seeking to expand
their coverage--are particularly extensive. The FCC estimates that
Verizon holds 45 percent of the spectrum in the two major bands below 1
GHz, while AT&T holds 39 percent of the spectrum in those bands.\5\ The
more of this spectrum the Twin Bells stockpile for themselves, the less
is available to competitive carriers. And as they continue to tighten
their stranglehold on spectrum and other key inputs--like access to
networks for roaming and interconnection, and access to cutting-edge,
interoperable devices--the wireless industry today looks more and more
like the duopoly of a generation ago.
---------------------------------------------------------------------------
\5\ 16th Mobile Wireless Competition Report 129.
---------------------------------------------------------------------------
The industry thus stands at a crossroads, with two possible paths
forward. One option would be to do nothing, and allow AT&T and Verizon
to continue swallowing their competitors, aggregating spectrum, and
thwarting access to other critical inputs. Eventually, the Twin Bells'
control over the marketplace would become so absolute, and competition
would be so severely damaged, that a return to heavy-handed, utility-
style regulation might be necessary to ensure reasonable prices and
quality service. Most policymakers would not welcome this outcome, nor
would CCA and its members. But the increasing dominance of a duopoly
will compel a regulatory response if competition is not available to
discipline prices, ensure responsive service, and deliver other
benefits to consumers.
The other path--and in CCA's view, the far better option--would be
to promote increased competition by preventing further consolidation by
the Twin Bells and adopting rules to encourage a competitive framework
and preserve access to key inputs. CCA has advanced concrete proposals
for such reforms before the FCC and Congress. In particular, and as I
will discuss in greater detail, the FCC should adopt rules to safeguard
competitive carriers' access to spectrum--both by updating the
``spectrum screen'' used to evaluate wireless acquisitions, and by
structuring spectrum auctions in a way that encourages and rewards
participation by a range of competitive carriers. The FCC should also
ensure that its rules preserve competitive carriers' access to
networks, by enforcing roaming requirements and by reaffirming
interconnection obligations. And the FCC should facilitate access to
devices by restoring interoperability and by working with the Copyright
Office to reinstate consumers' ability to unlock their handsets. Such
measures, if adopted and implemented promptly, may well be what the
industry needs to avert a true duopoly and to restore competition in
this once vibrant marketplace.
Access to Spectrum
The FCC should start by ensuring that spectrum is allocated
efficiently, and in a way that enables wireless competition to
flourish. The FCC has made clear time and again that access to spectrum
is a ``precondition to the provision of mobile wireless services'' and
is ``critical for promoting the competition that drives innovation and
investment.'' \6\ The Department of Justice (``DOJ'') echoed this
sentiment in a recent submission to the FCC, where it stated that
soaring demand for mobile broadband in recent years has ``made spectrum
a critically scarce resource'' for wireless carriers.\7\ Both agencies
also have recognized that access to low-frequency spectrum--which can
provide ``the same geographic coverage, at a lower cost, than higher-
frequency bands'' \8\--is especially important for new entrants and
smaller carriers. In this vein, DOJ has urged the FCC to adopt rules
ensuring that competitive carriers have the opportunity to acquire
spectrum, particularly in low-frequency bands--a measure DOJ says would
``improve the competitive dynamic'' in the industry and ``benefit
consumers.'' \9\ CCA agrees entirely with the DOJ's assessment, and has
proposed a slate of reforms to advance the procompetitive goals that I
know both agencies share.
---------------------------------------------------------------------------
\6\ Policies Regarding Mobile Spectrum Holdings, Notice of Proposed
Rulemaking, 27 FCC Rcd 11710 4 (2012).
\7\ Ex Parte Submission of the U.S. Dep't of Justice, WT Docket No.
12-269, at 9 (filed Apr. 11, 2013) (``DOJ Ex Parte Submission'').
\8\ 16th Mobile Wireless Competition Report 122.
\9\ DOJ Ex Parte Submission at 1.
---------------------------------------------------------------------------
In particular, CCA has urged the FCC to overhaul its ``spectrum
screen''--the tool the agency uses to identify spectrum acquisitions,
in the secondary market or at auction, which may give an entity control
over too much spectrum in a given area. For years, the screen has
played a key role in the FCC's efforts to evaluate the effects of
proposed transactions and auction design choices. But the screen, first
adopted in 2003, is a poor fit for today's marketplace. Among other
things, the current screen fails to account for important differences
between high and low frequency spectrum bands. And the screen largely
ignores competitive effects at the national level, despite the FCC's
recognition that those effects are vital in today's marketplace. The
FCC must complete the Mobile Spectrum Holdings Rulemaking, currently in
process, before the upcoming broadcast incentive auction rules can be
established.
In light of these deficiencies, CCA has proposed targeted reforms--
the FCC needs to adopt two additional screens. First, the FCC should
adopt a separate screen for low-frequency spectrum as a supplement to
the existing screen, which looks to all forms of spectrum held by an
entity in a local area. Second, the FCC should apply a nationwide
screen in addition to its analysis of local holdings. There should be a
clear and predictable mechanism for adding or removing spectrum from
the analysis. And finally, the FCC should apply a heightened level of
scrutiny for transactions exceeding any applicable screen threshold.
Such reforms not only would strengthen the screen as a tool for
evaluating spectrum transactions, but also would provide the necessary
certainty to entities contemplating spectrum acquisitions. The FCC
should adopt these reforms as soon as possible--by the end of 2013 at
the latest, and in all events before the new incentive auction for
repurposed broadcast spectrum is underway.
The upcoming incentive auction offers one of the few near-term
opportunities to allocate low-frequency spectrum for mobile broadband,
and so presents an excellent opportunity to stoke the embers of
wireless competition. As Chairman Pryor noted about the 700 MHz auction
in 2008, ``[h]istory will show that the way the FCC structured the
auction basically helped the two big wireless companies to the
detriment of competition in this country.'' \10\ With the upcoming
incentive auctions, the FCC has the authority, as recently reaffirmed
by Congress, to ``adopt and enforce rules of general applicability,
including rules concerning spectrum aggregation that promote
competition.''
---------------------------------------------------------------------------
\10\ John Eggerton, Pryor: FCC `Fouled Up' Spectrum Auction,
Broadcasting & Cable, Feb. 26, 2008, available at http://
www.broadcastingcable.com/article/112604-Pryor_FCC_Fouled_
Up_Spectrum_Auction.php.
---------------------------------------------------------------------------
CCA thus has urged the FCC to design its rules for the upcoming
incentive auction in a manner that gives carriers of all sizes a
meaningful opportunity to acquire spectrum where needed. The FCC must
adopt a spectrum auction process which ensures that all carriers have a
meaningful opportunity to participate. All carriers, including smaller
carriers, must have an opportunity to bid, win, and integrate needed
spectrum into their existing network. In particular, consistent with
last year's Spectrum Act, the FCC should adopt eligibility rules for
the auction that would prevent excessive spectrum aggregation by the
Twin Bells. CCA also supports the use of bidding credits and related
mechanisms that would promote participation by rural, mid-size, and
regional carriers. The FCC must make spectrum available in small
geographic areas, such as Cellular Market Area (CMAs), that can be used
by competitive carriers, and must not include blind and package or
combinatorial bidding practices that may prevent smaller carriers from
accessing spectrum even if licensed in small geographic sizes. These
measures will be vital to the success of the auction, and by extension
to the advancement of competition in the wireless industry. This will
also increase potential revenue from the auction by encouraging
participation from the maximum number of bidders, while also providing
carriers with much needed spectrum to compete in a data hungry market.
Additionally, policymakers should consider new ways of encouraging
full spectrum usage in rural areas. For example, the Rural Spectrum
Accessibility Act introduced last Congress by Senators Snowe and
Klobuchar would encourage carriers to partition or disaggregate
spectrum not currently being used in areas to make it available for use
by competitive carriers wishing to serve those rural markets. While
additional spectrum is needed to allow the industry to keep up with
consumers' demands, it is important for policymakers to consider all
opportunities to make full utilization of spectrum currently allocated
for mobile broadband.
A close look at current spectrum utilization is not complete
without careful consideration of the Federal government's use of
spectrum. I commend the work of those on this Committee, in Congress,
and at the FCC and NTIA who continue to ensure efficient spectrum use
by Federal users. Congress should ensure the appropriate incentives are
in place to encourage efficient Federal use and to encourage
reallocation of spectrum for mobile broadband use where necessary.
Doing so allows taxpayers the maximum usage and return for a finite,
taxpayer-owned resource. In particular, I praise the FCC's work to
clear the 1695 MHz--1710 MHz band and the 1755 MHz--1780 MHz band to
auction paired with the 2155 MHz--2180 MHz band. This allocation would
yield readily usable spectrum already in an LTE ecosystem and
internationally harmonized, encouraging investment in mobile broadband
networks and maximizing the revenue of the required auction of the 2155
MHz--2180 MHz band.
Access to Networks
Competitive carriers also need access to other providers' networks
to offer a nationwide, interconnected service to consumers. The FCC
should make it clear that the technology neutral interconnection
requirements of the 1996 Telecommunications Act to provide wholesale
connectivity to other facilities-based carriers remains intact. Most
competitive carriers lack a national footprint, so their customers must
roam on other compatible networks to receive service when outside their
provider's service area. Moreover, in order to complete calls to the
customers of other providers, carriers must be able to interconnect
with those other providers' networks. AT&T and Verizon control (or are
affiliated with) ubiquitous wireless and wireline networks, and
naturally play a dominant role in the market for voice and data
roaming, as well as in the provision of interconnection. Preserving
access to these key network-related inputs is critical to competition,
as it enables competitive carriers to provide a service of similar
scale and functionality to the service offered by AT&T and Verizon,
regardless of the type of technology used to transmit traffic.
On the roaming front, CCA and its members were pleased by the FCC's
adoption of rules requiring wireless carriers to offer data roaming on
fair and reasonable terms, and by the D.C. Circuit's decision to uphold
those rules against a challenge by Verizon. But as the FCC's latest
competition report acknowledges, ``the ability to negotiate data
roaming agreements on non-discriminatory terms and at reasonable rates
remains a concern.'' \11\ Our members have found it particularly
difficult to negotiate for roaming when they cannot discern whether the
terms and conditions offered by the Twin Bells are in line with those
offered to other carriers. The FCC must continue to address whether
roaming agreements offered in the market are fair and economically
sustainable and continue efforts to encourage access to roaming for
competitive carriers and consumers who expect their call to always go
through.
---------------------------------------------------------------------------
\11\ 16th Wireless Competition Report 210.
---------------------------------------------------------------------------
The FCC also should protect the ability of competitive carriers to
interconnect with the wireline networks of the large landline
incumbents. As the FCC said in its National Broadband Plan, ``[b]asic
interconnection regulations. . .have been a central tenet of
telecommunications regulatory policy for over a century,'' and ``[f]or
competition to thrive, the principle of interconnection. . .needs to be
maintained.'' \12\ AT&T, however, apparently does not share this view.
Its wireline affiliate recently asked the FCC to waive statutory
interconnection obligations in areas where the carrier upgrades to
Internet Protocol (or ``IP'') technology. But there is no basis to
abandon these bedrock competitive protections just because of a change
in technology. Quite the contrary--the interconnection mandates in
Section 251 are technology-neutral, as the FCC has repeatedly stated.
The FCC should reaffirm this broadly supported principle as the
industry transitions to IP, and enable competitive carriers to
interconnect with these next-generation telecommunications networks.
---------------------------------------------------------------------------
\12\ Connecting America: The National Broadband Plan, at 49 (2010),
available at http://download.broadband.gov/plan/national-broadband-
plan.pdf.
---------------------------------------------------------------------------
Access to Devices
Another critical input for competitive carriers is access to the
handsets and other devices. The FCC has recognized that ``[h]andsets
and devices are a central part of consumers' mobile wireless
experience, and a key way by which providers differentiate their
offerings.'' \13\ For years, the largest carriers used exclusivity
agreements with major device manufacturers to gain an edge over
competitive carriers. AT&T was particularly successful at securing
exclusive rights over popular handsets, most notably the iPhone. Only
after DOJ opened an investigation into handset exclusivity agreements--
with the AT&T/iPhone arrangement reportedly ``at the center'' of the
inquiry \14\--did Verizon begrudgingly allow other carriers to offer
these formerly exclusive handsets. So, more recently, the Twin Bells
have pursued other strategies to frustrate competitive carriers' access
to devices.
---------------------------------------------------------------------------
\13\ 16th Wireless Competition Report 2.
\14\ See Andrew Ross Sorkin, Justice Department Said to Weigh
Telecom Inquiry, N.Y. Times, Jul. 7, 2009, available at http://
dealbook.nytimes.com/2009/07/07/justice-deptartment-eyeing-telecom-
probe-report-says/.
---------------------------------------------------------------------------
For example, AT&T has prevented the development of interoperable
devices in the Lower 700 MHz band--that is, devices that operate in the
B Block and C Block held by AT&T, as well as in the Lower A Block held
by CCA's members. Post auction, private band plans were created that
were not contemplated or included in the band plan presented the FCC
leading up to the auction. Device interoperability is a prerequisite to
a well-functioning wireless marketplace; it encourages innovation,
gives consumers more choices, and reduces costs to end users.
Interoperability also makes roaming technologically possible; non-
interoperable devices simply cannot roam on other carriers' networks.
But AT&T's efforts to bifurcate the Lower 700 MHz band--and to force
manufacturers to develop devices that operate only on its portion of
the band--have stymied device interoperability. Without a device
ecosystem for the Lower A Block, 12 MHz of broadband-capable spectrum
has been orphaned, the nearly $2 billion dollar investment made by
CCA's members in that spectrum is in many respects stranded, and
competitive carriers must wait on the sidelines while the two largest
carriers enjoy a head start on deploying 4G LTE on 700 MHz spectrum
throughout the country. CCA has urged the FCC to address these issues
by restoring interoperability in the Lower 700 MHz band--just as has
been the practice in every other spectrum band designated for wireless
telecommunications services since the early 1980s. Thorough economic
analysis demonstrates the low costs and great rewards of
interoperability, and real world technical tests have shown no impact
on customer experience by moving to an interoperable Lower 700 MHz
band. The FCC must take action on this matter in the near future to
avoid further damage to wireless competition.
Not only will a clear pathway to 4G using 700 MHz spectrum expand
mobile services, it will also provide critical partnership
opportunities for the forthcoming First Responder Network Authority
(FirstNet) public safety broadband network. The same rural and regional
carriers that have struggled to gain access to the interoperable
devices needed to deploy 4G LTE mobile broadband networks are the
carriers that currently provide service in rural and remote areas.
Restoring interoperability and unlocking deployment in these areas
creates new opportunities for FirstNet to leverage private investment
and expand services for first responders throughout the nation--
particularly in rural areas.
The largest carriers have also tried to frustrate device access by
selling ``locked'' handsets that cannot be used once a subscriber has
changed providers. While these handsets can be ``unlocked,'' the
Copyright Office recently permitted the unlocking exemption under the
Digital Millennium Copyright Act to expire. This exemption allowed
subscribers to unlock their devices without fear of violating copyright
law. The decision was hugely unpopular with consumers, including over
100,000 of whom petitioned the White House in an effort to reinstate
the exemption. The White House responded with a sharp rebuke for the
Copyright Office's decision, explaining that ``consumers should be able
to unlock their cell phones without risking criminal or other
penalties,'' and that unlocking is ``important for ensuring we continue
to have the vibrant, competitive wireless market that delivers
innovative products and solid service to meet consumers' needs.'' \15\
FCC Chairman Genachowski likewise recognized that a ban on unlocking
``raises serious competition and innovation concerns.'' \16\ I commend
Members of Congress, including Members of this Committee, who have led
the charge for legislation to allow consumers to unlock devices, and
urge you to swiftly advance and enact such legislation.
---------------------------------------------------------------------------
\15\ White House, ``It's Time to Legalize Cell Phone Unlocking,''
Mar. 4, 2013, available at https://petitions.whitehouse.gov/petition/
make-unlocking-cell-phones-legal/1g9KhZG7.
\16\ FCC, ``Statement from FCC Chairman Julius Genachowski on the
Copyright Office of the Library of Congress Position on DMCA and
Unlocking New Cell Phones,'' Mar. 4, 2013, available at http://
transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0304/DOC-
319250A1.pdf.
---------------------------------------------------------------------------
Universal Service Fund
It should also be noted that despite years of expansion of mobile
services in rural America through access to the Universal Service Fund,
as well as consumers' clear preference for mobility, the FCC, in its
recent reform Order, dramatically reduced the amount of funding for
mobile broadband. While wireless carriers' contributions make up a
significant portion of the Fund, only a small portion is used to deploy
mobile broadband networks in rural parts of the country. As a result of
this short-sighted policy decision, your rural constituents may not
have access to the latest mobile broadband networks they desire. Future
oversight should truly modernize the Fund by supporting consumer
preferences and technologically-neutral and cost-efficient solutions.
The FCC, through its administration of the Universal Service Fund,
should not choose winners and losers among technologies and businesses.
Conclusion
In the end, policymakers have a fundamental choice to make. You can
either act now to create a competitive framework in the marketplace to
restore competition and all its benefits to the wireless industry, or
act later, once the Twin Bells have solidified their duopoly,
attempting to replicate those benefits through utility-style
regulation. I submit that the first approach is the far better one, not
just for competitive carriers, but consumers, job creation, innovation,
and economic growth as well. Prompt action to preserve access to key
inputs like spectrum, networks, and devices will allow wireless
competition to flourish, leading to more choices for consumers, lower
retail prices, better service, and greater innovation.
Thank you again for the opportunity to testify today, and I welcome
your questions.
Senator Pryor. Thank you.
Mr. Webster.
STATEMENT OF DOUG WEBSTER, VICE PRESIDENT, SERVICE PROVIDER
ROUTING, MOBILITY AND VIDEO MARKETING, CISCO SYSTEMS, INC.
Mr. Webster. Good afternoon, and thank you for the
opportunity to appear before you today. Mr. Chairman and
members of the Committee, we are in the midst of an absolute
avalanche of mobile data.
I'm here representing Cisco Systems, the world leading
networking company, which has unparalleled insight to network
data traffic. Every year, we, at Cisco, comb through the data,
looking for emerging trends, and share our forecast and
predictions through our annual Visual and Networking Index, or
VNI.
In our latest forecast, Cisco predicts that, in 2017,
mobile data in the United States will be 687 times greater than
it was in 2007. Think of that: 687 times the volume of mobile
data traffic, compared to just 6 years ago. And the growth
shows no sign of abating.
Five years from now, there will be nine times as much
mobile data traffic in the U.S. than there is today. More e-
mail, more apps, and especially more video, which, by 2017,
will represent two-thirds of all the mobile data traffic.
The question is, are we prepared for this avalanche? Can
our current network infrastructure handle the massive growth
that is coming? And the answer, of course, is no.
Imagine the Washington Beltway at rush hour. That's,
basically, the wireless networks today. Sometimes open road,
but frequently congested, especially at peak hours. Now imagine
adding 50 percent more traffic to the Beltway each year for the
next 5 years, a ninefold increase. You would get grinding
gridlock with major delays, frustration, anger, and a major
loss of productivity. Mr. Chairman, that's precisely what will
happen if Congress and the FCC don't act to address the looming
spectrum crunch.
Now, how did we get to this point? Just a few years ago,
mobile data traffic was at relatively low levels, the product
of a handful of text messages, mostly by our teenagers. Fast
forward to a few years later, however, each of us has multiple
mobile devices continuously wirelessly connected to the
Internet: smartphones, tablets, laptops, video streaming
devices, smart TVs, and gaming consoles, to name just a few.
And the devices will continue to proliferate. In just a few
years, we forecast that there will be eight devices for every
American. Not only do we send e-mail and text messages
constantly, but we're watching massive amounts of video, from
our children's first steps to entire feature-length movies on
hand-held devices.
Last week, Cisco released our latest VNI forecast, and the
hard data show there is simply no stopping the growth. We've
become attached to our mobile devices and have integrated them
into our daily lives.
So, what should policymakers do now to ensure that we have
the infrastructure and investment in place to meet this demand?
Put simply, more licensed and unlicensed spectrum must be
allocated for broadband access. To return to our Beltway
metaphor, adding spectrum will add more lanes for traffic,
widen lanes that, today, are too narrow, and create more on-
ramp/off-ramps and feeder roads to reduce bottlenecks.
Congress's authorization of voluntary incentive spectrum
auctions in 2010 was a critical first step on the licensed side
of the equation. And, on behalf of Cisco, I want to thank you
for taking that meaningful action.
Now, thanks to this committee, the FCC is setting potential
expansion of Wi-Fi in the 5 gigahertz band. The FCC is
conducting an analysis of whether additional sharing for
commercial purposes is technically feasible. We hope that this
analysis can be completed as quickly and thoroughly as possible
to help increase broadband speed and adoption. This is
increasingly important, given that approximately 50 percent of
all data moves over Wi-Fi or mobile networks, and given that
Wi-Fi helps alleviate the pressure on the licensed cellular
networks.
The bottom line is this. The mobile revolution is here.
It's changing the way we communicate, the way we analyze data,
the way healthcare, education, government, and public-safety
services are delivered, and it's creating new American jobs and
economic growth every day.
As if you need more reason to act, studies show that
doubling mobile data results in a half-a-percent increase in
the Nation's gross domestic product, growth which is necessary
now more than ever. It's imperative that we address the looming
spectrum crunch here in the United States and allow providers
to invest private dollars in network infrastructure. This will
help ensure that the United States remains at the cutting edge
and continues to be a global leader when it comes to mobile
technologies.
Thank you again for the opportunity to appear today, and I
look forward to your questions.
[The prepared statement of Mr. Webster follows:]
Prepared Statement of Doug Webster, Vice President, Service Provider
Routing, Mobility and Video Marketing, Cisco Systems, Inc.
Just a few years ago, mobile data traffic was at relatively small
levels, the product a handful of text messages, mostly by our
teenagers, some e-mail, and rudimentary web browsing. Fast forward a
few years later, however, and the mobile landscape has changed,
dramatically.
Many of us have multiple mobile devices--whether smartphones,
tablets, or laptops, not to mention the increasing number of machine-
to-machine mobile devices that work in the background of our daily
lives. Not only do we send e-mail and text messages constantly, but
we're watching large amounts of video--from short clips of our
children's first steps to entire feature-length movies to real time
video calling and video conferencing.
Taken as a whole, this change has transformed mobile traffic, with
profound implications for policy.
At Cisco--the worldwide leader in networking technology for the
Internet--we've been measuring these changes since 2006 through our
Visual Networking Index. Our forecasts have been used by government,
analysts, the media, academics, and providers to analyze the use and
growth of Internet Protocol--or IP--networks worldwide. Last week,
Cisco released its annual Visual Networking Index Forecast,
encompassing the mobile traffic forecast that we published in February
as well as a look at traffic growth for all types of IP traffic. While
the findings may seem eye-popping, if history is a guide, they may very
well be conservative. Cisco's VNI has consistently under-projected
actual traffic levels by around 10 percent.
When you look at the numbers, it is readily apparent that mobile
data has become an indispensable part of our lives, as evidenced by the
findings of the Cisco Visual Networking Index:
In 2012, U.S. mobile data traffic grew 62 percent in a
single year.
Looking forward, from 2012 to 2017, U.S. mobile data traffic
will grow nearly nine times, from 2.4 exabytes to 23.2 exabytes
annually. To get to those volumes, traffic will have to grow an
average of 56 percent each year of the five year forecast. If
the term ``exabyte'' is not familiar to you, 23.2 exabytes is
the equivalent of nearly 6 billion DVD movies transmitted
across mobile networks.
The incremental growth in mobile data traffic added to the
network in a single year from 2014 to 2015 will be larger than
all the traffic that was carried on U.S. mobile networks in
2012.
By 2017, Americans will use 1.1 billion mobile and portable
devices, all employing licensed or unlicensed radio spectrum,
and will use those devices to generate 70 percent of U.S.
Internet traffic. The Internet has gone mobile.
Four factors are driving this rapid growth of mobile traffic on the
Internet:
(1) The number of users and connections to mobile networks is
dramatically increasing. There will be 726 million mobile
connections in the U.S. in 2017, up from 439 million in
2012, nearly 2-fold growth. That device total means there
will be 2.3 devices in use for every person in the US. In
addition, to multiple devices per person, mobile broadband
will also support machine to machine connections--
connecting not just people, but things. These machine to
machine connections will be deployed into a wide variety of
sectors--from energy supporting smart home energy meters as
well as transmission and distribution networks, public
safety supporting sensor networks and mobile video imaging,
to healthcare such as home healthcare services. The number
of these M2M connections will grow 4.6-fold between 2012
and 2017, reaching 323 million. And there will be more
users. There will be 286 million mobile users in 2017, 50
million more than in 2012.
(2) The types of devices being used to connect is advancing with
the rising adoption of ever more powerful smartphones and
tablets that consume more data. We are entering the era of
smartphones, which dominate the device types that consumers
will use. A smartphone generates 28x more mobile data
traffic per month than a basic handset and by 2017,
smartphones will be 52 percent of total mobile data
traffic. The average smartphone today uses nearly 600
megabits of traffic per month. By 2017, the device
manufacturers will be selling even more powerful 4G
smartphones that we project will generate over 5 gigabits
per month. They will be smarter, faster, more fun, and
there will be many more things that consumers do with their
smartphones than we do today.
(3) Mobile data networks themselves are getting faster due to
investment and new technology--the average mobile
connection speed in the U.S. will grow 6-fold between 2012
and 2017, reaching 14.4 Mbps in 2017. While 3G connections
remain the dominant way in which most of us connect to the
mobile data networks, faster 4G networks will represent
almost one-third of mobile connections by 2017.
Significantly, that one-third of 4G connections will be
responsible for generating almost two-thirds of the mobile
data traffic.
(4) Video in many forms will represent two-thirds of all mobile
traffic by 2017. From YouTube, to video embedded in
advertisements, to viewing video programming, to video
``calls,'' the consumption of video on mobile networks is
skyrocketing. Mobile video traffic will grow 11-fold from
2012 to 2017, a compound annual growth rate of 63 percent.
That amount of video has an enormous impact on data traffic
volume, as it takes a lot of data to generate a moving,
full color, crystal clear image on a screen. In 2012, the
average user was generating 763 megabits of mobile data per
month, which meant the average user last year consumed
about 2 hours of video and made 2 video calls per month. By
2017, the average user will be consuming 6 gigabits a
month--nearly eight times the 2012 levels. To generate that
demand, we forecast that the average user will be using
about 18 hours of video and making 10 video calls per
month.
Meeting the challenges created by this massive demand requires at
least two simultaneous approaches.
One obvious policy initiative is to find more spectrum. Congress
led the way last year with adoption of HR 3630, creating for the first
time voluntary incentive auction authority that will allow the Federal
Communications Commission (FCC) to repurpose part of the television
broadcast spectrum for mobile broadband. The bill also extended the
FCC's regular auction authority and made important improvements to the
Commercial Spectrum Enhancement Act governing the transition of Federal
spectrum to commercial use. Congress now needs to ensure that the FCC
follows through on its grant of auction authority by conducting the
voluntary incentive auction for broadcast spectrum as soon as possible.
The National Telecommunications and Information Administration
(NTIA) is also continuing its efforts to identify Federal spectrum that
can be repurposed to commercial use, with particular emphasis on the
1755-1850 MHz band that, in many countries of the world, is in use for
cellular systems. Your attention to the NTIA process and progress in
its talks with industry is important.
In addition, Congress has also asked the FCC to take a look at
whether additional spectrum for Wi-Fi could be made available at 5 GHz.
This is a very important initiative because, in addition to the
exploding use of Wi-Fi, Wi-Fi networks are increasingly being used by
carriers and consumers to offload mobile traffic. Our VNI report this
year indicates the trend is increasing, as carriers will increasingly
embrace a solution to push their customers to Wi-Fi where possible to
avoid congestion on macrocell networks. By 2017, two thirds of mobile
traffic will be offloaded to small cell networks, predominantly Wi-Fi.
That compares to about half the traffic today.
We appreciate this committee's interest in, and attention to, the
profound changes now taking place in the mobile broadband industry. Our
nation is the leader in mobile broadband. The wireless revolution spurs
the construction of new high speed wireless networks. It drives the
manufacturing of chips, routers, network equipment, and mobile devices
such as smartphones, laptops, and tablets. It creates business and
consumer software, the development of app stores, and substantial
growth in electronic commerce.
Mobility has been an important driver of jobs and economic growth,
and it has the potential to generate hundreds of thousands more jobs if
the Federal government acts promptly to ensure that additional spectrum
is made available to fuel future mobile broadband growth. It's
important that the Congress understand the dynamic growth occurring in
this industry, and why public policy is critical to that growth. This
Committee provides an excellent platform for making these connections
more obvious to all.
We thank you for your attention to this highly dynamic and
important industry, which continues to be a particularly bright spot in
the Nation's economy. We invite you to access the latest Cisco data for
the U.S. and the world anytime at www.cisco.com/go/vni.
Senator Pryor. Thank you.
Mr. Nagel.
STATEMENT OF THOMAS F. NAGEL, SENIOR VICE PRESIDENT, COMCAST
CORPORATION
Mr. Nagel. Mr. Chairman, members of the Subcommittee, thank
you for the opportunity to testify today.
I've been at Comcast for over 10 years, and one of my
primary responsibilities has been the strategic development of
Comcast's wireless efforts. During that time, unlicensed
services, such as Wi-Fi, have grown from an in-home extension
of a wired broadband to a central component of the wireless
ecosystem and an important means of communication during
emergencies.
I am pleased to talk about the many benefits of Wi-Fi as
well as the policy steps needed to ensure that unlicensed
services continue to serve as a platform for innovation,
investment, and economic growth.
Comcast operates a Wi-Fi network that has expanded
elevenfold in 18 months, from 5,000 access points last year to
over 55,000 access points today. We also have partnered with
other cable operators to build one of the country's largest Wi-
Fi networks, with over 150,000 access points, and many more to
come.
Because of these efforts, our customers can use any Wi-Fi-
equipped device to enjoy, at high speed, wireless Internet
services in many locations throughout the country. Our
experience with Wi-Fi confirms the important role unlicensed
services play in the wireless ecosystem. Consumers increasingly
use Wi-Fi networks for cost-effective and robust wireless
access to the Internet, making unlicensed spectrum a key
complement to licensed wireless technologies. In fact, the CEO
of Cisco recently stated that Wi-Fi will eventually carry 80 to
90 percent of the growth of cellular networks, and various
studies confirm that unlicensed services contribute tens of
billions of dollars in economic value each and every year.
Importantly, our Wi-Fi network has also proven to be
particularly valuable during times of emergency. In the
aftermath of Hurricane Sandy and Winter Storm Nemo and the
tragic attack at the Boston Marathon, commercial mobile
wireless networks were temporarily overloaded or, at times,
down completely. In each instance, Comcast was able to open its
Wi-Fi network and provide free access to anyone with a Wi-Fi-
enabled device so that people could receive urgent information
and establish communications with loved ones. Because of the
rapid expansion of Wi-Fi-enabled devices, Wi-Fi networks like
the one we operate are invaluable. They allow consumers to
communicate and stay connected during emergencies, regardless
of their wireless carrier. In a sense, Wi-Fi has become the
interoperable communications standard for consumers.
Looking ahead, we must ensure that there is sufficient
unlicensed spectrum to meet the growing consumer demand. The
spectrum used to deliver Wi-Fi today has become severely
congested, especially in densely populated areas. The result is
significantly reduced Wi-Fi performance. If we fail to provide
more spectrum for unlicensed services, we risk falling behind
other nations that are preparing for next-generation Wi-Fi,
often called ``gigabit Wi-Fi'' because of its potential to
offer dramatically improved speeds.
To address these challenges, policymakers should begin by
removing unnecessary regulatory barriers that prevent more
efficient spectrum-sharing in the 5 gigahertz band. The current
operating rules undermine the ability to fully utilize the
spectrum to deliver robust unlicensed services and next-
generation Wi-Fi.
Congress, the administration, and the FCC already have
taken several concrete steps toward ensuring that unlicensed
services continue to thrive. In particular, Comcast commends
Congress for passing the landmark Spectrum Act of 2012, which
took significant steps toward addressing the challenges facing
both licensed and unlicensed services, including provisions
that pave the way for identifying new spectrum that unlicensed
services can share with existing users. Additionally, we
support the FCC's efforts in the recently initiated 5 gigahertz
proceeding. This proceeding will be critical to the development
of next-generation Wi-Fi. The 5 gigahertz band presents the
best chance for the FCC to advance the administration's
spectrum-sharing policies. Under the proposal set forth by the
FCC, unlicensed services will be able to share the spectrum
without causing harmful interference to existing users,
maximizing the value of spectrum for all Americans.
As Congress considers the state of the wireless ecosystem,
it must ensure that this nation has a balanced spectrum policy
that promotes both licensed and unlicensed uses of spectrum.
Unlicensed services offer enormous economic and social
benefits, and Comcast is prepared to continue to invest to help
America enjoy those benefits. We are committed to working with
Congress, the administration, the FCC, and other stakeholders
to reach solutions that will maximize the value of unlicensed
services to this Nation.
Thank you for the opportunity to testify today. I look
forward to answering your questions.
[The prepared statement of Mr. Nagel follows:]
Prepared Statement of Thomas F. Nagel, Senior Vice President,
Comcast Corporation
Mr. Chairman and Members of the Subcommittee:
Thank you for inviting me to testify today on the state of wireless
communications. I am the Senior Vice President of Business Development
and Strategy for Communications and Data Services at Comcast
Corporation (``Comcast''), where I have worked since 2002. In my
current role, I am responsible for leading the strategic development of
Comcast's wireless services.
I welcome the opportunity to discuss the enormous potential for the
continued growth of wireless services, and in particular unlicensed
services such as Wi-Fi. At Comcast, we believe unlicensed spectrum is
an essential input to technological innovation, investment, and
economic growth. Only with access to enough unlicensed spectrum will
industry be able to meet consumer demand for wireless data services. In
addition, the importance of robust, widely available unlicensed
networks has been made abundantly clear over the past 12 months, when
Wi-Fi networks played an important role in facilitating communications
in the aftermath of Hurricane Sandy, Winter Storm Nemo, and the
horrific attack at the Boston Marathon. We commend Congress, the
Administration, and the Federal Communications Commission (``FCC'') for
already taking several concrete steps toward developing solutions that
would ensure unlicensed services will continue to thrive as an
essential part of the wireless ecosystem, and we are committed to
working with policymakers to achieve these solutions. I want to
emphasize, however, that time is of the essence. Without action in the
near term, Wi-Fi networks will not have access to the spectrum they
need to provide the kind of services that consumers have come to
expect.
Comcast has been active in the wireless marketplace for many years.
We have long recognized that a robust wireless complement to our
existing broadband services would enable us to extend our network and
offer more value, more flexibility, and more options to our customers.
Over the years, we have explored a variety of approaches to effectively
integrate wireless services into our business model.
Today, I would like to discuss our innovative strategy to provide
broadband services to our customers outside the home using our Wi-Fi
network to deliver wireless services that operate over unlicensed
spectrum bands. For over a decade, our residential and business
customers have used Wi-Fi routers to extend high-speed Internet access
throughout their homes and offices. Recently, we have deployed a
network of tens of thousands of Xfinity WiFi access points throughout
many portions of our footprint, accessible for no additional charge to
qualified Comcast residential and business broadband customers via any
Wi-Fi-enabled device. And we are partnering with other cable companies
to build one of the country's largest networks of Wi-Fi access points,
which in less than two years already includes over 150,000 access
points around the country. This substantial investment allows us to
successfully extend our existing network in ways that make it more
flexible, more interoperable, and more convenient for our customers.
But it all depends on access to adequate unlicensed spectrum resources.
Our experience confirms that unlicensed technologies: (1) are a
central component of the wireless ecosystem; (2) are among the most
popular methods used by consumers to access the Internet; (3)
contribute tens of billions of dollars of value to the Nation's economy
every year; and (4) can serve as critical sources of connectivity in
times of crisis, when licensed wireless networks often cannot support
heavy traffic loads or are otherwise unavailable. Americans' demand for
data services continues to grow, regardless of whether they are at home
or on the go, and unlicensed services like Wi-Fi play a key role in
meeting that demand. Our nation's spectrum policy must reflect this
reality by taking a balanced approach that focuses not only on spectrum
for licensed services, but also on taking the necessary steps to
address the current and future challenges to the continued growth of
unlicensed services.
A core challenge is that the primary Wi-Fi spectrum band--the 2.4
GHz band--has become highly congested, especially in densely populated
urban areas, making it harder to deliver the wireless broadband
services that consumers and businesses expect. Solving this problem
requires a balanced approach whereby the FCC allocates additional
spectrum across a number of different bands for unlicensed use and
removes regulatory roadblocks that limit the efficient use of
unlicensed spectrum, such as unnecessary indoor-only restrictions,
power limitations, and other technical requirements and restrictions.
As policymakers work toward this goal, it is important to recognize
that supporting unlicensed technologies does not mean undermining
licensed technologies. Quite the opposite is true. Licensed and
unlicensed services have co-existed and complemented each other for
many years. In fact, allocating additional spectrum for unlicensed use
will substantially enhance the value of licensed wireless services by
helping to address the challenges associated with increased data
traffic on licensed mobile networks.
Congress embraced a balanced spectrum policy and took a significant
step toward addressing the challenges facing both licensed and
unlicensed wireless services when it passed the Middle Class Tax Relief
and Job Creation Act of 2012, which included several provisions that
paved the way for unlicensed services to share new spectrum bands with
existing users in a way that maximizes the efficient use of spectrum
and enhances the value of spectrum for all consumers. Comcast applauds
Congress for passing this landmark legislation. We also appreciate the
efforts of the FCC, which already has initiated multiple proceedings to
implement Congress's directives. In particular, the FCC in its 5 GHz
proceeding proposes a number of essential improvements that would
facilitate more efficient sharing of the 5 GHz spectrum band, thereby
enabling the development of the next generation of unlicensed
technologies and encouraging the deployment of robust unlicensed
services.
I. Unlicensed Spectrum Provides a Platform for Investment, Innovation,
and Economic Growth
Consumers today expect access to content and information anytime,
anywhere, and via any device, and unlicensed spectrum has been a key
catalyst to this revolution. The explosive growth of services and
devices using unlicensed spectrum, including Wi-Fi, Bluetooth, RFID,
and smart grid applications, among many others, has been remarkable.
These services have greatly benefitted consumers, created billions of
dollars of economic value, supported millions of jobs, and provided a
platform for even more innovation and investment.\1\ Wi-Fi in
particular is now an integral part of daily life and a service upon
which consumers and businesses--including mobile network operators--
increasingly rely for cost-effective and robust wireless broadband
access to the Internet. In light of the extremely positive economic and
societal effects of unlicensed services, it is no surprise that there
is widespread consensus among policymakers,\2\ industry,\3\ and other
interested parties \4\ that unlicensed services must continue to be a
component of wired and wireless broadband Internet access services.
Comcast has first-hand experience with the tremendous value these
services offer to consumers.
---------------------------------------------------------------------------
\1\ The unlicensed model reduces regulatory and economic barriers
to use of the spectrum, thereby ``encouraging a deluge of technological
and business model innovation'' and turning unlicensed spectrum ``into
the most economically productive radio spectrum in the world.'' Richard
Thanki, The Power of the Unlicensed Economy, AllThingsD, July 10, 2012,
available at http://allthingsd.com/20120710/the-power-of-the-
unlicensed-economy/ (``Thanki 2012 Paper'').
\2\ See, e.g., Presidential Memorandum: Unleashing the Wireless
Broadband Revolution (June 28, 2010) (ordering the Secretary of
Commerce to make spectrum available for, inter alia, ``shared access by
commercial and Government users in order to enable licensed or
unlicensed wireless broadband technologies to be deployed.'') (emphasis
added), available at http://www.whitehouse.gov/the-press-office/
presidential-memorandum-unleashing-wireless-broadband-revolution; Press
Release, Energy & Commerce Comm., U.S. House of Representatives,
Walden, Latta Welcome Progress on Efforts to Increase Unlicensed
Spectrum (Jan. 10, 2013), available at http://energycommerce.house.gov/
press-release/walden-latta-welcome-progress-efforts-increase
-unlicensed-spectrum; Press Release, FCC, Statement from FCC Chairman
Julius Genachowski on House Passage of Voluntary Incentive Auction
Legislation (Dec. 13, 2011) (``Unlicensed spectrum stimulates
innovation, investment, and job creation in many ways, including by
providing start-ups with quick access to a testbed for spectrum that is
used by millions, bringing new technologies to consumers in a rapid
fashion.''); Unlicensed Operation in the TV Broadcast Bands, Second
Report and Order and Memorandum Opinion and Order, 23 FCC Rcd. 16807
(2008) (Statement of Commissioner Robert McDowell) (``Robust unlicensed
use of white spaces will give nimble entrepreneurs the freedom to
disrupt the market in positive and constructive ways that will force
incumbents to keep pace with this new revolution.'').
\3\ See, e.g., Comments of Motorola Solutions, Inc., ET Docket No.
13-49, at 8 (May 28, 2013) (``There is a well-documented need for
additional wireless broadband spectrum, and unlicensed spectrum in
particular is a key driver of innovation and economic development.'');
Comments of Time Warner Cable, Inc., ET Docket No. 13-49, at 4 (May 28,
2013) (``TWC believes that a robust Wi-Fi capability provides an
important complement to its existing wireline broadband network to
enable its subscribers to access the Internet anywhere, anytime, on any
device.''); Reply Comments of Sprint Nextel Corp., WT Docket No. 12-4,
at 10 (Mar. 26, 2012) (``Wi-Fi networks that are easily--even
seamlessly--accessible by customers of wireless carriers can provide
users with advantages of higher-speed connections without wireless data
limits.''); Joint Comments of Google, Inc. & Microsoft, Inc., GN Docket
No. 12-268, at 1 (Jan. 25, 2013) (``[B]usinesses depend on access to
robust licensed services as well as access to robust unlicensed
spectrum resources. One without the other simply will not allow U.S.
businesses to meet accelerating consumer demand for wireless products
and services.'').
\4\ See, e.g., Mark Cooper, Efficiency Gains and Consumer Benefits
of Unlicensed Access to the Public Airwaves 7 (Jan. 2012), available at
www.markcooperresearch.com/SharedSpectrum
Analysis.pdf (``The unlicensed model has succeeded in supporting a
large amount of economic activity in the wireless broadband space by
bringing new and unique services to the market, increasing the value of
broadband service by extending it to additional devices, and providing
a lower cost, more efficient avenue to deliver data to consumers.'').
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A. Comcast's Xfinity WiFi Service Uses Unlicensed Spectrum to Deliver
Fast,
Reliable Wireless Broadband Access
Comcast's residential and business customers have long used Wi-Fi
routers in their homes and businesses to enhance the value of their
wired high-speed Internet service. Over the last few years, Comcast has
invested significant time, energy, and human and capital resources to
bring that experience outside the home by deploying a robust Wi-Fi
network that enables our customers to enjoy wireless Internet access on
the go. Today, Comcast makes Xfinity WiFi available in several cities
throughout the country for any consumer to access on a pay-per-use
basis, and access is included for no additional charge for qualifying
customers who have an Xfinity Internet or Comcast Business Internet
subscription.
Comcast's efforts are really only beginning. In 2012, we expanded
the Xfinity WiFi network from approximately 5,000 access points to more
than 25,000 access points. So far this year, that number has increased
to over 55,000 access points as we have ramped up the deployment of our
network, enhancing the service in existing areas and expanding into
several new regions. In fact, in the last two weeks we have expanded
the Xfinity WiFi network to include hundreds of new access points in
Chicago and Atlanta. And through our CableWiFi partnership with other
cable operators, our customers have access to over 150,000 Wi-Fi access
points throughout the country for no additional charge.\5\
---------------------------------------------------------------------------
\5\ See generally CableWiFiTM, http://
www.cablewifi.com/ (last visited May 31, 2013).
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We install these access points in a variety of locations that we
determine will best serve our customers' needs. In addition to
deploying Wi-Fi networks in retail locations, Comcast is building an
extensive outdoor network to provide wireless broadband service in
high-traffic areas, such as main street districts, commuter rail
stations, parks, and other public areas. Xfinity WiFi deployments also
serve large, high-traffic venues, such as malls, transportation
centers, and sports stadiums. For example, Comcast recently made
Xfinity WiFi available at Citizens Bank Park in Philadelphia as an
amenity for no additional fee to any guest with a Wi-Fi-enabled
device.\6\
---------------------------------------------------------------------------
\6\ Press Release, Comcast Corp., Xfinity WiFi Now at Citizens Bank
Park, (Mar. 18, 2013), http://corporate.comcast.com/comcast-voices/
xfinity-wifi-now-at-citizens-bank-park.
---------------------------------------------------------------------------
Usage of Xfinity WiFi has grown dramatically as we have expanded
its footprint. There are now more users of the Xfinity WiFi service
than ever before, and they are doing more, more often, with more
devices, for longer. Comcast now records as many Wi-Fi user sessions in
one month as it did in the first two-and-a-half years of the Xfinity
WiFi project.
B. Unlicensed Services Create Significant Value, Including to Mobile
and Fixed Broadband Services
Comcast's experience is consistent with the growing body of data
showing that unlicensed services create huge benefits both for
broadband providers and their customers, and support significant growth
in the economy as a whole.
According to a 2012 study, ``a variety of approaches all point
toward economic benefits [from unlicensed technologies] at least in the
tens of billions of dollars a year.'' \7\ Additionally, a 2009 study
that used consumer survey data to derive the incremental demand for
broadband services attributable to Wi-Fi estimated that ``Wi-Fi usage
in the home, for only the purpose of broadband extension, may be
generating anywhere between $4.3 and $12.6 billion in annual economic
value for consumers in the United States.'' \8\ And the value of in-
home Wi-Fi, hospital Wi-Fi, and RFID tags ``together may generate $16-
37 billion per year in economic value for the U.S. economy over the
next 15 years.'' \9\ By some accounts, unlicensed services contribute
upwards of $50 billion in annual economic growth.\10\
---------------------------------------------------------------------------
\7\ Paul Milgrom et al., The Case for Unlicensed Spectrum 42
(Oct. 12, 2011), available at www.stanford.edu/ jdlevin/Papers/
UnlicensedSpectrum.pdf.
\8\ Richard Thanki, The Economic Value Generated by Current and
Future Allocations of Unlicensed Spectrum, Final Report, Perspective
Associates 35 (Sept. 28, 2009), available at http://spectrumbridge.com/
Libraries/White_Space_Primer/whitespaces-microsoft-study.sflb.ashx.
\9\ Id. at 42.
\10\ See, e.g., Revision of Part 15 of the Commission's Rules to
Permit Unlicensed National Information Infrastructure (U-NII) Devices
in the 5 GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769
(2013) (Statement of Commissioner Mignon Clyburn).
---------------------------------------------------------------------------
Unlicensed spectrum also adds value as a key complement to licensed
wireless technologies, particularly as part of the solution to the
rising demand for licensed spectrum caused by increased mobile wireless
broadband traffic. According to Cisco, traffic on licensed mobile
wireless networks increased 70 percent last year, rising from 520
petabytes per month in 2011 to over 885 petabytes per month in
2012.\11\ Cisco expects that tremendous rate of annual growth to
continue for at least the next four years.\12\ Many mobile wireless
broadband providers have come to recognize that, to keep up with this
increasing level of demand, they will need to rely on unlicensed
services to carry some of the load. As Sprint has explained,''[o]ne of
the most effective methods of increasing the capacity of wireless data
systems is moving data traffic, whenever possible, from the licensed
spectrum of commercial mobile carriers to unlicensed spectrum, such as
that now used for Wi-Fi.'' \13\
---------------------------------------------------------------------------
\11\ See Cisco, Cisco Visual Networking Index: Global Mobile Data
Traffic Forecast Update, 2012-2017, at 1 (Feb. 6, 2013) (``2013 Cisco
Forecast''), http://www.cisco.com/en/US/solutions/collateral/ns341/
ns525/ns537/ns705/ns827/white_paper_c11-520862.pdf.
\12\ See id. at 3.
\13\ Comments of Sprint Nextel Corp., WT Docket No. 12-4, at 5
(Feb. 21, 2012); see also Comments of Ericsson, ET Docket No. 13-49, at
2 (May 28, 2013) (discussing importance of technologies that ``enable
mobile operators to deliver supplemental small cell or stand-alone Wi-
Fi'' using unlicensed technologies).
---------------------------------------------------------------------------
The beneficial impact on licensed wireless providers and their
customers resulting from Wi-Fi is staggering. The amount of mobile data
offloaded to Wi-Fi networks is projected to reach 21 exabytes (or 21
billion gigabytes) by 2017.\14\ One study concluded that, ``[i]n the
absence of Wi-Fi, cellular operators would need to construct up to
450,000 new radio base stations to serve increased smartphone data
traffic. This could cost $93 billion--subjecting smartphone and tablet
users to significantly higher network charges or greatly diminished
service.'' \15\
---------------------------------------------------------------------------
\14\ See 2013 Cisco Forecast at 3.
\15\ Thanki 2012 Paper (emphasis added).
---------------------------------------------------------------------------
There are also positive societal benefits associated with Wi-Fi
services that are not as easily quantified, but are readily apparent.
This was convincingly demonstrated by Comcast's experience during the
chaotic aftermath of Hurricane Sandy and Winter Storm Nemo, and after
the tragic events at the Boston Marathon. In February, I spoke about
Comcast's experience in these situations at an FCC field hearing on
network reliability. Following Sandy, mobile wireless service was
unavailable for large portions of the affected areas.\16\ In the
aftermath of the storm, Comcast made approximately 20,000 Xfinity WiFi
access points in ten hard-hit states and the District of Columbia
available to anyone who needed them to communicate with family or
friends, or otherwise to get important recovery information. Comcast
recorded more than 250,000 individual sessions during that period,
supporting tens of thousands of unique users while also adding a
special functionality to permit non-Comcast subscribers to maintain
their connection without having to refresh their credentials. Comcast
took similar steps following Winter Storm Nemo, which caused widespread
utility outages throughout New England and the eastern United States,
and during the week after that storm, we carried almost 7 terabytes of
data traffic more than we do in a normal week. Likewise, in the
immediate aftermath of the attacks at the Boston Marathon, commercial
mobile wireless networks were overloaded,\17\ but Comcast opened its
network to anyone--including non-Comcast subscribers--with a Wi-Fi-
enabled device to establish communications with loved ones, leading to
significantly increased usage of our Xfinity WiFi network in Boston and
the surrounding communities. In each instance, we opened our Wi-Fi
network in full cooperation with federal, state, and local officials as
they looked for ways to ease the burdens on affected individuals and
public safety officials.
---------------------------------------------------------------------------
\16\ See, e.g., Brendan Sasso, FCC Says Hurricane Sandy Knocked Out
25 Percent of Cell Towers in Its Path, The Hill (Oct. 30, 2012),
available at http://thehill.com/blogs/hillicon-valley/technology/
264915-fcc-hurricane-sandy-knocked-out-25-percent-of-cell-towers.
\17\ See, e.g., Chloe Albanesius, FCC Probes Post-Bombing Cell
Phone Congestion in Boston, PC Magazine (Apr. 17, 2013), available at
http://www.pcmag.com/article2/0,2817,2417891,00.asp.
---------------------------------------------------------------------------
Comcast has opened its Xfinity WiFi network during non-emergencies
as well. For example, during the 2012 Summer Olympics, Comcast offered
promotional access to thousands of indoor and outdoor access points in
the greater Philadelphia area, allowing anyone with a Wi-Fi-enabled
device to follow the Olympic programming from London.\18\ Comcast also
is currently offering, and has offered in the past, promotional access
at Xfinity WiFi access points along the New Jersey shore, enabling
consumers to conveniently surf the Web, share photos, access social
media, and stream music, TV, and movies.\19\
---------------------------------------------------------------------------
\18\ See J.T. Ramsay, Comcast Voices Blog, Comcast Celebrates Live
Streaming of the 2012 Olympics Games Through NBCOlympics.com, Offers
Free Access to Xfinity WiFi Hot Spots (Jul. 25, 2012), http://
corporate.comcast.com/comcast-voices/comcast-celebrates-live-streaming-
of-the-2012-olympic-games-through-nbcolympicscom-offers-free-acces.
\19\ See Joshua Palau, Comcast Voices Blog, Comcast Creates Lasting
Memories this Memorial Day (May 22, 2013), http://
corporate.comcast.com/comcast-voices/12542; J.T. Ramsay, Comcast Voices
Blog, Surfing at the Shore Just Got Easier (Jul. 1, 2011), http://
corporate.comcast.com/comcast-voices/surfing-at-the-shore-just-got-
easier.
---------------------------------------------------------------------------
During emergencies and non-emergencies alike, Wi-Fi networks offer
a unique opportunity for consumers to communicate and stay connected
because of the accessible nature of unlicensed spectrum and unlicensed
services. Almost every mobile device is now equipped with a Wi-Fi
radio, so almost everyone can access a Wi-Fi network, regardless of the
identity of their underlying licensed mobile carrier. Mobile wireless
providers simply cannot offer access to everyone, even if they wanted
to, because of the closed nature of their networks and the licensed
spectrum regime. In a sense, Wi-Fi has become the interoperable
communications standard for consumers.
II. Sound Spectrum Policy Must Be Designed to Encourage the Continued
Growth of Unlicensed Services by Making Additional Spectrum
Available for Unlicensed Use and by Removing Unnecessary
Regulatory Barriers
To meet the ever-increasing consumer demand and expectations for
robust Wi-Fi services, all critical stakeholders must commit to address
the remaining obstacles in a timely manner. While the benefits and
importance of unlicensed services like Wi-Fi are clear, there are
significant challenges that threaten to impair the growth and
development of such services.
Comcast has identified two primary objectives that policymakers
must achieve to overcome the barriers that stand in the way of further
growth and innovation in unlicensed services. First, the government
must ensure that access to unlicensed spectrum grows. Second, the
government must remove unnecessary regulatory barriers that impede the
efficient and intensive use of existing unlicensed spectrum resources.
We believe these are common sense, straightforward approaches that will
facilitate the continued growth and vitality of the unlicensed sector
and will return to the public significant benefits in the form of
innovation, investment, and economic growth.
A. A Shortage of Usable Spectrum Hampers the Growth of Unlicensed
Services
Comcast's experience shows that there are several pressing issues
that must be addressed to facilitate ongoing growth and innovation in
the provision of unlicensed services. Chief among these concerns is the
congestion of existing unlicensed bands. Because of this congestion,
the core unlicensed spectrum band is already heavily saturated in many
densely populated communities. Simply put, congestion in the 2.4 GHz
band will make it harder and harder for providers to deliver the kinds
and quality of service that consumers have come to expect.\20\
---------------------------------------------------------------------------
\20\ ``WiFi congestion will only accelerate as the number of
wireless devices continues to grow. Without additional spectrum,
wireless consumers are likely to experience reduced performance,
threatening the future of the wireless ecosystem.'' Dirk Grunwald &
Kenneth Baker, FCC Broadcast Incentive Auction: A Band Plan Framework
for Maximizing Spectrum Utility 11 (2013) (attached to Reply Comments
of Nat'l Cable and Telecomms. Ass'n, GN Docket No. 12-268 (Mar. 12,
2013)); see also Dynamic Spectrum Management, InterDigital 8 (Oct.
2012), available at http://www.interdigital.com/wp-content/uploads/
2012/10/InterDigital-DSM-White-Paper_Oct2012.pdf (``Wi-Fi currently
operates in the unlicensed bands 2.4 and 5.0 GHz. . . . Wi-Fi bands are
often congested, particularly in high traffic public areas.'').
---------------------------------------------------------------------------
The congestion problems in the 2.4 GHz band are well documented.
Acting Chairwoman Mignon Clyburn has pointed out that the 2.4 GHz band
is particularly congested in major cities.\21\ Former FCC Chairman
Julius Genachowski observed that ``Wi-Fi congestion is a very real and
growing problem.'' \22\ Furthermore, former Commissioner McDowell
noted, ``The spectrum that is used for unlicensed Wi-Fi is also
experiencing congestion, which will only increase in the coming years
if we do not make appropriate bands, like the 5 GHz band, more
attractive for investment and innovation.'' \23\ A paper recently
published by CableLabs detailed the spectrum shortage issues: ``[A]ny
reasonable extrapolation of known trends leads to the conclusion that
WiFi spectrum exhaust is a matter of `when,' not `if '. . . . In the
absence of new WiFi spectrum, it is likely that wireless broadband
consumers will experience reduced performance. This poses a risk to
continued growth of the wireless broadband ecosystem, a central element
of technology and economic policy in the United States.'' \24\
Essentially, there are so many devices using unlicensed spectrum in the
2.4 GHz band in certain locations that the result is significantly
reduced Wi-Fi performance.\25\ Further growth in data consumption via
unlicensed technologies simply cannot occur unless service providers
have access to more unlicensed spectrum.
---------------------------------------------------------------------------
\21\ Revision of Part 15 of the Commission's Rules to Permit
Unlicensed National Information Infrastructure (U-NII) Devices in the 5
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013)
(Statement of Commissioner Mignon Clyburn).
\22\ Revision of Part 15 of the Commission's Rules to Permit
Unlicensed National Information Infrastructure (U-NII) Devices in the 5
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013)
(Statement of Chairman Julius Genachowski).
\23\ Revision of Part 15 of the Commission's Rules to Permit
Unlicensed National Information Infrastructure (U-NII) Devices in the 5
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013)
(Statement of Commissioner Robert McDowell).
\24\ See Rob Alderfer, CableLabs, WiFi Spectrum: Exhaust Looms 5
(May 28, 2013) (included as Attachment A to Comments of Nat'l Cable &
Telecomms. Ass'n, ET Docket No. 13-49 (May 28, 2013)) (``WiFi Spectrum:
Exhaust Looms'').
\25\ See, e.g., John Cox, Wi-Fi Devices Crowd 2.4 GHz Band; IT
Looks to 5 GHz Band, Network World (Oct. 24, 2011), http://
www.networkworld.com/news/2011/102411-wifi-unbalanced-252237.html (``
`The 2.4 GHz band is congested, a symptom of the number of devices that
only operate on that band, and the limitation of its [only] three non-
overlapping channels.' '').
---------------------------------------------------------------------------
B. The FCC Must Remove Regulatory Impediments to Address the Unlicensed
Spectrum Crunch
Perhaps the most important unlicensed spectrum-related proceeding
currently underway at the FCC focuses on the 5 GHz band. The Spectrum
Act directed the FCC to launch a proceeding to modify Part 15 of the
FCC's rules to allow Unlicensed National Information Infrastructure
(``U-NII'') devices to operate in the 5.350-5.450 GHz band, and
directed the National Telecommunications and Information Administration
(``NTIA'') to begin the process of allowing more intense sharing of the
5.350-5.450 GHz and 5.850-5.925 GHz bands between incumbent users and
unlicensed services like Wi-Fi.\26\ On February 20, 2013, the FCC
issued a Notice of Proposed Rulemaking that would allow unlicensed
devices to share these bands with existing users, and, critically,
would update and improve the rules that govern the existing 5 GHz
unlicensed bands.\27\ Comcast commends Congress, NTIA, and the FCC for
taking the necessary and significant first steps toward ensuring the
availability of sufficient spectrum to encourage the continued growth,
development, and proliferation of unlicensed wireless services.
---------------------------------------------------------------------------
\26\ See Middle Class Tax Relief and Job Creation Act of 2012, Pub.
L. No 112-96, Sec. 6406, 126 Stat. 156, 231 (2012) (codified at 47
U.S.C. Sec. 1453). U-NII devices are designed to provide short-range,
high-speed wireless networking capability.
\27\ See Revision of Part 15 of the Commission's Rules to Permit
Unlicensed National Information Infrastructure (U-NII) Devices in the 5
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013) (``FCC
5 GHz Notice'').
---------------------------------------------------------------------------
As Comcast explained in our comments to the FCC, the 5 GHz band
represents a crucial resource as the FCC works to alleviate the
dramatic shortage in spectrum available for unlicensed services.\28\
The 5 GHz band is the only band available for unlicensed services that
can accommodate sufficiently wide channels to allow providers like
Comcast to take advantage of the next generation of Wi-Fi--a new
standard called 802.11ac. This standard will allow dramatically faster
broadband speeds, potentially up to or in excess of one gigabit per
second.\29\ In contrast to networks using prior standards, Wi-Fi
networks operating on the 802.11ac standard will support multiple data-
intensive uses, such as several users simultaneously streaming HD
videos, without any appreciable degradation in quality.\30\ To realize
its full potential, however, this standard requires 160 megahertz-wide
channels, far wider than channels currently available in any of the
spectrum bands used for unlicensed use.
---------------------------------------------------------------------------
\28\ See Comments of Comcast Corp., ET Docket No. 13-49 at 14-17
(May 28, 2013) (``Comcast 5 GHz Comments'').
\29\ See Cisco, 801.11ac: The Fifth Generation of Wi-Fi Technical
White Paper, 3 (Aug. 2012), available at http://www.cisco.com/en/US/
prod/collateral/wireless/ps5678/ps11983/white_
paper_c11-713103.pdf.
\30\ See id. at 4.
---------------------------------------------------------------------------
The rules that currently govern the 5 GHz band significantly
undermine investment today and prevent us from realizing the wide-band
channels we will need to support 802.11ac.\31\ Specifically, power
levels are prohibitively low in some parts of the band. Rules
unnecessarily prevent any outdoor use of a large part of the band where
there are no government incumbents. And government operations in
another part of the band result in rules that require the use of
cumbersome ``listen-before-talk'' technologies (also called Dynamic
Frequency Selection, or ``DFS''). As a result, there is only a fraction
of the current 5 GHz band that providers can use for Wi-Fi networks.
---------------------------------------------------------------------------
\31\ See WiFi Spectrum: Exhaust Looms at 21 (noting that ``the full
benefit of 802.11ac cannot be realized under the current terms of
access to 5 GHz [spectrum]'').
---------------------------------------------------------------------------
Fortunately, the FCC has proposed changes to its 5 GHz rules that
would make the band far more attractive to investment and build-out of
unlicensed services without causing harmful interference to incumbent
users.\32\ In the comments we filed with the FCC last week, Comcast
supported the FCC's proposals to: (1) harmonize the 5 GHz U-NII-1 and
U-NII-2 bands by removing an indoor-only restriction and increasing
allowable power levels in the U-NII-1 band; (2) harmonize the U-NII-3
and the new U-NII-4 bands by setting the technical rules in U-NII-4 to
match those of U-NII-3; and (3) update technical protections for
government operations in the U-NII-2 bands but not extend DFS to either
the U-NII-1 or U-NII-4 bands.\33\ Devices operating in the 5 GHz bands
would continue to be subject to the FCC's rules prohibiting U-NII
devices from creating harmful interference to existing users.
---------------------------------------------------------------------------
\32\ See FCC 5 GHz Notice para. 26-28.
\33\ See Comcast 5 GHz Comments at 21-22 (May 28, 2013) (setting
forth the five principles that the FCC should adopt as it moves forward
with the 5 GHz proceeding).
---------------------------------------------------------------------------
These proposals have received widespread support from a broad range
of interests, including both industry and public interest groups,
because they enable more effective spectrum sharing in the 5 GHz
band.\34\ As the Administration has recognized, spectrum sharing, where
technically feasible, maximizes the efficient use of spectrum and
permits the simultaneous delivery of multiple services that provide
significant public benefits.\35\ The 5 GHz band is an ideal band to
implement this approach: the changes the FCC has proposed will
facilitate significant innovation and investment in unlicensed
technologies, even while existing users may continue to use this
spectrum to develop more experimental technologies that may come to
fruition at some point in the future, such as the Dedicated Short-Range
Communications (``DSRC'') service, which enables vehicle-to-vehicle and
vehicle-to-infrastructure communications-based automotive safety
applications.\36\ Notwithstanding the recent testimony by certain
representatives of the auto industry before this Committee supporting
the continued exclusive use of this valuable spectrum,\37\ Comcast
agrees with those in the technology and auto sectors who believe that
sharing of this spectrum is possible, and that doing so would be
solidly in the public interest. We urge all relevant stakeholders to
pursue in good faith a spectrum sharing outcome for the 5 GHz band that
will serve the public interest by protecting incumbents and unleashing
a new wave of innovation and investment.
---------------------------------------------------------------------------
\34\ See, e.g., Comments of Nat'l Cable & Telecomms. Ass'n, ET
Docket No. 13-49, at 12-23 (May 28, 2013); Comments of Wireless
Internet Serv. Providers Ass'n, ET Docket No. 13-49, at 6-12 (May 28,
2013); Comments of Consumer Elecs. Ass'n, ET Docket No. 13-49, at 12-14
(May 28, 2013); Comments of Cisco Systems, Inc., ET Docket No.13-49, at
41-56 (May 28, 2013).
\35\ See Executive Office of the President, President's Council of
Advisors on Science and Technology, Report to the President: Realizing
the Full Potential of Government-Held Spectrum to Spur Economic Growth
at vi (July 2012) (``The essential element of this new Federal spectrum
architecture is that the norm for spectrum use should be sharing, not
exclusivity.'').
\36\ See generally DSRC: The Future of Safer Driving Fact Sheet,
Research & Innovative Tech. Admin., Dep't of Transp., http://
www.its.dot.gov/factsheets/dsrc_factsheet.htm (last visited May 31,
2013) (describing DSRC technology and ongoing experimental research
projects that ``may have the potential to significantly reduce'' the
frequency of dangerous accidents in the future).
\37\ See The Road Ahead: Advanced Vehicle Technology and its
Implications: Hearing Before the S. Comm. on Commerce, Sci., and
Transp., 113th Cong. 6 (2013) (statement of Mitch Bainwol, President &
CEO, Alliance of Automobile Manufacturers) (arguing that policymakers
should ``ensur[e] that the radio frequency spectrum now dedicated to V-
to-V and V-to-I--the 5.9 GHz band--remains solely dedicated to auto
communications technologies.''). Although Comcast appreciates the
important safety benefits that such applications may someday bring, we
believe that spectrum exclusivity in this band is both unreasonable and
unnecessary.
---------------------------------------------------------------------------
We look forward to working with Congress, the FCC, NTIA, and other
stakeholders to make this vision a reality as quickly as possible.
III. Conclusion
The future of wireless is bright, and Comcast is very excited to be
a part of that future. Consumer demand for wireless services--licensed
and unlicensed--continues to grow at unprecedented rates, creating new
opportunities to provide innovative technological solutions and drive
economic growth. Unlicensed wireless services in particular have proven
to be an invaluable part of the wireless ecosystem, dramatically
enhancing the value of licensed wireless and fixed broadband services.
All indications are that the trends toward heavier reliance on
unlicensed services will continue well into the future. Congress and
the FCC have made important strides by addressing the substantial
policy challenges raised by this rapid technological development.
Continued growth in this area will require more spectrum to address the
critical shortages that are already occurring in many locations around
the country. It will also require a reevaluation of the regulations
that govern unlicensed operations, especially in the 5 GHz band. The
FCC's current 5 GHz-related proceeding is a welcome development, but
there is more work to be done.
Comcast is firmly committed to engaging with Congress, the
Administration, and the FCC as they continue to evaluate our Nation's
spectrum policy and to implement solutions that will produce even
greater economic and technological growth and benefits for consumers.
Thank you for the opportunity to testify today.
Senator Pryor. Thank you.
Mr. Ford.
STATEMENT OF GEORGE S. FORD, Ph.D., CHIEF ECONOMIST, PHOENIX
CENTER FOR ADVANCED LEGAL AND ECONOMIC PUBLIC POLICY STUDIES
Mr. Ford. Thank you, Mr. Chairman, for the invitation.
The wireless industry has an institutionalized complaint
box at the FCC, so there's always a lively debate about various
issues going on. I think, by far, the most important today is
the lack of spectrum, the lack of sufficient spectrum to
satisfy the demand for data over mobile wireless networks and
Wi-Fi networks is--as well. I've written a lot about the
spectrum issue, and I'll summarize my testimony, which covers
those issues in more detail.
There are three major questions related to spectrum. One
is, how much does the industry need? And I think it's suffice
to say ``a lot.'' At 500 megahertz, which is what the FCC
recommended, that's twice what the mobile wireless industry has
today, so that's a very significant increase in spectrum. It
would be interesting to see if we can get near that number in
the next couple of decades.
The next question is given the lack of fallow spectrum,
where you're going to get it. And I think the answer there is,
after some initial low hanging fruit, you will pry it from its
present owners' hands; in some cases, from their cold, dead
hands, I suspect.
There are three ways in which we can get some spectrum. We
have secondary markets, in which the industry engages in
transactions. That doesn't necessarily increase the amount of
spectrum for wireless service, but just shifts it around into a
more efficient configuration.
There are two things the FCC could do to improve the
secondary market--at least two--which doesn't function all that
well today. One is to increase the flexibility of use of
spectrum. I think the NTIA would need to be involved with that,
as well, and that way we could move spectrum around without
constraints or limits on how it can be used, within the bounds
of reason and technology. And, second, for the FCC to quickly
approve transfers that do not have demonstrably anticompetitive
effects. In some cases, these transfers are used to fund pet
projects, right or wrong, in the form of voluntary conditions.
The other source of spectrum is government. There has been
a huge discussion of that lately. Most of the reports I've seen
on it are not promising in that regard. I think that Congress
will eventually have to be involved in that process. One recent
report by some advisors to the President said, ``We will
not''--or did not recommend ever again giving government
spectrum to the private sector through auctions. That's a
pretty bold statement, I think.
The other is the incentive auction, which is underway. It
will be interesting to see how that works out. It's a very
complicated process, with many, many constraints and
objectives. But, we do have some very smart people working on
it, so there is hope.
The major question, I think, is who gets it. There's going
to be too little, I think, spectrum to satisfy everyone, so
there's going to be a fight over who has it, who keeps it, and
who gets it. We're going to have debates over licensed and
unlicensed spectrum. I think that debate can be solved
relatively easily. Unlicensed spectrum, or low-powered devices,
can use spectrum more flexibly than can the broadband
networks--mobile broadband networks that need higher quality
spectrum under an exclusive license.
The other question is how spectrum gets distributed among
firms. We have the calls today for spectrum caps, participation
limits by AT&T and Verizon. In the upcoming auctions, of
course, people will use the government process to advantage
themselves when they can, although I do think people also
believe that there are valid reasons to do this.
In this regard, I think what I would say is, we need to
make a decision, I think, in this country, as to whether or not
we're going to use auctions, to allocate spectrum, in which the
highest bidder wins the spectrum, and that's how we do things,
which is how we do things in most markets, or we adopt a
comparative hearing approach, where the Government chooses who
gets it, in an effort to control what the industry looks like,
to control market structure, control market shares, that sort
of thing. And it's just a question of honesty, because, as an
analyst, you kind of want to know what the objective is before
you start designing rules and analyzing various policies. If we
pretend to hold auctions among preselected winners, it's--it
makes it difficult to really understand what it is that we're
doing. Making that decision is above my pay grade, but I'm just
suggesting that we have some honesty brought to the process in
that regard. The--and in that capacity, economic theory is very
important. When you introduce spectrum exhaust, which is what
everybody's talking about right now in wireless, it radically
changes the way competition works. And one of the papers--it's
summarized in my testimony--is a paper entitled ``Wireless
Competition and Spectrum Exhaust.'' And what you find when an
industry faces the exhaust of spectrum, that competition, in
the way we normally think of it, which is a headcount of firms,
is no longer a valid way to think about the industry, because
if there's a constraint on capacity, you can't increase output,
the role of competition is to increase output, so competition
is essentially made impotent in that regard. And if you include
the assumption of an economy of scale in the use of spectrum,
so that capacity rises faster than the amount of spectrum that
you get, which is an assumption that's widely accepted, you
could actually have a case where having few firms in the
industry has lower prices and better-quality services than more
firms in the industry.
That's a very important addition to the analysis, so we
can't simply think of it in the way we normally think of
competition, which is inaccurate in itself, but, in this case,
it's profoundly inaccurate.
The spectrum caps, in the past, have largely been intended
to increase the number of firms, to expand the base of
competitors, to add new people to the game. I don't think
that's going to happen. We've had people outside the industry
win spectrum. They end up going back to the industry to try to
use that spectrum--the DISH/Sprint deal, SpectrumCo selling it
to Verizon, and other cases.
Additional entry is probably unlikely in--under current
conditions, so we can't be thinking of having a fifth
nationwide provider, for example. We need to be more worried,
probably, about going from four to three, at this point, given
the financial condition of some of the wireless carriers.
So, that purpose of a spectrum cap is no longer valid, and
the spectrum cap, theoretically, has, to my knowledge, never
been contemplated as a way to shift market share among various
players. I'm probably going over--no, the clock's still
running.
The other question on spectrum caps or bidding restrictions
relates to revenue. This is a--this auction is intended to
raise a lot of revenues for specific purposes. I think the
argument that ``eliminating those with very high demands for
spectrum will increase revenue'' is not really plausible. The
theory really doesn't support it. And, in fact, the theory
that's cited to support that would say you should exclude all
incumbents from the auction, not just the major incumbents. And
history has shown that non-incumbents have pretty high demand
for spectrum, and some have made significant profits buying it
and reselling it.
There are some other issues--I know I'm probably--I don't
think that started on time, and people are looking at me
funny--there are some other issues--you know, unlocking
interoperability, those sorts of things--that are covered in my
report, if you care to read it, or if you have any questions
about those issues.
Thank you.
[The prepared statement of Mr. Ford follows:]
Prepared Statement of George S. Ford, Ph.D., Chief Economist, Phoenix
Center for Advanced Legal and Economic Public Policy Studies
Table of Contents
I. Introduction and Summary of Testimony 35
II. Overview of the State of Wireless Communications 35
III. The Problem that Won't Go Away: Spectrum Exhaust 36
IV. How Much Additional Spectrum Should be Allocated to Commercial Use? 37
V. Where Does New Spectrum Come From? 38
A. Secondary Market Transactions 38
B. Repurposing Government Spectrum 39
C. Voluntary Incentive Auctions 39
VI. Who Gets It? The Allocation of Additional Spectrum in the Mobile 40
Wireless Industry
A. Understanding Equilibrium Industry Structure 41
B. Wireless Competition Under Spectrum Exhaust 42
C. Allocating Finite Spectrum Resources 43
D. More Spectrum DOES NOT Mean More Competitors 44
E. The Department of Justice's Ex Parte Filing 46
F. Incumbent Exclusion Rules May Have a Potential Adverse Impact on 47
Auction Revenue
VII. Other Factors Impacting the Wireless Ecosystem 48
VIII. Conclusion 49
______
I. Introduction and Summary of Testimony
Chairman Pryor, Ranking Member Wicker, and members of the
Subcommittee, good afternoon and thank you for inviting me to testify
before the Committee today.
My name is Dr. George S. Ford, and I am the Chief Economist of the
Phoenix Center for Advanced Legal and Economic Public Policy Studies. I
hold a Ph.D. in Economics from Auburn University, and the economics of
the communications industry has been the focus of my career. Prior to
joining the Phoenix Center full-time, I worked at the Federal
Communications Commission as well as for several companies in the
telecommunications industry, and I also serve as an Adjunct Professor
at Samford University. I have written numerous research studies that
explore the various complex issues facing the industry, and many of
these studies were subsequently published in peer-reviewed academic
journals, books and other academic outlets. Given the rapid growth of
the wireless sector, a significant portion of my research has focused
on understanding the underlying economics of the wireless
communications industry, with a particular focus on public policy in
this critical sector of the U.S. economy.
By means of introduction, the Phoenix Center is a non-profit
501(c)(3) organization that studies broad public policy issues related
to governance, social and economic conditions, with a particular
emphasis on publishing academic-quality research about the law and
economics of regulated industries. Among other activities, the Phoenix
Center publishes a Public Policy Paper Series, a Policy Bulletin
Series, a Policy Perspectives Series, and our blog @lawandeconomics,
where we provide real-time comment on current events, as well as to
highlight market examples of the relevancy of our research. Since the
Phoenix Center's founding, we have published over 100 scholarly papers,
with over a third of these papers published in scholarly academic
journals (all of which may be downloaded free from our webpage or the
Social Science Research Network). We also sponsor Congressional
briefings, Policy Roundtables, educational retreats, as well as our
Annual U.S. Telecoms Symposium. The Phoenix Center makes it a policy
not to endorse or support any particular piece of Federal or state
legislation or proposed rule. Our primary mission is not to tell you
what to think about an issue but how to think about it. As such, our
contributions to communications policy are decidedly more analytical
than most, and we refuse to ignore the institutional realities and
economic constraints of the communications business and related
sectors.
II. Overview of the State of Wireless Communications
Across the globe the mobile communications revolution is well
underway. From advanced economies such as the U.S., to developing
economies like India, mobile telecommunications, in both voice and data
forms, is quickly becoming the communications technology of choice. In
the U.S., it took less than fifteen years for wireless telephones to
move from a thinly consumed service to effective ubiquity.\1\ At the
end of 2012, there were 326.5 million mobile wireless connections in
the United States, which translates to roughly 1.24 accounts for every
citizen ten years of age or older.\2\ My own forecast suggests there
will be about 50 million connections added to this count in the next
five years.\3\ While the demand for mobile service continues to
skyrocket, average revenue per connection remains stable, a testament
to the significant increases in industry productivity and pricing
innovation.\4\
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\1\ CTIA Semi-Annual Wireless Industry Survey, CTIA: The Wireless
Association (2012) (available at: http://www.ctia.org/advocacy/
research/index.cfm/AID/10316) (hereinafter ``CTIA Survey'').
\2\ Id. Population data provided by the U.S. Census Bureau
(available at: http://www
.census.gov/popest/national/asrh/NC-EST2009-sa.html).
\3\ Forecasts based on extrapolating a fitted Gompertz curve to the
CTIA Survey data, supra n. 1.
\4\ Industry productivity, measured crudely as connections per
employee, is rising about 10 percent per year. CTIA Survey, id.
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This rapid growth has its victims. Increasingly, the mobile phone
is displacing more traditional land-line voice services. In each
quarterly financial statement, publicly traded local telephone
companies report persistent fixed-line losses. In 2012, 39 percent of
households were wireless only, and that number is expected to grow by
10 percent this year.\5\ Mobile wireless has all but killed the
payphone industry, and the mobile platform over time will take down and
build up many other industries and industry segments. In fact, in the
not so distant future, it is expected that mobile appliances--like the
tablet computer--will replace traditional computers and even television
for many consumers, thereby impacting the laptop and television
markets. For many individuals and households, mobile broadband may be
the Internet connection of choice, particularly as new technologies are
deployed offering speeds commensurate with that of wireline
connections--but with the added bonus of mobility and near universal
availability. While mobile wireless services will likely never cover
every nook and cranny of the U.S.--there's neither a private nor public
business case for it \6\--recent statistics show that 99.9 percent of
the Nation's population and 95.3 percent of the Nation's road miles are
covered by at least one mobile wireless carrier, and 99.3 percent of
the population has access to two or more carriers.\7\ Coverage
continues to grow as new technologies and spectrum are brought to
market. Last year, the industry invested a record $30 billion in their
networks, which is $92 of capital expenditures per connection (the
equivalent of two month's revenue).
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\5\ L. Hettick, Report: Wireless Substitution, VoIP Overtake ILEC
Landline Dominance, Network World (April 19, 2013) (available at:
http://www.networkworld.com/newsletters/converg/2013/
042213convergence1.html).
\6\ See, e.g., G.S. Ford and L.J. Spiwak, Justifying the Ends:
Section 706 and the Regulation of Broadband, Phoenix Center Policy
Perspective No. 12-04 (August 13, 2011) (available at: http://
www.phoenix-center.org/perspectives/Perspective12-04Final.pdf).
\7\ In the Matter of Implementation of Section 6002(b) of the
Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis of
Competitive Market Conditions With Respect to Mobile Wireless,
Including Commercial Mobile Services, FCC 13-34, Sixteenth Report (rel.
March 21, 2013) at Table 4 (hereinafter ``Sixteenth CMRS Report'').
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In recent years, it's been trendy to be down on the state of the
U.S. communications industry, a grumbling motivated largely by the
desire to expand regulation in the sector so as to favor one industry
segment over another.\8\ Yet, even among the ``woe is me'' crowd, a
negative sentiment is hard to embrace for the mobile wireless industry.
Indeed, now-former FCC Chairman Julius Genachowski recently observed,
``the U.S. is now the envy of the world in advanced wireless networks,
devices, applications, among other areas,'' a claim based on the
following anecdotes: (a) the U.S. is the first country deploying 4G LTE
networks at scale, and in late 2012 the U.S. had as many LTE
subscribers as the rest of the world combined, making the United States
the global test bed for LTE apps and services; (b) annual investment in
U.S. wireless networks grew more than 40 percent between 2009 and 2012,
from $21 billion to $30 billion while investment in European wireless
networks has been flat since 2009 and wireless investment in Asia,
including China, is up only 4 percent during that time; (c) more than
90 percent of smartphones sold globally in 2012 run operating systems
developed by U.S. companies, up from 25 percent three years ago; (d)
the new mobile apps economy is a ``made in the U.S.A.'' phenomenon that
has created more than 500,000 U.S. jobs; and, finally (e) investments
in wireless broadband infrastructure created more than 1.6 million U.S.
jobs since 2007.\9\ The industry is performing well by almost all
meaningful standards.
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\8\ See, e.g., S. Crawford, Captive Audience: The Telecom Industry
and Monopoly Power in the New Gilded Age (Yale University Press 2013),
Chapter 8; G.S. Ford, Fabricating a Broadband Crisis? More Evidence on
the Misleading Inferences from OECD Rankings, Phoenix Center
Perspective No. 10-05 (July 7, 2010) (available at: http://www.phoenix-
center.org/perspectives/Perspective10-05Final.pdf).
\9\ Significant FCC Actions and Key Developments in the Broadband
Economy, Federal Communications Commission (March 22, 2013) (available
at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-
319728A1.pdf).
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III. The Problem that Won't Go Away: Spectrum Exhaust
The explosive growth of the U.S. wireless sector is a mixed
blessing. On the one hand, it provides an enormous economic boon to
consumers, business, and providers, but on the other hand it is
beginning to test the capacity of service providers offering such
services. Data hungry services and devices strain the existing capacity
of wireless networks, where the capacity is directly related to the
amount of spectrum available to the firms.\10\ Spectrum is an essential
input for providers of mobile wireless voice and data service. Indeed,
without spectrum, there can be no service at all. The more spectrum
that a provider has, the better are the services it can provide and the
cheaper it can do so.\11\ Unfortunately, as Americans liberally consume
data with their smartphones and tablets, the U.S. is rapidly exhausting
the capacity available from the existing supply of commercial spectrum.
Increasingly, rationing capacity through price and non-price methods is
necessary to maintain an acceptable quality of service.
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\10\ A description of the capacity limitation of mobile broadband
network is provided in Connecting America: The National Broadband Plan,
Federal Communications Commission (March 16, 2010) at Ch. 5 (available
at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296935A1.pdf)
(hereinafter the National Broadband Plan) and The Broadband
Availability Gap, OBI Technical Paper No. 1, Federal Communications
Commission (April 2010) at Ch. 4 (available at: http://
www.broadband.gov/plan/broadband-working-reports-technical-papers
.html) (hereinafter ``Broadband Availability Gap'').
\11\ T. R. Beard, G. S. Ford, L. J. Spiwak & M. Stern, A Policy
Framework for Spectrum Allocation in Mobile Communications, 63 Fed.
Comm. L.J. 639, 642 (2011) (http://www.phoenix-center.org/papers/
FCLJSpectrum.pdf).
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A looming ``spectrum crunch'' is now well established. The National
Broadband Plan concluded that the present inventory of commercial
spectrum represents ``just a fraction of the amount that will be
necessary to match growing demand,'' \12\ and proposed to make 500
Megahertz (``MHz'') of additional spectrum available by 2020 for the
provision of mobile broadband services, with ideally 300 MHz of that
spectrum being made available by 2015 specifically for mobile broadband
services,\13\ a vision which President Obama formally endorsed by
Presidential Memorandum.\14\ Without action, former Federal
Communications Commission (``FCC'') Chairman Julius Genachowski
cautioned, ``network congestion will grow, and consumer frustration
will grow with it.'' \15\ The White House is also concerned, concluding
that there is a ``spectrum crunch that will hinder future innovation.''
\16\ A recent technical study comparing the capabilities of 4G LTE
wireless technology to meet the rapidly growing demand for mobile data
concluded that ``without significantly increased allocations of
spectrum, wireless capacity expansion will be wholly inadequate to
accommodate expected demand growth.'' \17\ Allocating more spectrum to
advanced mobile services is widely viewed as a sensible, if not a
necessary, public policy.\18\
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\12\ National Broadband Plan, supra n. 10 at 1, 10.
\13\ Id. at 26.
\14\ See Remarks by Lawrence H. Summers, Technical Opportunities,
Job Creation and Economic Growth (June 28, 2010) (available at: http://
www.whitehouse.gov/administration/
eop/nec/speeches/technological-opportunities-job-creation-economic-
growth).
\15\ Prepared Remarks of Chairman Julius Genachowski, Federal
Communications Commission, 2011 International Consumer Electronics
Show, Las Vegas, NV (January 7, 2011) (available at http://
hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-303984A1.pdf).
\16\ President Obama Details Plan to Win the Future through
Expanded Wireless Access, office of the press secretary, the white
house (February 10, 2011) (available at: http://www.whitehouse.gov/the-
press-office/2011
/02/10/president-obama-details-plan-win-future-through-expanded-
wireless-access).
\17\ R.N. Clarke, Expanding Mobile Wireless Capacity: The
Challenges Presented by Technology and Economics (January 4, 2013)
(available at: http://ssrn.com/abstract=2197416 or http://dx.doi.org/
10.2139/ssrn.2197416).
\18\ Of course, without additional spectrum, higher prices can be
used to ration the limited capacity, but many view this outcome as
least desirable.
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However, merely stating that more spectrum is to be allocated to
commercial mobile services leaves some highly relevant details
unresolved. There are (at least) three high-level questions that must
be answered when increasing spectrum availability. They are:
1. How much additional spectrum is to be allocated to the commercial
sector?
2. Where does this spectrum come from?
3. Who gets it?
As I see it, the latter two questions will be the most significant
policy issues facing wireless communications in the next decade. In the
following sections of my testimony, I will address each of these
important questions. Of course, I will continue to study these issues
in the future, and I would be happy to share my findings with you in
this or some other forum.
IV. How Much Additional Spectrum Should be Allocated to Commercial Use?
How much additional spectrum does the commercial sector need? The
simple answer is ``a lot.'' The mobile wireless industry today runs on
about 500 MHz of spectrum.\19\ As already stated, the FCC's National
Broadband Plan recommended the allocation of an additional 500 MHz for
commercial wireless broadband services, with 300 MHz of that going
specifically to mobile wireless services. The mobile wireless industry
asked for 800 MHz, and a recent study sets the figure at nearly 1,064
MHz.\20\ These are very large numbers, and as discussed next, the
``where will it come from'' question is likely to be a binding
constraint on how much, in the end, gets reallocated to commercial use.
``As much as is possible'' is likely the best answer to the first
question, and this amount is likely to be too little. Thus, the
solution to spectrum exhaust will require both additional spectrum,
significant technological advancement in the use of spectrum, and
informed public policy.\21\
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\19\ FCC Staff Technical Paper, Mobile Broadband: The Benefits of
Additional Spectrum (Oct. 2010) at 15 (hereinafter ``FCC Technical
Paper'') (available at http://download.broadband.gov/plan/fcc-staff-
technicalpaper-mobile-broadband-benefits-of-additional-spectrum.pdf)
(``547 MHz, in total, is currently licensed under flexible use rules,
which allows for mobile broadband and voice services.'')
\20\ R.J. Shapiro, The Economic Implications of Restricting
Spectrum Purchases, Center for Business & Public Policy, Georgetown
University (April 2013) at Table 3 (available at: http://www.gcbpp.org/
files/Academic_Papers/EconImplicationsSpectrumAuctions.pdf).
\21\ Of course, the definition of ``commercial use'' lies in the
beholder, and difficult policy choices must also be made on how to
balance new spectrum allocations between licensed and unlicensed use by
low power devices. Both licensed and unlicensed spectrum create value;
as such, providing spectrum for both uses is a good policy. The FCC is
already looking at expanding unlicensed use in the 5 GHz band, and low
power devices may be permissible in the duplex gap of the broadcast
spectrum band plan. Low power devices are also well suited for spectrum
sharing, which is a spectrum management approach we may see more of in
the future. However, it is the services provided over exclusively
licensed spectrum--that is, the mobile broadband services supported by
billions in infrastructure investment--where spectrum exhaust is most
problematic.
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V. Where Does New Spectrum Come From?
As for where the spectrum will come from the answer is obvious--it
will be pried from the hands of those that already have it. The
National Broadband Plan identified very little spectrum that is
presently ``fallow'' and could be auctioned without much resistance, so
satisfying the commercial mobile wireless industry's need for
additional spectrum will necessarily require a repurposing and
reallocation of already licensed spectrum. There are three potential
sources for additional commercial spectrum.
A. Secondary Market Transactions
One obvious source for additional spectrum lies in the secondary
market for spectrum. At present, this market is not well functioning,
but a number of recent transactions show that there are signs of life.
Secondary market transactions can be beneficial in two ways. First,
it can shift the spectrum already assigned to commercial wireless
services into more efficient configurations. That is, the total amount
of spectrum does not increase, but is merely reallocated among carriers
in a manner that permits an expansion of capacity.
Second, secondary market transactions can move spectrum assigned to
some other purpose into the commercial wireless space. For example, the
FCC recently permitted mobile satellite spectrum to be used for
terrestrial mobile broadband service. The broadcast television
incentive auctions also fall into this category.
There are a few reasons why the secondary market has been slow to
develop. One factor is the limited flexibility some licensee's face in
how their spectrum can be used. Greater flexibility in licenses will
help the market develop, and the FCC and NTIA should be actively
pursuing ways to increase flexibility.
Another hindrance to the development of a secondary market is that
the regulatory approval process for is, in most cases, far from
streamlined, as the government, the applicants' competitors, and
political interests groups regularly use the regulatory process to
garner concessions that they would not otherwise be able to obtain in
the normal course of business.\22\ The use of ``voluntary conditions''
by the FCC in mergers and other transactions greatly diminishes the
effectiveness of the secondary market to address spectrum exhaust.
---------------------------------------------------------------------------
\22\ See T. Koutsky and L. Spiwak, Separating Politics from Policy
in FCC Merger Reviews: A Basic Legal Primer of The ``Public Interest''
Standard, 18 CommLaw Conspectus 329 (2010) (available at: http://
www.phoenix-center.org/papers/CommLawConspectusMergerStandard.pdf).
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On this point, I would like to call your attention to a recent
Policy Paper of the Phoenix Center's entitled Taxation by Condition:
Spectrum Repurposing at the FCC and the Prolonging of Spectrum
Exhaust.\23\ In this paper, my co-authors and I modeled the
implications of the FCC's regulatory process wherein the agency applies
value-extracting mandatory and voluntary conditions on parties to a
spectrum exchange. These conditions operate much like a tax on
secondary market transactions, and in that light the implications of
the regulatory process are apparent. When you tax something: (1) you
get less of it; and (2) you will affect what types of transactions you
get. On the first point, basic economic logic tells us that taxes
reduce the incentive to make transactions. ``Taxing'' efforts to move
spectrum to higher-valued uses is a particular bad policy when facing a
spectrum shortage. On the second point, the conditioning of spectrum
repurposings can affect the evolution of and efficient functioning of a
secondary market for commercial spectrum. That is, we may still observe
many deals, but these deals will be those that attract less attention
and thus fewer conditions. As such, ``taxation by condition'' may
discourage the larger scale transactions necessary to resolve spectrum
exhaust.
---------------------------------------------------------------------------
\23\ T.R. Beard, G. Ford, L. Spiwak, and M. Stern, Taxation by
Condition: Spectrum Repurposing at the FCC and the Prolonging of
Spectrum Exhaust, Phoenix Center Policy Paper No. 44 (September 2012)
(available at: http://www.phoenix-center.org/pcpp
/PCPP44Final.pdf).
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The policy implication of our analysis is clear: If the FCC wants
to encourage a secondary market, then ``taxing'' efforts to repurpose
spectrum in the form of license conditions is perhaps the worst of all
policies. Instead, barring legitimate competitive or interference
concerns, efforts to repurpose spectrum from low-to high-value uses
should be expeditiously approved without extraneous conditions.
B. Repurposing Government Spectrum
One of the largest untapped sources of potential new spectrum lies
with various Federal agencies which hold exclusive or primarily
licenses for about half (1,687 MHz) of the ``beachfront'' spectrum
between 225 MHz and 3.7 GHz.\24\ While Federal agencies use spectrum in
the performance of their duties, it is acknowledged, both in the U.S.
and elsewhere, that public-sector users have no incentive to use their
spectrum allocation efficiently.\25\ Inefficient use implies that the
government has more spectrum than it really needs, so Federal holdings
are a likely source for additional spectrum for the private sector.
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\24\ Report to the President: Realizing the Full Potential of
Government-Held Spectrum to Spur Economic Growth, Executive Office of
the President--President's Council of Advisors on Science and
Technology (July 2012) (hereinafter ``PCAST Report'') at p. 8
(available at: http://www.whitehouse.gov/sites/default/files/
microsites/ostp/pcast_spectrum_report_final_
july_20_2012.pdf); see also A. Pai, Too Much Government, Too Little
Spectrum, Member Diary, RedState (January 3, 2013) (available at:
http://www.redstate.com/ajitpai/2013/01/03/too-much-government-too-
little-spectrum); J. Gruenwald, Wireless Industry Already Looking Ahead
for More Spectrum, National Journal, Technology (February 29, 2012)
(available at: http://www.nationaljournal.com/tech/wireless-industry-
already-looking-ahead-for-more-spectrum-20120229) (quoting Charla Rath,
Vice President Wireless Policy, Verizon: '' We need to be thinking
about how we get a continuous supply of spectrum out there for
commercial mobile wireless. . . . And, frankly, one of the key places
to look is government spectrum . . .'').
\25\ PCAST Report, id. at p. 49.
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However, I expect significant internal resistance within the
government to transfer its spectrum to commercial users (we've already
seen it), and I predict that Congress will eventually have to get
involved.\26\ Why? First, recent reports from the government do not
offer much hope for significant reallocations of spectrum any time
soon.\27\ In fact, one recent government report rejects the whole idea
of reallocating Federal spectrum to the private sector.\28\ Second,
while many think of the present focus on government spectrum is a new
issue, reallocating government spectrum to the private sector and
improving the efficiency of government spectrum use and management is
in fact a very old topic. A report by the NTIA released over two-
decades ago outlines what remains to be the state-of-the-art thinking
on spectrum policy reform with regard to public-sector use. Yet,
essentially nothing has been done to implement the ideas. Changing a
Federal license to a commercial license sets up to be a highly
adversarial process, and I suspect Congress will end up in the role of
final arbiter.
---------------------------------------------------------------------------
\26\ Id.
\27\ Plan and Timetable to Make Available 500 Megahertz of Spectrum
for Wireless Broadband, U.S. Department of Commerce--National
Telecommunications and Information Administration (October 10, 2010)
(available at: http://www.ntia.doc.gov/files/ntia/publications/
tenyearplan
_11152010.pdf); An Assessment of the Near-Term Viability of
Accommodating Wireless Broadband Systems in the 1675-1710 MHz, 1755-
1780 MHz, 3500-3650 MHz, and 4200-4220 MHz, 4380-4400 MHz Bands, U.S.
Department of Commerce--National Telecommunications and Information
Administration (October 10, 2010) (available at: http://
www.ntia.doc.gov/files/ntia/
publications/fasttrackevaluation_11152010.pdf).
\28\ PCAST Report, supra n. 24.
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C. Voluntary Incentive Auctions
A promising mechanism for producing additional spectrum lies in
voluntary incentive auctions, such as the one mandated by the Middle
Class Tax Relief and Job Creation Act of 2012 (``Spectrum Act''). The
present hope is that a large swath of broadcast television spectrum
(upwards of 120 MHz) can be reallocated to mobile broadband services
using the voluntary incentive auction, but whether a successful auction
can be designed and implemented remains an open question. The
objectives and constraints on the problem are mind boggling, and
additional objectives and constraints are being proposed every day.
There are some profoundly intelligent people working on it, so perhaps
we can hope for the best without being labeled too optimistic.
VI. Who Gets It? The Allocation of Additional Spectrum in the Mobile
Wireless Industry
According to the most recent FCC report on competition in the
mobile wireless industry, the industry has four nationwide providers
and an HHI of about 2,873.\29\ In addition to these four nationwide
providers, there are a number of regional providers serving certain
markets and successful at doing so. By Merger Guideline's standards,
the industry is classified as ``highly concentrated'' since its HHI
exceeds the 2,500 threshold for such classification. This ``highly
concentrated'' label draws heightened regulatory, antitrust and
Congressional scrutiny.
---------------------------------------------------------------------------
\29\ Sixteenth CMRS Report, supra n. 4 at Table 14. Other sources
suggest this value may be a little high, but it has the virtue of being
``official'' in some sense. See, e.g., id., at Table 68.
---------------------------------------------------------------------------
The data also show that AT&T and Verizon are the Nation's most
successful mobile wireless firms, with each attracting the patronage of
about one-third of wireless subscriptions, and about the same share of
industry revenues. While the higher market shares of these two firms
are simply manifestations of consumer choice, the persistent and
growing relative success of the two has led some to call for policies
to handicap the two larger providers in an effort to better equalize
market shares among wireless providers.
Efforts to handicap the larger providers continued success and to
favor the smaller providers are particularly common in current
discussions about spectrum allocation. In fact, the ``who gets it''
question is largely about whether the FCC should allow AT&T and Verizon
to get more spectrum. The monopolization narrative--that is, the fear
that giving the larger providers more spectrum will eventually produce
substantial market power--is now boilerplate in secondary market
transactions involving AT&T and Verizon and in establishing rules for
spectrum auctions.
In fact, when Congress was debating the voluntary incentive auction
provisions of the Middle Class Tax Relief and Jobs Creation Act, many
argued--including FCC outgoing Chairman Julius Genachowski \30\--that
the Commission should have the authority to adopt auction participation
rules so that it could prevent an ``excessive concentration of
licenses'' under Section 309(j)(3)(B) of the Communications Act to
prevent the two largest CMRS providers--namely AT&T and Verizon--from
participating in the auction. Congress rejected the idea, but did
provide that ``Nothing . . . affects any authority the Commission has
to adopt and enforce rules of general applicability, including rules
concerning spectrum aggregation that promote competition.'' Given these
Congressional parameters, the FCC has subsequently issued a Notice of
Proposed Rulemaking to modify and tighten its spectrum screen, a policy
change that could create de facto spectrum caps and exclude the largest
CMRS players from the broadcast spectrum incentive auctions.\31\ A
number of constituencies and the smaller competitors of the large firms
filed comments in the incentive auction docket for the Commission to
establish outright bright-line spectrum cap rules.\32\ So did the
United States Department of Justice, as I will discuss in more detail
in a moment.\33\
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\30\ See, e.g., Remarks of FCC Chairman Julius Genachowski 2012
Consumer Electronics Show Las Vegas (January 11, 2012) (available at:
http://hraunfoss.fcc.gov/edocs_ public/attachmatch/DOC-311974A1.pdf).
\31\ In the Matter of Policies Regarding Mobile Spectrum Holdings,
FCC 12-119, 27 FCC Rcd 11710, Notice of Proposed Rulemaking (rel.
September 28, 2012).
\32\ See, e.g., R. Krause, AT&T, Verizon Invite to TV Airwaves
Auction Likely, Investor's Business Daily (March 20, 2013) (available
at: http://news.investors.com/technology/032013
-648699-tmobile-sprint-seek-spectrum-limits-verizon-atandt.htm).
Significantly, however, a coalition of broadcasters do not support
incumbent exclusion rules. See, e.g., Reply Comments of The Expanding
Opportunities For Broadcasters Coalition, FCC Docket No. 12-268 (March
10, 2013) (available at: http://apps.fcc.gov/ecfs/document/
view?id=7022129556).
\33\ In the Matter of Policies Regarding Mobile Spectrum Holdings,
Ex Parte Submission of the United States Department of Justice, WT
Docket No. 12-269 (April 22, 2013) (available at: http://apps.fcc.gov/
ecfs/document/view?id=7022269624) (hereinafter ``DOJ Ex Parte''). It
should be noted that senior DOJ officials conceded under oath before
the Senate Judiciary Committee that the Department made their filing
after close and ``quiet[]'' cooperation with the Commission. See L.
Spiwak, It's Time for FCC/DOJ Inter-Agency Cooperation to Come into the
Sunlight, @lawandeconomics (May 2, 2013) (available at: http://phoenix-
center.org/blog/archives/1356).
---------------------------------------------------------------------------
The argument for limiting AT&T and Verizon's access to additional
spectrum is simply an argument for spectrum caps, whether formal or
informal. The argument for spectrum caps is plain enough: spectrum caps
can be used to increase the number of wireless competitors by limiting
how much spectrum any one firm can hold license to.\34\ The idea has
also been extended to using spectrum caps to more evenly distribute
market share among established players, but I am unaware of any
economic model or paper that supports this justification for a spectrum
cap.
---------------------------------------------------------------------------
\34\ As stated by Greg Rosston, former FCC Deputy Chief Economist
and, more recently, Senior Economist for Transitions at the FCC: ``. .
. the FCC has tools to make facilities-based competition more likely
and more viable. First and foremost, the FCC should get even more
spectrum out into the marketplace. And it is probably important that
the spectrum not continue to go into the hands of the two incumbent
landline telephone companies that also have by far the most valuable
wireless spectrum.'' Testimony of Gregory L. Rosston, Federal
Communications Commission En Banc Hearing on Broadband Network
Management Practices (April 17, 2008) (available at: http://
transition.fcc.gov/broadband_network_management/041708/rosston.pdf).
---------------------------------------------------------------------------
The problem with the unqualified support for spectrum caps is that
the blind acceptance of the idea rest on a number of questionable
assumptions, including: (1) the number of firms serving the wireless
industry is determined solely by spectrum holdings; (2) the success of
firms is determined solely by spectrum holdings; and (3) more equal
markets shares across firms is good for consumers. None of these
assumptions is sound or useful for policy. Spectrum is but one input
into the production of wireless services--giving a firm spectrum does
not ensure its market or financial success (as we have seen,
repeatedly). In addition, the support of a spectrum cap assumes that
having more firms, or more equal market shares, is always better than
having few firms. Economic theory does not support this idea
generally.\35\ Also, my research shows that the argument for spectrum
caps is much weaker when the existing institutional details of the
wireless sector (spectrum exhaust) are considered. I will attempt to
summarize that research here.
---------------------------------------------------------------------------
\35\ See, e.g., P. Cramton, E. Kwerel, G. Rosston, and A.
Skrzypacz, Using Spectrum Auctions to Enhance Competition in Wireless
Services, 54 Journal of Law & Economics S167-S188 (2011), at p. S174.
---------------------------------------------------------------------------
A. Understanding Equilibrium Industry Structure
As a first step, we must recognize that the number of firms
supplying a market is finite and determined by economic forces, not
wishful thinking. Building and maintaining a mobile wireless network,
and building and maintaining a mobile wireless customer base for that
matter, requires billions in capital expenditures. A carrier must
secure from its customers sufficient revenues to pay operating expenses
and support its large fixed costs. As the number of competitors grows,
prices fall and each carrier's customer base shrinks, reducing profits.
At some point, there are simply too many competitors, and the losses
lead to the exit of one or more firms. This exit of firms will continue
until the remaining firms are profitable--then exit stops. Or, if the
number of competitors is such that the profits are large enough to
support an additional firm, then entry occurs, driving down prices and
profits until further entry is no longer profitable--then entry stops.
Eventually, when profits are positive but not too large to support
another firm, both entry and exit stop. When it does, we have what we
economists refer to as an equilibrium industry structure, a concept
explained for policymakers in a Phoenix Center paper published in the
Federal Communications Law Journal entitled Competition After
Unbundling: Entry, Industry Structure and Convergence.\36\
---------------------------------------------------------------------------
\36\ G. Ford, T. Koutsky and L. Spiwak, Competition After
Unbundling: Entry, Industry Structure and Convergence, 59 Federal
Communications Law Journal 331 (2007) (available at: http://
www.phoenix-center.org/papers/FCLJCompetitionAfterUnbundling.pdf).
---------------------------------------------------------------------------
In that paper, my co-authors and I observe that the equilibrium
number of firms in any market will be determined by the intensity of
price competition (which reflects the behavior of firms and not the
count of firms), the size of the market, and the amount of fixed and
sunk costs necessary to participate in the market. Large markets, other
things constant, support more firms than do small markets. Markets with
high fixed and sunk costs support fewer firms than do markets with low
fixed and sunk costs, other things constant. Markets with aggressive
price competition support fewer firms than markets with soft price
competition, since lower prices mean lower profits and a diminished
ability to incur the necessary capital expenditures.
Mobile wireless networks are capital intensive, and history has
shown that the supply-side characteristics of the market greatly limit
the number of firms that can profitably serve the market. There will
always be relatively few nationwide mobile wireless carriers. This is
the reality we must deal with.
The effect of the intensity of price competition on industry
structure (i.e., the number of firms in this case) is exceedingly
relevant for public policy as it flies in the face of the typical
thinking on competition. The old thinking is that the number of
competitors determines the degree of competition and thus prices and
profits. Modern economic theory recognizes that the intensity of price
competition affects the number of competitors, implying a feedback loop
between structure and performance. Thus, in an industry such as
telecommunications that requires firms to invest huge sunk and fixed
costs, high industry concentration may actually be a symptom of intense
price competition rather than a bellwether of weak competition.
Similarly, many competitors may be a symptom of collusion, rather than
competition. It's an admittedly different way to think about industry
structure and competition, but nevertheless a modern and legitimate
one, and the National Broadband Plan admits as much.\37\
---------------------------------------------------------------------------
\37\ National Broadband Plan, supra n. 10.
---------------------------------------------------------------------------
What's most important about the concept of equilibrium industry
structure for the policy debate is that the number of competitors in
the mobile wireless market alone says nothing about the state of
competition or the performance of the industry. In some cases, the FCC
recognizes this fact (in others, not so much). For example, the FCC
observed in its Sixteenth CMRS Report,
High market concentration is not synonymous with a non-
competitive market or with market power--the ability to charge
prices above the competitive level for a sustained period of
time.\38\
---------------------------------------------------------------------------
\38\ Sixteenth Report, supra n. 7 at 61.
---------------------------------------------------------------------------
And, in the National Broadband Plan,
Building broadband networks--especially wireline--requires
large fixed and sunk investments. Consequently, the industry
will probably always have a relatively small number of
facilities-based competitors, at least for wireline service. .
. . The lack of a large number of wireline, facilities-based
providers does not necessarily mean competition among broadband
providers is inadequate. While older economic models of
competition emphasized the danger of tacit collusion with a
small number of rivals, economists today recognize that
coordination is possible but not inevitable under such
circumstances. Moreover, modern analyses find that markets with
a small number of participants can perform competitively . . .
\39\
---------------------------------------------------------------------------
\39\ National Broadband Plan, supra n. 10 at p. 36.
Put simply, the Commission has concluded that ``concentration''
bears no direct relationship with ``competition.'' This conclusion is
profoundly significant and absolutely legitimate. This recognition is a
huge leap forward in the agency's thinking on competition, and an idea
that needs to incorporated into everyone's economic model of the
industry. Given the costs of building networks, the industry is likely
to be somewhat ``concentrated'' for the foreseeable future, but this
does not imply a lack of competition or that regulation of the industry
has anything to offer consumers, even in the absence of spectrum
exhaust. Spectrum exhaust, however, adds an interesting (and
unfortunately largely ignored) wrinkle to competition policy. Let me
explain.
B. Wireless Competition Under Spectrum Exhaust
Despite acknowledging that spectrum exhaust is a real problem, it
is readily apparent that neither the FCC nor the DOJ have incorporated
spectrum exhaust into their thinking on competition and spectrum
policy. In a recent paper also published in the Federal Communications
Law Journal--Wireless Competition Under Spectrum Exhaust--my co-authors
and I describe how competition works when firms compete under a
capacity constraint.\40\ The result is indeed peculiar and in some ways
counterintuitive, but the result is no less valid for being so.
---------------------------------------------------------------------------
\40\ T.R. Beard, G. Ford, L. Spiwak and M. Stern, Wireless
Competition Under Spectrum Exhaust, 65 Federal Communications Law
Journal 79 (2012) (available at: http://www.phoenix-center.org/
FCLJSpectrumExhaust.pdf).
---------------------------------------------------------------------------
Our analysis of competition under spectrum exhaust is
straightforward and based on common and uncontroversial assumptions
about the industry. First, to sync up with common thought, we assume
that price and profits fall as the number of competitors increases
(that is, we adopt the Cournot Model of Competition).\41\ Second, we
assume that there is a type of scale economy in spectrum. The DOJ
explicitly accepts this technical assumption, recently stating ``twice
the spectrum may under certain conditions provide over twice the amount
of capacity.'' \42\ I have provided a figure below (Figure 1) that
illustrates the results in a straightforward manner. In the figure, the
equilibrium price (P*) is on the vertical axis and the number of firms
(n) is on the horizontal axis.
---------------------------------------------------------------------------
\41\ More formally, we assume Cournot Competition in Quantities.
\42\ DOJ Ex Parte, supra n. 33 at p. 15.
---------------------------------------------------------------------------
Let's start with the simple case where there is no spectrum
constraint so that we have some type of benchmark for comparison
purposes. Without a spectrum constraint, the equilibrium price (P*)
falls as n (the number of firms) increases (along segment XYZ). This is
the standard result from a common model of competition--price falls as
the number of firms increases.
Now, let's impose a binding spectrum constraint such that all
capacity is used up. In other words, as much service as can be sold is
sold. Significantly, once quantity is stuck at the constraint, price is
stuck as well. Each quantity has a unique price associated with it per
the demand curve. However, under the technical assumption about
spectrum and capacity, we can get quantity unstuck by reallocating the
fixed amount of spectrum to fewer firms, expanding output by taking
advantage of the scale effect. Doing so increases capacity and thus
output, and therefore lowers price. In the figure, the line segment
labeled XYW illustrates the equilibrium price when the capacity
constraint is binding. At the chosen parameter values (an arbitrary
choice), the capacity constraint is binding at n = 2 (point Y). Thus,
price falls as the number of firms increases from monopoly to duopoly,
but then price rises (along segment YW) when the number of firms
exceeds duopoly and the constraint is binding. So, while the standard
framework holds that prices are lower with six firms than with two
firms, under a spectrum constraint this need not be true. Indeed, in
the figure, the six-firm outcome is essentially the same as the
monopoly outcome.
Obviously, this result is significant, because when there is a
spectrum constraint, the number of competitors and price begin to move
in the same direction. That is, reducing the number of competitors
leads to lower prices. Stated another way, in the fact of spectrum
exhaust, fewer competitors is good for consumers! This result seems
odd, I know, but it follows from two largely uncontroversial
assumptions, and merely reflects the intuition that if a finite amount
spectrum is more efficiently allocated, it can be used to create more
capacity.
While I don't mean to suggest that this model is the only way to
think about competition in the industry, I think most would agree that
these results are very important for public policy. At a minimum, the
simplistic arguments about prices and industry concentration must be
abandoned in favor of a more nuanced economic model of competition. Few
have done so--yet. Here's how you do it. If you find yourself thinking
that prices would be lower and quality higher if there were more
competitors (or a lower HHI) in the mobile wireless industry, or if
someone is telling you that, then stop and recognize that there is very
little to support this view and that the exact opposite may actually be
true.
C. Allocating Finite Spectrum Resources
Another way to think about allocating a finite amount of spectrum
among firms is to make the uncontroversial assumption that mobile
wireless firms can offer higher quality and more innovative services if
they have more spectrum to work with. We can think of the issue using a
simple scenario. Say you have a fixed supply of spectrum--500 MHz--and
you wish to allocate it. You could, theoretically, divide the spectrum
among 500 firms, giving each 1 MHz, thereby having a large number of
competitors (and thus low prices under the typical assumption about
prices and the number of competitors). Of course, the firms could not
do much if anything with so little spectrum, and even if they could all
500 would not survive financially given the large capital expenses
required to build a network over which services are provided. I think
everyone would agree this allocation choice would not be wise. At the
other extreme, you could give all 500 MHz to a single firm. By doing
so, the firm could offer some highly advanced services, but it would do
so at monopoly prices. I don't like this option any better than the
other one. The policy question is, therefore, how to divide the
spectrum up in the intermediate range between these two extremes.\43\
---------------------------------------------------------------------------
\43\ One approach is to give spectrum to many firms, and then let
them consolidate to the equilibrium. This approach is pretty much what
has happened in the United States; it's just that people are getting a
little uncomfortable with how far the process has gone.
---------------------------------------------------------------------------
Last year, I published another paper in Federal Communications Law
Journal--A Policy Framework for Spectrum Allocation in Mobile
Communications--that addressed this very issue.\44\ Again, there are
two key assumptions driving the analysis. First, in keeping with the
widespread beliefs about competition, we again assume that the more
competitors there are, the lower are prices (the Cournot assumption).
Second, based on the technology of spectrum, we assume that more
spectrum permits firms to offer more advanced services due to greater
capacity and throughput. With the maximization of consumer welfare as
our measure of good policy, the derived theoretical tradeoff is
somewhat intuitive: In a setting with many firms with little spectrum,
there are low prices (by the Cournot assumption) but relatively less
advanced services (by the technology assumption). Alternately, in a
setting with fewer firms with larger allotments of spectrum, there may
be higher prices (by the Cournot assumption) but also more advanced
services (by the technology assumption). There's a tradeoff, obviously,
and thus the question about allocating spectrum becomes an empirical
one.
---------------------------------------------------------------------------
\44\ See supra n. 11.
---------------------------------------------------------------------------
Our analysis highlights several key components of the spectrum
allocation decision. First, an incumbent-exclusion rule is not ``pro-
entry,'' but instead seeks to select one form (price cutting) of entry
over another (quality improving). Ad nauseam, we are informed that the
economic benefits of advanced wireless services are likely to be very
high, but providers need more spectrum to provide such services. If
mobile providers are going to provide the high-quality broadband
services many feel are essential for our economic, political and social
well being, then providers (not the industry) need more spectrum. With
a fixed supply of spectrum, this obviously means fewer providers.
Second, with Cournot competition, the effect on price of adding
more competitors is subject to diminishing marginal returns. That is,
most of the price reductions from entry occur with the first two or
three firms. (This fact forms the basis for the HHI thresholds in the
Merger Guidelines.) When the number of firms exceeds a few, the
potential for sizeable competitive price effects is low. Given that
most U.S. consumers have access to four or more providers, the gains
from additional entry are likely to be relatively small. Even if the
price effects are moderate, these effects must be weighed against the
gain in quality and innovation, which could be very large.
In light of existing conditions (e.g., spectrum exhaust and
multiple mobile wireless providers), we concluded in this paper that
keeping incumbent firms out of a spectrum auction (or blocking
transactions) is unlikely to be helpful, where helpful is measured
against the standard of consumer welfare. Today, the quality problem is
likely to be more important than the price problem. In fact, under
spectrum exhaust, the price issue really isn't an issue at all (as
discussed above).
The tradeoff derived in the paper is intuitive. Our particular
interpretation of the facts is just that--a particular interpretation.
But, even if one sees the facts differently, the theoretical tradeoff
remains valid and useful. If incumbent firms are precluded from
obtaining more spectrum--particularly successful firms serving large
customer bases--then their quality of service will suffer, and
consumers will suffer. Under existing conditions that include spectrum
exhaust, an attempt to pump up the number of competitors through
incumbent-exclusions rules, even assuming that doing so leads to more
price competition, may not (and in our view is unlikely to) make
American consumers better off.
D. More Spectrum DOES NOT Mean More Competitors
In our Policy Framework for Spectrum Allocation paper,\45\ we make
another very important point that is typically ignored in the policy
debate. That is, access to spectrum resources does not necessarily
convey financial success, as spectrum is but one of many inputs
necessary to provide service. Policymakers may want more mobile
providers and may be willing to throw spectrum at new entrants (or
smaller incumbents) in an effort to make it so. The recent DOJ Ex Parte
filing on the incentive auction certainly has this mindset.
Unfortunately, just having access to spectrum does not imply that a
firm can achieve financial success. Spectrum is but one input into the
production of wireless services--giving a firm spectrum does not ensure
its financial success (as we have seen, repeatedly). The construction
and operation of a mobile wireless network requires billions in capital
expenditures every year. While the companies spend billions on spectrum
in auctions and acquisitions, the data indicates that for each $1 spent
on spectrum wireless carriers spend about $5 on network build out. As
discussed above, the sizable investments in infrastructure limit the
number of firms that can serve the market. The construction and
operation of a nationwide mobile wireless network requires billions in
capital expenditures, and these investments limit the number of firms
that can serve the market, even if spectrum was abundant and free.
---------------------------------------------------------------------------
\45\ Id.
---------------------------------------------------------------------------
Moreover, history has shown that as spectrum resources have risen,
the number of competitors has not. Contrary to popular belief, more
spectrum does not imply more competitors. Figure 2 below illustrates
the relationship between the market shares of the largest mobile
telephony firms and the total MHz of spectrum made available by the FCC
to such firms over the period 1993 through 2009.\46\ Total spectrum is
shown by the shaded area in the figure and is rising over the entire
time period. In 1993, there was 50 MHz of spectrum used for mobile
telephony. Including all auctioned spectrum, this number rose to 361
MHz by 2009.
---------------------------------------------------------------------------
\46\ The figure is adapted from our paper A Policy Framework for
Spectrum Allocation in Mobile Communications, id.
The Concentration Ratio, CRn, is used to measure industry
concentration. The Concentration Ratio is computed as the sum of the n
largest firms in the market. That is, CR2 measures the summed market
shares of the two largest firms, and CR5 the market share of the five
largest firms. Both the CR2 and the CR5 are illustrated in the figure.
Finally, the average revenue per minute for mobile telephony is
provided. All data is computed at the national level.
The figure shows clearly the following. First, the amount of
spectrum has risen, yet industry concentration, as measured by the
concentration ratio, has not declined. Thus, historical evidence does
not support the notion that more spectrum means a lower level of
industry concentration. Second, while concentration has risen over this
interval, the price of mobile telephony has fallen consistently over
the period.\47\ Therefore, historical evidence also does not support
the notion that higher concentration leads to higher prices. The latter
result has important implications for the theory. If changes in
concentration (or the number of firms) do not impact market
performance, then the gains from an incumbent-exclusion rule are likely
to be small and the net losses large.
---------------------------------------------------------------------------
\47\ Average revenue per minute data is compiled from the FCC's
CMRS Reports (various years). The data is adjusted by the Consumer
Price Index (www.bls.gov).
---------------------------------------------------------------------------
We note that these data cover many years, and technology has
evolved over the years. As such, the trends in the figure are merely
suggestive. Nevertheless, the historical data cannot be ignored and, if
considered, provide important insights for the economic value of
incumbent-exclusion policies.
E. The Department of Justice's Ex Parte Filing
As mentioned above, the FCC has recently opened a Spectrum Screen
NPRM docket. This docket is expected to influence the upcoming
incentive auction for the broadcast spectrum, mostly by excluding AT&T
and Verizon from participating in that auction (or at least limiting
their participation). As also mentioned above, the Department of
Justice (``DOJ'')--in full coordination with the FCC--filed an Ex Parte
in the FCC Spectrum Screen NPRM docket encouraging the FCC to impose
auction rules that exclude AT&T and Verizon from the auction in order
to prop up the two smaller nationwide mobile wireless carriers, Sprint
and T-Mobile.\48\ Specifically, the DOJ states that the broadcast
television spectrum should be allocated ``to enable smaller or
additional providers to mount stronger challenges to large wireless
incumbents.'' \49\ As such, the DOJ's filing is unquestionably an
attempt to equalize competition among mobile wireless competitors.\50\
It is an effort to design a market structure to their liking. Recently,
Phoenix Center President Lawrence Spiwak and I published a lengthy
comment on the DOJ's filing entitled Equalizing Competition Among
Competitors: A Review of the DOJ's Spectrum Screen Ex Parte Filing, and
I will summarize that work here.\51\
---------------------------------------------------------------------------
\48\ DOJ Ex Parte, supra n. 33.
\49\ Id. at p. 11-2.
\50\ See, e.g., Letter from House Energy & Commerce Committee
Chairman Fred Upton et al., to the Federal Communications Commission
(April 19, 2013) at 3 (available at: http://energycommerce.house.gov/
sites/republicans.energycommerce.house.gov/files/letters/20130419
FCC.pdf).
\51\ G. Ford and L. Spiwak, Equalizing Competition Among
Competitors: A Review of the DOJ's Spectrum Screen Ex Parte Filing,
Phoenix Center Policy Bulletin No. 33 (May 2013) (available at: http://
www.phoenix-center.org/PolicyBulletin/PCPB33Final.pdf).
---------------------------------------------------------------------------
The primary thesis of the DOJ's Ex Parte filing is that Sprint and
T-Mobile should be pre-selected as the auction's winners because AT&T
and Verizon may buy the spectrum not to use but simply to keep it out
of the hands of Sprint and T-Mobile. Specifically, the Department
encourages the Commission to ``consider the serious potential . . .
that carriers with large market shares could pursue an input
foreclosure strategy at auction . . . which harms all consumers of
wireless services and can have an exclusionary effect on the carrier's
competitors.'' \52\ There are rules against just sitting on spectrum,
but let's set that point aside for the moment and focus on this
foreclosure argument.
---------------------------------------------------------------------------
\52\ Id. at p. 10.
---------------------------------------------------------------------------
According to the DOJ, auction bids have two possible sources: (1)
use value and (2) foreclosure value. The sum of the two is the private
value to the firm, which is the willingness to pay for the spectrum.
``Use value'' is the change in profits realized by obtaining the
spectrum and using it to provide betters services that consumers
demand, and ``foreclosure value'' as the change in profits realized by
keeping the spectrum out of the hands of rivals. For clarity, consider
a numerical example. Say Firm A's current profit is $100. A Block of
spectrum is up for auction. If Firm A gets the spectrum, then its
profits rise to $130. If a rival of Firm A gets the spectrum, then Firm
A's profits fall to $80. The difference between getting the spectrum
and losing the spectrum is $50, and this is the maximum willingness to
pay (and maximum bid) of the spectrum in an auction. This private value
to Firm A can be decomposed into $30 of use value ($130 - $100) and $20
of foreclosure value ($100 - $20).
As I describe in detail in the paper, the problem with the DOJ's
argument, as I see it, is that the efficiency of the auction outcome is
not dependent on the presence or absence of foreclosure value.
Foreclosure value merely arises from the scarcity of resources in input
markets where somewhat specialized goods are sold. All incumbent firms
in such cases have foreclosure value--they are worse off if their
rivals get something they do not. So while the DOJ claims to embrace
auctions as the best way to allocate spectrum, it in fact does so only
when foreclosure values do not affect bids. Yet, foreclosure value
affects the bids of all incumbent firms, so the Department's argument
is, in effect, a call to abandon spectrum auctions in favor of a
comparative hearing (perhaps thinly veiled as an auction among pre-
selected winners).
Furthermore, there are good reasons to suspect that the use value
of the larger carriers is bigger than that of the smaller carriers.
Economic theory certainly points that way, as do a number of other
factors, some of which were specifically mentioned by the DOJ. Larger
firms are usually larger for good reasons (e.g., greater efficiency),
and they serve larger customer bases by definition. Giving inputs to a
more efficient firm is a wise policy and not something to be
discouraged.
Finally, as I see it, if auctions are to be used, then the
presumption should be that the highest bidder wins--period. The burden
of proof falls on those that want to promote a specific outcome by
manipulating the auction. Auctions not only generate revenue, they
allocate scarce resources to the highest bidder. The government no
longer chooses who gets it, the bids do. The DOJ wants to choose the
winners and craft an industry structure it likes, and to do so it calls
for the FCC to favor Sprint and T-Mobile ``[a]bsent compelling
evidence'' that AT&T and Verizon will use what spectrum they win.\53\ I
respectfully disagree. Absent compelling evidence, do nothing--
especially when basic economic analysis suggests that the use value of
the bigger firms is larger than for the smaller firms.
---------------------------------------------------------------------------
\53\ DOJ Ex Parte, supra n. 33, at p. 12.
---------------------------------------------------------------------------
An auction among pre-selected winners isn't an auction, it's Kabuki
Theater. If regulators, or the DOJ, want a specific outcome, then it
should be upfront about it and not pretend to hold an auction. I doubt
this command-and-control approach would be good for consumers, but at
least a little honestly would be freshening.
F. Incumbent Exclusion Rules May Have a Potential Adverse Impact on
Auction
Revenue
Incumbent exclusion rules may also have an adverse in pact on
auction revenues. Indeed, when it comes to the upcoming voluntary
incentive auctions, there are numerous hands out--i.e., from this
auction, we expect the proceeds to cover: (a) the cost of the auctions,
the participating broadcasters' cut; (c) re-packing costs; (d) a new,
interoperable first responders' network; and, oh yes, (e) revenue to
pay off our spiraling deficit. Obviously, any policy that curbs
revenues faces a high hurdle. Recognizing this fact, those favoring an
auction among pre-selected winners have claimed that auction revenues
may be larger if AT&T and Verizon are excluded. I find the argument
profoundly weak, and the research typically cited for spectrum caps do
not present a strong case.
For example, economist Peter Cramton, a recognized expert in
auction theory, states the following: ``Typically, spectrum caps lower
auction revenues.'' \54\ Words like ``typically'' should generally be
used to establish presumption. Dr. Cramton does suggest one possible
exception, whereby ``non-incumbents may be unwilling to participate in
the auction, knowing that the incumbents will ultimately win.'' Yet,
Sprint and T-Mobile are not ``non-incumbents,'' they are incumbents (as
are many other firms). As such, they have both use and foreclosure
value for the spectrum, and it is this private value that encourages
them to participate in the auction. The decision not to participate is
irrational. Indeed, the small firms will bid up to their private value
in an attempt to win and, if not, to keep the big firms from getting
the spectrum at extremely discounted prices. The bidding is relatively
costless, but beneficial whether win or lose.
---------------------------------------------------------------------------
\54\ P. Cramton, Spectrum Auctions, in Handbook of
Telecommunications Economics (2002).
---------------------------------------------------------------------------
In another paper often cited in regards to the revenue issue, the
authors state, ``revenues in unrestricted auctions do not need to be
strictly higher than those in auctions with spectrum caps or set-
asides.'' \55\ This statement of ``do not need to be'' is obviously not
very strong support for auction rules excluding large, successful,
spectrum-hungry wireless carriers. Ambiguity without evidence is not a
strong motivator. Also, the theory relates only to the behavior of non-
incumbents, not incumbents, and there are numerous incumbents. Also, in
the same discussion, the author's note other risks, including the
possibility that spectrum caps ``may prohibit efficient aggregation of
spectrum.'' \56\ Their point is similar to the one made above regarding
the tradeoff between a price competition and quality improvements. As
long as spectrum exhaust is a concern, the way spectrum is allocated
among existing carriers is critical. Additional entry, thereby dividing
up a limited amount of spectrum even further, may not be beneficial but
harmful. Today, new entry into the mobile wireless market seems
unlikely--the profits aren't there. So policies designed to promote
additional entry are unlikely to bear much fruit.
---------------------------------------------------------------------------
\55\ Cramton, et al., supra n. 35.
\56\ Id., at p. S171.
---------------------------------------------------------------------------
When theory is ambiguous, the question becomes an empirical one.
Empirical evidence also provides little support for the argument. In
the 700 MHz auction, both AT&T and Verizon participated. The reserve
price for the B block in that auction was $1.37 billion--it sold for
$9.1 billion. The reserve block for the A block in that auction was
$1.8 billion, and it sold for $3.96 billion. While the C Block sold for
just over its reserve price, that block was encumbered with network
neutrality obligations while the others were not. Notably, in the 700
MHz auction, there were 101 winning bidders.
As for non-incumbent participation, we have seen much of it in the
past, and have good reason to expect it in the future. SpectrumCo, a
joint venture mainly of cable companies, turned a tidy profit on AWS
spectrum licenses its acquired for $2.37 billion and sold to Verizon
for $3.9 billion.\57\ The large incumbents were active participants in
that auction. T-Mobile also won spectrum in that same auction, but
didn't get exactly what it wanted because it was outbid on some blocks
by Verizon (thereby providing motivation for Verizon's exclusion from
the broadcast incentive auction). Qualcomm won licenses in the 700 MHz
auction for which it paid $558 million, and later flipped to AT&T for
$1.93 billion.\58\ Thus, I suspect there will be plenty of bidders even
if AT&T and Verizon participate.
---------------------------------------------------------------------------
\57\ Cable Consortium Acquires Spectrum Licenses Covering National
Footprint (October 5, 2006) (available at: http://
corporate.comcast.com/news-information/news-feed/cable-consortium
-acquires-spectrum-licenses-covering-national-footprint); M. Reardon,
Regulators OK Verizon's $3.9B bid to Buy Cable Spectrum, CNET (August
16, 2012) (available at: http://news.cnet.com/
8301-13578_3-57494498-38/regulators-ok-verizons-$3.9b-bid-to-buy-cable-
spectrum).
\58\ See A. Sharma and A. Schatz, AT&T, Verizon In Airwaves Grab; A
Win for Google? Wall Street Journal (March 21, 2008) (available at:
http://online.wsj.com/article/SB12060
3843805652459.html); C. Albanesius, Qualcomm Selling 700MHz Spectrum to
AT&T for $1.93B, PCMag (December 10, 2010) (available at: http://
www.pcmag.com/article2/0,2817,237
4551,00.asp).
---------------------------------------------------------------------------
VII. Other Factors Impacting the Wireless Ecosystem
Spectrum is central, but there are other issues affecting wireless
policy today. The issue of handset unlocking is one that receives a
great deal of attention, but its import is a mystery to me. While this
issue has been perking around telecom circles for years, it has come
back to the forefront as the result of the Librarian of Congress's
recent decision to deny requests to exempt handset unlocking of new
phones from the anti-circumvention petitions of the Digital Millennium
Copyright Act (``DMCA'').\59\
---------------------------------------------------------------------------
\59\ Library of Congress--Copyright Office, 37 CFR Part 201, Docket
No. 2011-7, Exemption to Prohibition on Circumvention of Copyright
Protection Systems for Access Control Technologies, Final Rule, 77 Fed
Reg. 65,260 (October 26, 2012).
---------------------------------------------------------------------------
There are a couple of things that, to me, make this issue a non-
issue. First there is a popular misconception that the only thing that
keeps a mobile phone from working on a competitor's network is the
locking function. This assumption simply is not true. U.S. mobile
providers use a variety of different technologies (CDMA, GSM, LTE,
IDEN, etc.) and, as such, a handset must match the carrier's network
technology. Stated in practical terms, my AT&T GSM iPhone will not work
on Verizon's or Sprint's CDMA networks (and vice versa). Equally as
important, many carriers make network-specific enhancements to take
advantage of certain device functionalities, so a consumer may not get
the full benefits of an ``unlocked'' smartphone if he or she tries to
use it on a different network.\60\
---------------------------------------------------------------------------
\60\ See, e.g., Associated Press, Verizon Wireless Says iPhone 5
won't be ``Relocked'' (September 24, 2012) (available at: http://
www.nbcnews.com/technology/verizon-wireless-says-iphone-5-wont-be-
relocked-1B6078242).
---------------------------------------------------------------------------
Second, under the Librarian's decision, consumers are legally free
to unlock ``legacy'' phones, so the decision has no impact on a
secondary market for phones. A simple eBay search reveals that the
secondary market for handsets is thriving.
Third, most wireless carriers will unlock your phone for you, and
some don't even lock them to begin with, even when subsidized.
Fourth, anyone can walk into a mobile wireless store and purchase a
brand new unlocked handset. Such a device can also be purchased online,
say at Amazon.com or Apple.com. Thus, it appears that the debate is not
about access to an unlocked phone, but about having to pay the full
price for one.
Let me put the issue into context by proving you with an example I
constructed earlier this year. As you know, a state-of-the-art unlocked
phone can be quite expensive--for example, according to Apple's
webpage, a new entry-level unlocked iPhone 5 will run you about
$649.\61\ By signing a two-year contract with AT&T, however, that same
phone runs you only $199, a $450 discount off the retail price for an
unlocked phone. Not a bad deal, even considering the early termination
fee of $325, which declines by $10 per month of the contract and need
not ever be paid by adhering to the term. Of course, the ability to
offer consumers heavily-discounted equipment requires the customer to
stick around long enough to make the arrangement sensible for the
carrier. As an incentive to adhere to the agreement made between the
carrier and the customer, wireless providers typically impose early
termination fees and/or ``lock'' the device to their networks for the
duration of the contract. So, when a consumer gets a $649 phone for
$199, is it that unreasonable to expect a little commitment from the
consumer in return? Most rational adults would think not, particularly
when customers freely enter into that contractual arrangement. When the
contract is up, the customer is free to unlock the phone.\62\ (Indeed,
so long as the phone is out of contract, a simple web search reveals
that the major U.S. carriers are more than willing to unlock phones
upon reasonable request.\63\) If a consumer doesn't like the idea of a
locked phone and being bound by the terms of a service contract, then
that consumer can spend $649 up-front and get an unlocked phone. But,
if the carrier hands you a $649 phone for $199, there's obviously and
reasonably a catch.
---------------------------------------------------------------------------
\61\ http://store.apple.com/us/buy/home/shop_iphone/family/iphone5.
\62\ http://www.att.com/esupport/
article.jsp?sid=KB414532&cv=820&title=What%20are%20the
%20eligibility%20requirements%20for%20unlocking%20iPhone%3F#fbid=ImedV_5
M2Y8.
\63\ http://support.apple.com/kb/ht1937.
---------------------------------------------------------------------------
When it comes to things like locking, early termination fees, and
contracts, it is important to keep in mind that the terms and
conditions under which highly-discounted phones are provided are not
arbitrary; they have a purpose. In my published paper entitled A Policy
and Economic Exploration of Wireless Carterfone Regulation,\64\ my co-
authors and I provide a formal economic evaluation of contracts, device
locking, and other conditions relevant to handsets. Critics are right
that these terms and conditions are intended to adhere the customer to
a particular carrier, but the practices are neither anti-competitive
nor anti-consumer for doing so. They are motivated by a desire to
better serve the customer. Such practices increase the complementarity
of the handset and the services, thereby providing stronger incentives
to subsidize the purchase of handsets. These market behaviors are a
natural response to the desires of consumers to have the latest and
greatest technology at very low prices. As such, locking, term
contracts, early termination fees, and other conditions are fully
compatible with competitive outcomes and a ban on such arrangements is
more likely to reduce competition than it is to increase it. Without
question, a ban will increase the prices for handsets and may do so
without any offsetting price decrease for wireless network services.
Eliminating contracts and handset locking, therefore, is likely to be a
bad deal for consumers, but, in the end, that's for the consumers to
decide. I am certain that the carriers would love to be out of the
handset subsidy business--it's a cost driver for them. Yet, they do it,
not because they want to, but because consumers demand it.
---------------------------------------------------------------------------
\64\ G. Ford, T. Koutsky and L. Spiwak, A Policy and Economic
Exploration of Wireless Carterfone Regulation, 25 Santa Clara Computer
& High Tech. L.J. 647 (2009) (available at: http://www.phoenix-
center.org/papers/SantaClaraCarterfone.pdf).
---------------------------------------------------------------------------
VIII. Conclusion
Mr. Chairman, thank you again for the invitation to testify today.
I welcome any questions the Subcommittee may have.
Senator Pryor. Thank you.
Ms. Derakhshani.
Oh, was that over?
Mr. Ford. I looked right over there and it was zero, I
promise, and I thought it wasn't working----
[Laughter.]
Mr. Ford.--I couldn't be through 5 minutes yet.
Senator Pryor. Ms. Derakhshani.
Thank you.
STATEMENT OF DELARA DERAKHSHANI, POLICY COUNSEL, CONSUMERS
UNION
Ms. Derakhshani. Chairman Pryor, Ranking Member Wicker, and
members of the Subcommittee, on behalf of Consumers Union, the
policy and advocacy arm of Consumer Reports, thank you for the
opportunity to testify before you today.
Consumer Reports is the world's largest independent not-
for-profit product testing organization with a mission to
ensure a fair and just marketplace for consumers. We appreciate
being included in a conversation about wireless.
Wireless has become an essential part of consumers' lives.
A growing portion of the population has chosen to cut the cord
and replace their landline phones with wireless voice service,
while many others, including those in rural areas, low-income
areas, and communities of color, rely on their cell phones as
their only means of accessing the Internet. In light of the
growing importance of wireless, we'd like to highlight a number
of practices that unfairly reach into consumers' pocketbooks
and limit competition and consumer choice:
First, we're concerned about charges on consumers' wireless
bills. We were pleased that the industry and the FCC came to a
voluntary agreement on bill shock, and that carriers now
provide free alerts to consumers as they approach their plan
limits for data, voice, and texting, and before they incur
international roaming charges. The FCC recently announced that
all participating carriers are now in compliance with this
voluntary agreement. At Consumer Reports, we plan to continue
to monitor carrier performance closely to ensure that these
alerts work for everyone as intended.
Unfortunately, we still have concerns about cramming, or
the placement of unauthorized charges on consumers' wireless
bills. Several studies have suggested that cramming costs
consumers billions of dollars each year. And as we have
explained in Consumer Reports, these charges often go unnoticed
because they can be as small as 99 cents or described in a way
that makes them sound like legitimate phone-related charges. We
were disappointed that last year's FCC landline cramming rules
did not extend to wireless. Cramming is just as serious a
problem for wireless consumers, and arguably even more so in
light of the ease with which it can occur. In the wireless
context, all a crammer needs in order to initiate an
unauthorized charge is a customer's active cell phone number.
We appreciate the Committee's continued active pursuit of this
concern, including the letters that Chairman Rockefeller
recently sent to the four major carriers, identifying cramming
as a growing threat for wireless consumers.
Third, we're concerned about the new legal barriers to
unlocking cell phones. Last fall, the Library of Congress
phased out the long-recognized right of consumers to unlock
their mobile phones for use on other carriers' networks. As a
result, what was once legally protected is now potentially
subject to criminal prosecution. We're pleased that a number of
members of this committee have introduced or cosponsored bills
to remedy the issue.
In our view, consumers should be able to use the mobile
devices that they have purchased as they see fit, and our
research indicates that consumers agree. According to a
nationwide poll by Consumer Reports in 2011, an overwhelming 96
percent of respondents felt that consumers should be able to
keep their existing handsets when changing carriers; 88 percent
believed that handsets should work on any cellular network that
they choose.
The FCC began a proceeding last year to promote
interoperability among wireless devices, and we support efforts
that allow consumers to use the devices that they have
purchased on any network of their choice.
Fourth, we remain concerned about the structure of
traditional wireless contracts and early termination fees,
which create artificial barriers to competition and consumer
choice. These policies lock consumers into their contracts and
deter new carriers from entering the market. When consumers
have a hard time switching competitors, carriers are under less
pressure to respond to consumer demands. Furthermore, when the
cost of expensive devices are built into carriers' service
contracts, a consumer who may not necessarily want or need a
new mobile device is forced to pay for that device over the
course of a long-term contract. Indeed, Consumer Reports has
found that customers who are able to shop for the best deal on
each of these purchases could benefit significantly from lower
prices. Just recently, in March 2013, we reported, online, that
consumers who switch from long-term services to no-contract
services can save hundreds of dollars over a 2-year period.
Fifth, we'd like to express our continued support for the
Universal Service Fund's Lifeline program. We believe that the
program plays a key role in expanding the benefits of
communications services to those who would otherwise be unable
to afford it. We remain concerned about any proposals to
exclude wireless from the Lifeline program, and we support the
program's expansion to broadband. Any efforts to expand
broadband access to Americans should not leave behind the
communities that can benefit from it the most.
Consumers have much to gain if more spectrum is made
available for commercial wireless services, but freeing up
additional spectrum won't be beneficial to consumers unless
future spectrum auctions actually promote competition in this
market. The two largest providers of wireless services today
are positioned to dominate the auctions unless the Government
puts in place appropriate rules to also give small carriers the
opportunity to bid on this important limited resource.
Consumers will also benefit if the Government agrees to set
aside sufficient spectrum for unlicensed use. These goals need
to be at the forefront of any future policy decisions in order
to promote competition and consumer welfare.
I thank you for the opportunity to testify, and I look
forward to your questions.
[The prepared statement of Ms. Derakhshani follows:]
Prepared Statement of Delara Derakhshani, Policy Counsel,
Consumers Union
Chairman Pryor, Ranking Member Wicker, and Members of the
Subcommittee: on behalf of Consumers Union, the policy and advocacy arm
of Consumer Reports, thank you for the opportunity to testify before
you today. Consumer Reports is the world's largest independent, not-
for-profit product testing organization. We rate thousands of products
and services annually, provide overviews and comparisons, conduct
customer satisfaction surveys, and publish tips on how consumers can
save money and protect themselves against abusive practices. We
appreciate being included in a conversation about wireless in your
ongoing examination into the state of the telecommunications market.
Introduction
Wireless service is becoming an evermore essential part of our
lives. Smartphone penetration levels continue to increase,\1\ and
innovative new technologies and applications are improving consumers'
lives in never-before-seen ways. Significantly, a growing portion of
the population has chosen to ``cut the cord'' and replace landline
phones with mobile wireless service. According to the FCC, thirty-four
percent of adults lived in wireless-only households by the second half
of 2012.\2\ Others--including consumers in rural areas, low-income
communities, and communities of color--rely on their cell phones as
their only means of accessing the Internet. In light of the growing
importance of wireless, we would like to bring attention today to a
number of practices that delve into consumers' pocketbooks and limit
competition and consumer choice. Some of the issues are unique to the
wireless arena, while others are not; but all of them deserve attention
in light consumers' heavy reliance on wireless technologies.
---------------------------------------------------------------------------
\1\ See Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993, Annual Report and Analysis of Competitive
Market Conditions With Respect to Mobile Wireless, Including Commercial
Mobile Services, WT Docket No. 11-186, Sixteenth Report, FCC 13-34
(rel. Mar. 21, 2013) (``Sixteenth Competition Report'') (noting that
55.5 percent of mobile wireless consumers owned smartphones as of July
2012, up 41 percent from the previous year).
\2\ Sixteenth Competition Report at 26.
---------------------------------------------------------------------------
Our comments today are guided by three basic principles. First, all
consumers should have access to quality, affordable wireless services.
Second, consumers should not be unduly limited in their ability to
choose among the products, service plans, and carriers that best suit
their particular needs. Third, carriers should provide the tools and
information necessary for consumers to make meaningful choices and
protect themselves against abusive practices.
With these principles in mind, our comments today will focus on
wireless bill shock and cramming, the new legal barriers to unlocking
cell phones, early termination fees, the need to preserve wireless as
part of the Lifeline program for low-income consumers, and spectrum
policy.
Bill Shock
First, bill shock. For years, Consumer Reports received stories
from consumers who had been hit with hundreds--even thousands--of
dollars' worth of surprise charges on a single month's bill for
exceeding plan limits on data, voice, and texting, or for incurring
international roaming charges.\3\ In our view, the underlying problem
was that consumers did not have the tools they needed to keep track of
their plan limits. We supported action by the Federal Communications
Commission (FCC) to remedy this and filed comments in its proposed
rulemaking proceeding.
---------------------------------------------------------------------------
\3\ ``Bill Shock'' Is Common, ConsumerReports.Org, Jan. 2011,
available at http://www.consumerreports.org/cro/magazine-archive/2011/
january/electronics/best-cell-plans-and-providers/cell-phone-bills/
index.htm (visited May 31, 2013) (finding that one in five respondents
had received an unexpected charge on a bill over the past twelve
months).
---------------------------------------------------------------------------
In October 2011, the FCC and major wireless carriers agreed to a
voluntary plan under which carriers would begin providing free alerts
to consumers as they approached their plan limits for data, voice, and
texting--and before they incurred international roaming charges.
Consumers Union joined the FCC and CTIA in announcing the agreement in
2011, and we are pleased that the FCC recently announced in April that
all participating carriers are in compliance with the agreement, which
protects 97 percent of the population from bill shock.
We are glad to have been part of the consumer education and
advocacy process that resulted in these protections, but we plan to
continue to closely monitor carrier performance and engage in a
dialogue with consumers to ensure that these alerts work for everyone
as intended.
Cramming
A second issue of concern is cramming, or the placement of
unauthorized charges by third party services on a consumer's telephone
bill. Several studies have suggested that cramming costs consumers
billions of dollars each year. As we've explained in Consumer Reports,
these charges often go unnoticed by consumers because they can be as
small as 99 cents or described in a way that makes them sound like
legitimate phone-related charges.
We were pleased that the FCC adopted new cramming rules last year
to better help consumers identify third-party charges in the landline
context. These rules require carriers to more clearly separate third-
party charges from other charges on a phone bill. The new rules also
require carriers to notify consumers of the option to block all third-
party charges if the carrier provides that option. However, we were
disappointed that the FCC did not extend these rules to wireless
cramming. Cramming is just as serious a problem for wireless
consumers--and arguably even more so in light of the ease with which it
can occur. In the wireless context, for example, a crammer needs only
to confirm that an active cell phone number exists before initiating an
unauthorized charge.
Consumer Reports has been alerting readers to the practice of
cramming and advising them to be extra vigilant in reviewing their
mobile phone bills for unexplained charges. However, we strongly
believe more needs to be done to help consumers identify third-party
charges and to keep unauthorized charges from ending up on their bills
in the first place.
We very much appreciate the Committee's active pursuit of this
concern, including its 2011 investigation into cramming, as well as the
letters that Chairman Rockefeller recently sent to the four major
carriers identifying cramming as a growing threat for wireless
consumers.\4\
---------------------------------------------------------------------------
\4\ Senate Committee on Commerce, Science, & Transportation, Press
Release, Rockefeller Vows to Avert Wireless Cramming Scams, Mar. 1,
2013, available at http://www.commerce.senate
.gov/public/index.cfm?p=PressReleases&ContentRecord_id=cd0edc13-b355-
4d4e-9619-7035329
daa1a (visited May 31, 2013).
---------------------------------------------------------------------------
Unlocking Mobile Devices
Third, we are concerned about the new legal barriers to unlocking
mobile phones. Last fall, in its review of the Digital Millennium
Copyright Act, the Copyright Office extinguished the long-recognized
right of consumers to unlock their mobile phone for use on other
carriers' networks. As a result, what had once been legally protected
is now potentially subject to criminal prosecution.
Consumers Union recently sent letters to the FCC Commissioners and
to the Commerce Committee, among others, encouraging efforts to remedy
the uncertainty created by the Copyright Office's decision. We are
pleased that President Obama has signaled a willingness to engage on
this issue and that the FCC is currently looking into the matter. A
number of bills have been introduced in Congress to restore the legal
protection removed by the Copyright Office's decision, including bills
introduced and co-sponsored by members of this committee. We thank you
for your recognition of this important issue and support your efforts
to craft an effective solution that benefits consumers.
In our view, consumers should be able use the mobile devices they
have purchased as they see fit. For example, they should be permitted,
where feasible, to adapt their mobile device for use abroad with a
foreign carrier. They should be permitted to sell or give a mobile
device they own to someone else for use with the carrier of the new
owner's choice. And they should be able to obtain an unlocked mobile
device themselves, and adapt it for use with the carrier of their
choice. All of these uses make sense for consumers, and all should be
legal and available.
In fact, a 2011 nationwide poll conducted by Consumer Reports makes
it clear that consumers themselves agree. According to our poll, an
overwhelming ninety-six percent of respondents felt that consumers
should be able to keep their existing handsets when changing carriers.
Furthermore, eighty-eight percent of respondents believed that their
handset should work on any cellular network that they choose, while
seventy-three percent said that they would support a government rule
that requires handsets to be compatible with all U.S. cellular
services.
For years, our organization has advocated on the related issue of
interoperability. We were pleased to see the FCC begin a proceeding to
promote interoperability among wireless devices last year and support
efforts that allow consumers to use the devices that they have
purchased on the networks of their choice.
Early Termination Fees and the Traditional Long-Term Contract
Fourth, we remain concerned about early termination fees and the
structure of the traditional wireless service contract. This model
builds in the cost of expensive handsets into the long-term service
contract, creates artificial barriers to competition and consumer
choice, and implements early termination fees that dissuade consumers
from switching among mobile service providers.\5\ Although carriers
generally prorate these early termination fees, customers who switch
before their contract expires can still incur charges as high as
$350.\6\
---------------------------------------------------------------------------
\5\ Sixteenth Report at para. 308 (noting that churn rates for
post-paid services are significantly lower than pre-paid contracts, due
in part to existence of early termination fees).
\6\ AT&T, Early Termination Fees, available at http://
www.wireless.att.com/learn/articles-resources/early-term-fees.jsp
(visited May 31, 2013) (listing early termination as high as $325 for
advanced phones); Verizon Wireless, Customer Agreement and Important
Information, available at http://youreguide.vzw.com/legal-customer-
agreement/ (visited May 31, 2013) (listing early termination fees as
high as $350 minus); Sprint, Learn About Early Termination Fee,
available at http://support.sprint.com/support/article/
Learn_about_early_termination_fee/case-sp06
1027-20110823-171256 (visited May 31, 2013) (listing early termination
fees as high as $350).
---------------------------------------------------------------------------
Wireless carriers justify these fees as necessary to recoup the
cost of providing consumers with mobile devices below their regular
cost. But in many ways, embedding the cost of a mobile device into a
contract is a bad deal for consumers. For example, under this
traditional structure, a consumer is forced to pay for a new mobile
device over the course of a contract even if the consumer does not want
or need a new mobile device. Furthermore, early termination fees lock
consumers into these long-term contracts. Although carriers argue that
they have strong incentives to keep customers happy, the fact remains
that if consumers have a harder time switching to a carrier's
competitor, then carriers are under less pressure to respond to
customer demands.
If consumers were able to shop for the best deal on each of these
purchases separately, they could benefit significantly from the lower
prices, improved quality, and greater innovation and variety that
healthy competition would encourage among both mobile device
manufacturers and wireless service providers. In Europe, for example,
where LTE wireless service is sold separately from the mobile device,
one study shows that the cost of the service is only about a third of
its cost in the United States.\7\
---------------------------------------------------------------------------
\7\ Kevin J. O'Brien, Americans Paying More for LTE Service, NY
Times, Oct. 15, 2012, available at http://www.nytimes.com/2012/10/15/
technology/americans-paying-more-for-lte-service
.html?_Kr=0 (visited May 31, 2013) (noting that LTE services in the
U.S. cost, on average, three times the European average).
---------------------------------------------------------------------------
We are encouraged to see that wireless carriers are beginning to
consider offering consumers more innovative choices than the
traditional long-term contract.\8\ This emerging development certainly
appears to be catching the attention of consumers, as evidenced by a
recent grass roots online petition to Verizon that argues against long-
term service contracts and has garnered over 150,000 signatures.\9\
---------------------------------------------------------------------------
\8\ For example, in January, AT&T CEO Randall Stephenson said he
would consider allowing consumers to pay for their own smartphones in
exchange for a lower rate. In March, T-Mobile announced a pricing plan
that effectively separates the charge for the service from the charge
for the device. In response, AT&T recently introduced a wireless no-
contract cell service. See http://www.att.com/gen/press-
room?pid=24185&cdvn=news&newsarticleid=36421 (visited May 31, 2013). In
April, Verizon CEO Lowell McAdam said he would consider ending two-year
contracts if there were consumer demand for it. See Roger Cheng,
Verizon CEO Says He's Open To Dropping Contracts, CNET News, Apr. 3,
2013, available at http://news.cnet.com/8301-1035_3-57577842-94/
verizon-ceo-says-hes-open-to-dropping-contracts/ (visited May 31,
2013).
\9\ See Change.org, Petition, Verizon: Get Rid of Contracts for
Wireless Services, available at https://www.change.org/petitions/
verizon-get-rid-of-contracts-for-wireless-service (visited May 31,
2013); Brandon Griggs, Thousands Petition Verizon To Nix Wireless
Contracts, CNN.com, Apr. 17, 2013, http://www.cnn.com/2013/04/16/tech/
mobile/verizon-petition-contracts/index.html (visited May 31, 2013).
---------------------------------------------------------------------------
Protecting the Wireless Lifeline Program
Finally, we would like to express our continued support for the
Universal Service Fund's Lifeline program. Fifteen million low-income
families depend on this program, which we believe plays a key role in
expanding the benefits of communications services to those who would
otherwise be unable to afford them.
We recognize that the FCC recently took steps to appropriately
address problems of waste, fraud, and abuse. These efforts have already
resulted in $200 million of savings and will continue to save millions,
while ensuring that the funds are targeted to consumers who need
telecommunications services the most.
Furthermore, we remain concerned about any proposals to exclude
wireless from the Lifeline program. To do so would be to deprive the
millions of low-income families who depend on cell phones for basic
access to vital telecommunications services. The importance of this
program is especially clear in light of the consumers' increasing shift
away from landline service. As discussed earlier, many Americans are
choosing to replace their landline phones with mobile phones, while
others--including many consumers in rural areas--rely on their cell
phones as their only means of accessing the Internet.
We support the FCC in its efforts to get affordable broadband to as
many people as possible, without leaving behind low-income consumers
and the groups who need it the most.
Spectrum
Consumers have much to gain if more spectrum is made available for
commercial wireless services. But consumers won't be able to realize
the benefits of this additional available spectrum unless future
spectrum auctions actually promote competition in this market. The two
largest providers of wireless services today, AT&T and Verizon, are
positioned to dominate the auctions unless the government puts in place
appropriate rules to also give small carriers the opportunity to bid on
this important limited resource. Consumers also will benefit if the
government agrees to set aside spectrum for unlicensed uses. These
goals need to be at the forefront of future spectrum policy decisions.
Conclusion
These issues highlight some of the ways in which consumers have
borne the brunt of a wireless marketplace that is not as sufficiently
competitive and consumer friendly. Wireless technology holds incredible
promise for all of us, but policymakers and regulators play an
important role in helping ensure that--as wireless technology becomes
evermore prevalent in our day-to-day lives--it delivers quality,
affordability, and choice to consumers. We appreciate the
Subcommittee's attention to these important issues and I look forward
to your questions. Thank you.
Senator Pryor. Thank you.
Let me, if I may, just start with Mr. Webster. You spent
some time, in your opening statement, talking about Wi-Fi and
how important Wi-Fi is. Are you saying that the Wi-Fi space can
get too crowded?
Mr. Webster. Well, the Wi-Fi space actually--most certainly
can get too crowded, Senator. That's why additional spectrum is
needed in the unlicensed arena just as much as it is in the
licensed arena. Now, there are, no question, technological
innovations that can work to minimize some of that crowding,
but that's not going to be enough. The growth that we are
having on our networks, across the board, especially in
mobility, which is really very much inherently tied to
networking growth, in general, means that we're going to need
additional spectrum to complement those innovations.
Senator Pryor. I think that you mentioned the 5 gigahertz
spectrum----
Mr. Webster. Yes.
Senator Pryor.--as a possible----
Mr. Webster. That's correct.
Senator Pryor.--alternate place to go. And my
understanding, though, is--maybe the auto industry is trying to
use that for the vehicle-to-vehicle communication. Is that
right? What----
Mr. Webster. That's correct. In fact, the--both the auto
industry and the telecommunication industries are key customer
bases or sectors of Cisco Systems, and we want to work a win-
win situation--first and foremost, based on making sure that
the use of this spectrum by automobiles is absolutely safe.
But, if there is under-utilization of spectrum, is there an
opportunity to have that spectrum shared by other purposes?
That's something that we very much would like to investigate
and work with the FCC to see if that is an option--
opportunity--so we can provide that win-win situation to both
sectors.
Senator Pryor. OK.
Mr. Nagel, same questions for you, really. Wi-Fi--you
mentioned Wi-Fi in your statement. How do we manage this, going
forward? I mean, it looks like more and more people want to
utilize Wi-Fi; it seems to be more and more prevalent. And you
talked about the flexibility of these devices, et cetera, but
do you think the 5 gigahertz is the way to go?
Mr. Nagel. Well, I think, you know, it's--when you look at
what's going on in Wi-Fi, it's really no different across
whether it's unlicensed or on licensed. The spectrum
utilization is significantly increasing. And I think even, you
know, Mr. Webster had said that, between 6 years ago to today,
the increase has been over 600 percent. And I think what
happens is, the spectrum availability hasn't really increased.
And so, you're getting more and more usage in the Wi-Fi space.
So, the spectrum is really the real estate. If you build
more and more houses in that real estate, it just gets crammed.
And I think that's where we are.
So, the importance of the 5 gigahertz is really twofold. I
mean, first is, is that we already are using Wi-Fi in the 5
gigahertz space, on the high end. The second part about the 5
gigahertz--so, we can easily digest additional spectrum in that
band--and that the more that we can put in the band next to our
other existing spectrum, we can do wider channels. Wider
channels mean faster and faster services. So, part of why the 5
gigahertz band is important to us is that it makes--it allows
us to not just add more customers, but to provide more speed to
those same customers. So, that's one piece.
The other piece is, when you think about the 5 gigahertz,
there are very, very few, sort of, greenfield environments
where you can utilize spectrum and make as much benefit in the
5 gigahertz you have today. There's about 555, sort of,
allocated megahertz of spectrum in the 5 gigahertz band, but
only 100 is utilized for unlicensed Wi-Fi. So, that's less than
20 percent. And so, what's great about the 5 gigahertz is, it
is available. Wi-Fi can work in a sharing environment. We
understand there are incumbents. We have no desire to interfere
with those incumbents. Wi-Fi, by its very nature, is a
secondary service. So, it's built so that it can share.
I think what's really important--you mentioned the vehicle-
to-vehicle--I think what's really important is--there's no
question, Mr. Webster's right, that we can solve the sharing
problem with that industry. The challenge is, when you look at,
sort of, that band, that the timing of how long it will take
them to develop vehicle-to-vehicle is measured in, really,
decades, not years, and I think we need to solve some of these
problems now.
So, I think bringing us together--I think this committee
could help, I think the FCC could help--but, to sort of bring
us together to start solving, engineer-to-engineer, some of
these basic problems so we can make sharing work.
Senator Pryor. Mr. Berry, let me ask you. Something that
you said, sort of midway through your testimony there, you--you
were talking about spectrum, and you were talking about
cellular market areas, which are smaller geographical areas,
but I believe what you said is, you think, if they went to the
cellular market area approach, that actually it might generate
more revenue at auction. Could you tell the Subcommittee what
you mean by that?
Mr. Berry. Yes, Mr. Chairman, thank you.
I--the cellular market areas are smaller slices of
spectrum. For the smaller carriers, they have to be able to bid
and have some expectation of winning. A good example would be,
Bluegrass Cellular would have--if they sold only EAs--economic
areas, which is a large area--they would have to bid on markets
outside Lexington, Kentucky, all the way down to Nashville,
Tennessee, in order to get enough spectrum to continue their
operation. That's just not doable. Making a small carrier bid
on 5 to 6 million pops of megahertz, when they only need 1.4,
is another way of putting them out of business.
And I'll give you a good example. In the 700 megahertz
block that we were talking about, the C block, which was a
REAG, which was large nationwide licenses--there was only 12 of
those--it brought 76 cents per meg per pop. The A block, which
was paired through EAs--the economic areas--it brought $1.16.
But, the paired B block, which was in CMAs--cellular market
areas, 734 of them--brought $2.68. And that's because the small
carriers could actually bid and win against the largest
carriers in a small area. And I think that's what we have to do
if we're going to have multiple competitors in the 700--600
megahertz spectrum auction.
Senator Pryor. Thank you.
We've been joined by Senator Thune, who's the Ranking
Member of the full Committee.
And I'm going to recognize you for an opening statement and
your questions.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thanks, Mr. Chairman. I want to thank you
and Senator Wicker for having this hearing, and I do want to
just make a statement for the record, and then perhaps follow
it up with a quick question, if I might.
But, I think we all know, from our daily experiences, how
important this issue is to people all across the country,
whether it's a farmer in a field checking real-time commodity
prices, a college student video-chatting with their family back
home, or an executive on the road dealing with a crisis back at
headquarters. The ability to communicate with others and to get
online without being tethered by a cord is no longer a luxury
for many people; it is a necessity.
Wireless communications have become an essential part of
many Americans' day-to-day lives, and I am glad the
Subcommittee is exploring the issue today. Without enough
spectrum, the private sector will not be able to keep pace with
consumer demand, which is growing exponentially. We must make
it a priority to increase the availability of spectrum for
commercial use, both licensed and unlicensed, as quickly as
possible.
One important block to open up is the 1755-1780 megahertz
band of Federal spectrum, because, when paired with the AWS-3
block, there is a global ecosystem of devices and networks that
our nation can immediately tap into.
I have been working with Assistant Secretary of Commerce,
Larry Strickling, the Department of Defense, and industry
officials to find a commonsense solution that balances the
needs of wireless consumers and of the Federal Government. It
is my hope that we can find a way forward soon that allows the
spectrum to be auctioned and cleared in the near future.
A recently proposed, quote, ``industry roadmap'' may offer
us a workable path to achieving that goal. Getting more
spectrum into the marketplace to the parties that value it most
is ultimately the best way for Federal policymakers to
encourage new services and to spur competition. Unfortunately,
some voices, including the Department of Justice, are calling
for the Federal Communications Commission to micromanage the
allocation of spectrum among wireless carriers. I stand with
Chairman Upton, Chairman Walden, and other of our House
colleagues who have challenged this perspective in a letter to
the FCC, back in April. I believe the Commission should not
pick winners or losers among individual companies, but,
instead, let all interested participants freely compete against
one another in the open market.
The FCC began using spectrum auctions because we recognized
that the free market is more effective at allocating spectrum
than relying on the opinions and predictions of unelected
bureaucrats. And with the U.S. being the global leader in 4G
LTE connectivity, this approach has clearly been very
successful.
The Commission should focus on maximizing participation in
the upcoming incentive auctions among both broadcasters and
potential forward bidders. For example, one way to encourage
more bidder activity in rural areas during the auction is to
offer licenses in a variety of geographic sizes.
The FCC should not be distracted by proposals that could
lead to less spectrum being made available and less auction
proceeds being realized for national priorities, like deficit
reduction and FirstNet. American consumers, including those
farmers, students, and executives I mentioned earlier, are
driving the mobile economy, and they, not the government,
should pick who wins in the marketplace.
And if I might follow that up with a question, I would
direct this to Dr. Ford. As I mentioned, my ultimate concern is
for the welfare of the wireless consumers, a concern that I
think a lot of my fellow members of the Committee share. You
state very clearly in your opening testimony--and I want to
quote--``If incumbent firms are precluded from obtaining more
spectrum, particularly successful firms serving large customer
bases, then their quality of service will suffer and consumers
will suffer,'' end quote.
Could you elaborate on how manipulating spectrum auction
participation may have unintended consequences?
Mr. Ford. Sure. Well, there are many ways, but the--what I
was speaking of there is: spectrum allows firms to provide
service more cheaply, or more effectively, better quality, or
whatever it may be, and if you limit firms with--that are
demonstrably more efficient than others, if you deny them
access to that resource and keep them from having a lower
marginal cost, say, of providing service, then you--the
consumer doesn't realize that benefit. If giving 10 megahertz
of spectrum allows a large firm to reduce its marginal cost by
$2, or a small firm by $1, you'd obviously want to give it to
the large firm, who could have the larger marginal cost
reduction and pass that on to a significantly larger customer
base.
So, it's always the case, in these theoretical models of
spectrum caps and spectrum allocation, that you have to think
about the efficiency of who is winning the auction, who gets
the spectrum. And usually, the most efficient firms will win
the auction, because of that reason.
Senator Thune. Mr. Chairman, I thank you. I want to thank
the panel for their great testimony today, and allow my
colleagues on this side to ask questions.
Thank you.
Senator Pryor. Thank you.
Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Mr. Chairman.
I thought this would be a good occasion to announce that
one of our members has been inducted into the Wireless Hall of
Fame this fall. That would be Senator Warner.
Senator Pryor. All right.
Senator Klobuchar. I just thought we should announce that--
--
Senator Pryor. All right.
Senator Klobuchar.--for his fine work in the business area.
[Applause.]
Senator Klobuchar. I'm sure he really appreciates that I
brought that up.
[Laughter.]
Senator Klobuchar. No, anyway, I had some questions. But,
as you all know, I've been very involved in the unlocking issue
and some of the cell phone bill of rights, for many, many
years, here. And, despite your sitting at, kind of, the kids'
table at the end, Ms. Derakhshani, I was really appreciative of
the points that you made on behalf of consumers everywhere. And
could you talk about how this locking of the cell phone and
service--you consider it a detriment to competition--how it can
hurt consumers? I just see this as a great possibility, and
I'm--of course, I'm on the bill to fix the Library of Congress
decision, but I see that more as a Band Aid. And Senator Lee
and Senator Blumenthal and I have a bill called the Wireless
Consumer Choice Act, which goes a step farther, to ask the FCC
to take action to ensure that consumers can unlock their
oftentimes very expensive phones when they switch carriers.
Could you talk about that, from a consumer standpoint?
Ms. Derakhshani. Absolutely. We really appreciate all of
the efforts of the members of this committee, and we support
the Commerce Committee's approach to fix the problem through
the FCC.
As you mentioned before, some of these devices are
extremely expensive. We feel that, if consumers have to pay for
these extremely expensive devices, then they should be able to
use them in the ways that they wish. And that's really what it
comes down to: giving consumers more choice.
Oftentimes, I believe that the wireless industry touts the
diverse number of devices and choices available to the
consumer, but that doesn't really matter if a consumer isn't
able to make a meaningful choice and is not able to do that on
the carrier that they wish.
Senator Klobuchar. And, Mr. Largent, I know that the CTIA
argued in favor of the decision by the Library of Congress,
even though many of your members actually do voluntarily unlock
their phones for consumers. Can you explain this stance?
Mr. Largent. Well, I was just going to say that there's a--
there are over 600 devices that are for sale to consumers
today. Many of those are sold with--not by carriers. So, they--
a person can go buy an unlocked phone, today, at Best Buy, and
put that on a carrier of choice. So, that ability, we support.
And even the idea that a consumer can unlock their phone that
they've gotten from an AT&T or Verizon or whoever, we support
that, as well.
But, the reason there's an ETF is because those phones are
typically sold for $99, $199, and they're $700 phones. So,
there has to be an opportunity for the carrier to recoup the
cost that they have of the phone. And then, once that cost is
recovered, then they will freely allow their consumers to
unlock their phone. And that's the policy of most of our
carriers, if not all our carriers, today.
Senator Klobuchar. I just know, Mr. Berry, that--and you
want to respond to this a little bit--in other countries, that
they unlock phones quicker and allow the service to be
decoupled from the phone. And do you want to talk about how
this could affect rural consumers if they are--get stuck with a
certain phone and a certain carrier, more likely, and then they
move and--I know this, from just driving, this week, in rural
Minnesota, that certain carriers work in certain areas, and
others don't.
Mr. Berry. Yes, Senator, thank you. And thank you for the
question. And thank you for all the good work you've done on
unlocking.
As you know, I testified in favor of continuing the
exemption for unlocking phones at the Library of Congress. And
I felt that, not only was it a good pro-consumer issue to do--
to focus on, but many of the rural carriers really don't have
access to the iconic phones. Getting smartphones and handsets
that--state-of-the-art--are very difficult for small and rural
carriers. And it's one way of a rural carrier distinguishing
themselves in the marketplace, and attracting a customer.
Matter of fact, one of our carriers, T-Mobile, at the time
I testified, had over 2 million iPhones on their network, and
they didn't sell an iPhone--they didn't have permission to sell
the iPhone.
So, we think it brings consumer choice, and especially in
the--a consumer that's in a urban/suburban area that moves to a
rural area; they ought to be able to, not only take their
iPhone, but all the content that is in that, or whatever other
phone they may have--a Galaxy or Android--and bring it to the
network, and utilize it. And we think that that was the right
policy decision to make.
Senator Klobuchar. Thank you.
Ms. Derakhshani, I'll just end with you, with just--if you
want to respond to me about--I appreciate your work on cramming
and bill shock, and also the important issue you raised in your
testimony on wireless service transparency. Senator Blumenthal
and I are working on a bill, which we introduced the last
Congress, that would require wireless carriers to give
consumers more complete and accurate information. Do you want
to comment either in response to the comments that were made
here and then also a little bit on transparency?
Ms. Derakhshani. Sure. With regard to transparency, we
really feel that it is the duty of carriers to provide
consumers with the tools that they need to make meaningful
choices. All too often, this does not happen; and consumers
have told us this.
Senator Klobuchar. Do you want to respond at all to the
comments about the expense of the devices and the importance of
unlocking?
Ms. Derakhshani. Well, as I mentioned, the Honorable Mr.
Largent said that----
Senator Klobuchar. But, has he been inducted into the
Wireless Hall of Fame?
[Laughter.]
Ms. Derakhshani. I don't think he----
Senator Klobuchar. OK, I just--I just wanted to point that
out.
Ms. Derakhshani. That wasn't pointed out earlier.
Senator Cantwell. I can assure you, he has been inducted
into a Hall of Fame, and we all appreciate that.
[Laughter and applause.]
Senator Klobuchar. All right, if you could, please.
Ms. Derakhshani. I will just reiterate that time and time
again, I feel that the wireless industry does tout the fact
that there are, as Mr. Largent mentioned, 600 different devices
out there. But, what difference does that make if consumers
don't have a meaningful choice among those devices? So, that's
where I'll leave it.
Senator Klobuchar. OK, thank you.
Ms. Derakhshani. Sure.
Senator Pryor. Thank you.
Our next three Senators will be Senator Heller, Senator
Warner, and Senator Fischer.
Senator Heller.
STATEMENT OF HON. DEAN HELLER,
U.S. SENATOR FROM NEVADA
Senator Heller. Thank you very much, Mr. Chairman. And
thanks for the opportunity to discuss this issue that I think
is critically important for our economy.
And I want to thank the witnesses for taking time and
spending some time with us today, and for everybody that's in
the hearing who's expressed and shown their concern for this
issue, also.
I was appreciative of your testimony, Mr. Webster, as you
went through some of the statistics and the growth that we're
going to see in these areas, especially in data traffic and
also the mobile devices that we're going to see by 2017, which,
of course, underscores the need and the understanding that we
need more spectrum, and that it'll all go in the hands of these
wireless providers.
We all know, here, the FCC is working on a complex spectrum
option right now, and we're hopeful that we can incentivize
enough broadcasters to voluntarily sell their spectrum so the
Government can then auction it for wireless services to the
highest bidder. Hopefully, that revenue will be enough to cover
and accomplish several goals. One is--of course, is enough to
purchase the spectrum from the broadcasters themselves to fund
FirstNet, and, hopefully there will be enough left to provide
money to reduce the deficit. I mean, those are pretty
aggressive goals. And, obviously, maximizing the revenue in an
auction like this is key.
So, to you, Congressman Largent--and I think all of us have
kind of touched about the--you know, from the Chairman to the
Ranking Member, most of us are talking about revenues from this
auction. And if the Government intervened, as suggested by Mr.
Berry, to set up rules that limited some in the markets from
entry to this auction, would that reduce the amount of revenue
available?
Mr. Largent. Undoubtedly, it would reduce the amount of
revenue that would go to the Treasury.
Senator Heller. Are there any reasons, in your opinion,
that there should be conditions set on the spectrum auction?
Mr. Largent. I, personally, feel like the fewer conditions
that are set on the auction, the more robust and the more money
you'll get from the auction. We have seen, in the 700 megahertz
auction that was very complicated and just created a lot of
hoops for companies to jump through in order to bid on that
spectrum, what the outcomes were. We're still wrestling with
the 700 megahertz A block, that Steve mentioned, because of
that. And so, I just think that if you just have a clean
auction with a lot of spectrum, and you let people bid on it,
that you'll have the best outcome, in terms of money to the
Treasury, funding FirstNet, being able to pay for the
broadcasters to relocate and compensate them for their spectrum
that they give up.
Senator Heller. I'm kind of trying to keep an eye on this
reverse auction portion of this. And if we don't provide the
right incentives for broadcasters to sell their spectrum, we're
jeopardizing the whole goal of paying----
Mr. Largent. Absolutely.
Senator Heller.--for FirstNet and for bringing more
meaningful spectrum to the market. In your opinion, is the FCC
getting the reverse auction right?
Mr. Largent. I think that's yet to be seen. I'm hopeful,
I'm optimistic. I've talked to people at the FCC, and, you
know, there has been a lot of changes at the FCC over the last
month or two, so it--that's a question yet to be answered. But,
I am optimistic. I am hopeful. They understand the concerns
that we have, and I think they're trying to address them.
At the end of the day, I don't--I can't give you an
affirmative answer, but I'm hopeful.
Senator Heller. Mr. Berry, I'll give you a chance to
respond.
And, to myself and my constituents, I think it's important
that we enjoy a robust, competitive wireless market. I believe
that leads to innovation. And I also think it lowers the price
point for expensive--some of these expensive devices.
And, in your testimony, you argue for a robust spectrum
screen that limits the amount of spectrum a company could own,
and for rules that ensure competitive carriers, that you
represent, that would be able to bid on this spectrum. Can you
give me some idea of what those rules would look like?
Mr. Berry. Yes, sir, and thank you very much. I would say
that the 700 megahertz spectrum auction is a--somewhat a good
reference. The--well, the fewest dollars amount--fewest amount
of dollars brought in by that spectrum was the largest sized
spectrum. Only the largest carriers could bid on it. And it's
sort of a--playing a bluff game. I don't think that we should
do that.
The Charles River and Associates Study, which was provided
last year, showed that unrestricted auctions actually can limit
the total bidder participation and actually reduce auction
revenue. As I said in my comments, I want AT&T and Verizon in
the same ecosystem as our carriers, because if they do that,
then our carriers were going to bid because they know they have
an ecosystem that they can participate in. They're not going to
get fooled again, like they were in the lower 700 megahertz,
and ended up not having the ecosystem that they could grow and
build and have access to devices. If you don't have--every
auction that's been conducted has had some type of rules and
restrictions. And I'm really afraid that if you have an auction
without any recognition that the one or two largest carriers
should not walk away with the pie, then your auction rules is
going to be, essentially, equivalent to, ``Let the big dog eat,
and let him eat all he wants.'' And I don't think that will
bring in the most revenue to the U.S.
The 700 auction showed: CMAs brought in almost twice the
amount of revenue per pop per meg as did the large aggregated,
REAG areas. And I think we're going to see that again, and I
think the FCC should have a device to bring certainty to the
marketplace. That's what--all these carriers want certainty.
And if you can have certainty on knowing what you're expected
to be able to walk away with, you're going to bid more, and I
think the American taxpayer will benefit from it.
Senator Heller. Mr. Berry, thank you. And, to all the
witnesses, thank you very much.
Thanks, Chairman.
Senator Pryor. Thank you.
Senator Warner.
STATEMENT OF HON. MARK WARNER,
U.S. SENATOR FROM VIRGINIA
Senator Warner. Thank you, Mr. Chairman.
Thank you, Senator Klobuchar, for that revelation you made
earlier. I--it's only because I've been--I got in the wireless
industry 31 years ago, and I will remind the panel--or, more my
colleagues, I guess--when it started, 31 years ago, everybody
in the industry, everybody on Wall Street, thought it would
take us 30 years to build out a wireless network, and, at the
end of that 30 years, you'd have 5 percent market penetration.
I made a lot of money, because they were wrong.
[Laughter.]
Senator Warner. But, one point I would make--and I want to
kind of play off some of my colleagues' comments, because, you
know, a business guy, I want to have the more--most efficient
allocation, and, lord knows, we need the revenues. But, I do
have to tell you, history has showed--and it was a fairly blunt
instrument, what the FCC did, 31 years ago, in breaking in--the
wireless block into A band and B band, wireline/non-wireline,
and there was lots of consolidation. But, I can assure you,
particularly in rural communities, there were large incumbent
carriers that did not build out at--nearly as quickly as some
of the startup or smaller companies. And there were a whole
host of innovations, in terms of marketing plans, in terms of
billing plans and other things, that really moved the industry
along. If it had just been left to the Bell guys, the old Bell
companies, I'm not sure--those original projections might have
been--might have been correct.
I also make the appeal to my colleagues--and I'm going to
get to a question in a moment, but I want to take this moment
with folks here--that, you know, if there's one common theme as
we--we need a lot more spectrum. And I think Mr. Ford made a
comment that some folks in government say, you know, ``I would
not agree with the President's''--and everybody who's saying
that, ``Never should we allow any government spectrum to be
commercially used.'' I mean, one of the things we have tried--
with, actually, Senator Snowe and I, for some time--just to get
a spectrum inventory. And I would urge any of my colleagues who
want to join me in this--again, we don't even know--because the
Government has a disproportionate amount of spectrum--how it's
being used, and how efficiently it's being used. I mean, we've
gone off and done things like public safety allocations of
additional spectrum, without any take-back opportunities from
spectrum that may not be fully utilized to its best effect.
And, you know, we need at least a roadmap of where the spectrum
is. And that gets us into areas with DOD and Intel and others,
but a host of other public functions that, if we're going to
reinforce--whether it's public safety or others--having some
skin in the game, in terms of some of their spectrum, would be,
I believe, a criterion.
I guess--I want to go to--Steve, to you, to put--I know
where, kind of, everybody else falls down. I'm trying to put
you a little more in the box, here, because I do think one
potential way to try to maximize revenues, but also maximize
players without some undue restriction, because we've got the
big two, but then we've got the next two, and then we've got a
lot of small players. How do we not just make it--if you
exclude the top two, something that just defaults to, you know,
T-Mobile and Sprint? But it--has CTIA taken a position on the
EAs versus the CMAs?
The one thing about the CMA, as Mr. Berry has made comment,
is that smaller carriers who are targeted in a market that
might be able to provide better customer service, better
quality service, and quicker delivery of that service than an
incumbent that might otherwise warehouse the spectrum, might be
a way to--you know, to kind of get at this.
And then, I would be interested to hear Mr. Ford and Ms.
Derakhshani's comments on this, in terms of----
Mr. Largent. Well, I would say, Senator, that--first of
all, congratulations on your award. Second of all----
Senator Warner. Not as cool as yours, and I don't get it
until----
Mr. Largent. Yes.
Senator Warner.--the fall.
[Laughter.]
Mr. Largent. But, second of all, I think that what you're
talking about is--number one, we don't get involved in the size
of the licenses, because we have a lot of Mr. Berry's members
as our members, we have the big carriers as members. So, we
don't get involved in that debate. But, I would tell you that
the more spectrum that you bring to the market, the fewer
debates, like we're having today, will exist, because
everybody's going to get a chance to supplement their spectrum
holdings. And that's what's--that's what we have always pushed,
is, get as much spectrum as possible to the market as soon as
you can, and then a lot of these debates that we have between
Steve and myself or our carriers have among one another, those
go away, because----
Senator Warner. And should there be any distinction between
that spectrum below 1 gigahertz and that spectrum above?
Mr. Largent. Yes. I--and I think--I would draw the line at
3 gigahertz and below. That's the spectrum we're particularly
targeting for auction for wireless carriers.
Now, we support the other folks that want to have Wi-Fi and
other services. We support that. But, in particular, the
spectrum that's below 3 gigahertz, that's what we're really
looking at for wireless----
Senator Warner. I'm going to--my time's run out, I won't
ask the others. I'd only make one other comment, to my
colleagues.
I know this debate about unlocking phones is important, but
if you don't have interoperability, it doesn't matter if you
unlock, because if you--that phone can't be used across
systems. And one of the things that I hope we can get more
growing consensus on is not lose track of the fact that--we
would not have a wireless system in America, but for the
requirement the FCC made, 35 years ago now, on
interoperability.
Mr. Chairman.
Senator Pryor. Thank you.
Senator Fischer.
STATEMENT OF HON. DEB FISCHER,
U.S. SENATOR FROM NEBRASKA
Senator Fischer. Thank you, Mr. Chairman.
We seem to be having a focus, here, in our conversation on
how the Government's going to get the most revenue out of this
spectrum auction. And I guess I would open this up to Mr.
Webster and Dr. Ford. And I'm interested in your opinion, as
well. But, first, I'd like to inject this into the
conversation:
Do you think that wireless service is a right of every
citizen of this country? If you do, do you believe that smaller
companies that service people in areas that have difficulty in
receiving service or receiving timely upgrades--should the
Government somehow recognize that right, if it exists, and how
should it be addressed?
So, I would ask Mr. Webster, first, and then Dr. Ford.
Mr. Webster. Senator, at Cisco, we believe broadband is a
great enabler for societies, for education, for business, for
productivity of the economy, for telemedicine, for public
safety, for, simply, better quality of life and all that can be
done that can help foster even greater broadband penetration.
Higher quality broadband and faster broadband is something that
should very much be pursued.
Mr. Ford. Well, I think if you want to maximize the auction
revenue, you need to sell one license. Monopolies will pay the
most. So, that's really not what we're trying to do, I don't
think. We use that. We're--I mean, I think Senator Warner
mentioned ``maximize revenues and maximize the number of people
that get it.'' It is this playoff between the two.
As far as the rural markets, I think it's--it's interesting
to think about that problem. And I don't know if I have a
specific answer for you, but I have been thinking about that as
this interoperability issue and roaming issue comes up.
If you take roaming, for example, the argument for roaming
is, you need--we have to force these larger carriers, that are
everywhere--nationwide networks--to permit--smaller companies
don't have nationwide networks--to use their networks, because,
if they don't, there's no demand for the service, which is
essentially saying there's no demand for local mobile wireless
service. It's a national market.
So, to some extent is--if we keep forcing--imposing these
rules, we are creating entities that really don't fit into what
the market really may be. OK? So, that's an interesting
problem.
It's sort of that way with interoperability, as well. If
being--having a certain market share or operating in certain
places is what drives the equipment market--if you're not in
that space or you're not big enough, then are you the right
type of firm to serve this market? Can you serve the market
efficiently?
And I guess, as someone who was--worked for a unbundled
element, CLEC, I'm a little bit worried about business plans
that hinge on government promises and rules rather than the
underlying fundamental economics of the business. And I think
we're getting into that area a little bit. But, I can
understand why people would say, ``Well, they're not going to
get served,'' or something like that. But, I think that's sort
of a secondary market problem. If the larger carriers don't
want to serve the rural markets, then why wouldn't they allow
someone else to use their spectrum? And I think there are
some--we need to study, carefully, what it is about the
secondary market that is keeping firms out of it to address
many of these problems.
Senator Fischer. Mr. Berry, do you think some of those
ideas that we just heard from Dr. Ford are going to help with
access, then, to rural areas? Or do you have other suggestions
on how we can improve that access?
Mr. Berry. Yes, I--I don't agree with much of anything of
what Mr. Ford just said. If you're in rural America and you
want access to wireless, I think--whether you consider it a
right or not, I think there are competitors out there that
would like to provide it. And what we've seen is, the smaller
carriers are willing to build out that most difficult-to-reach,
most costly buildout, and service those few customers, because
that's their business model. The larger carriers, it's barely a
decimal on their profit sheets. And it would be the last place
that they would build out, unless there were buildout
requirements.
In Germany, you know, they actually did a reverse buildout.
You had to build out the rural areas first. Of course, Germany,
there's not a whole lot of rural areas, compared to the United
States. But, there are countries in the world that have
addressed that. Canada has addressed it in their latest 700
megahertz. Build out to rural areas first, before you get to
the metropolitan areas.
I don't know that's what we would do, but there are ways,
with government suggestions, that you can ensure that every
consumer has access to broadband.
And we did a study, a year or so--a year and half ago, that
showed that, in rural America alone, out of the 14 states--19
states--that had less than 90 percent penetration, if you were
to build out mobile high-speed broadband, you would actually
increase the median income of every family in that state by as
much as 5 percent. Now, that's the type of growth in rural
America we'd like to see, and that's the type of job
promotion--over 100-and-some--110,000 jobs created, just in
rural America--with the mobile broadband buildout. Those are
the types of economies of scale that may not show up in a flat
economic study about what we should or shouldn't do.
Senator Fischer. Thank you.
Mr. Largent. Senator, could I add just one thing to that?
Senator Fischer. My time's up. If----
Mr. Largent. Well, I was just going to say--today, LTE is
the 4G technology that wireless is providing, and today, 90
percent of people in this country are covered by that LTE
network. Today. So, we're talking about another 10 percent. And
this is technology that's just been around for, you know, less
than 18 months. So, we're rapidly covering the country. It's
the 10 percent that we're talking about now that I think will
be covered in the near term.
Senator Fischer. Thank you.
Thank you, Mr. Chairman.
Senator Pryor. Thank you.
So, our next two Senators would be Senator Johnson and
Senator Nelson.
Senator Johnson.
STATEMENT OF HON. RON JOHNSON,
U.S. SENATOR FROM WISCONSIN
Senator Johnson. Thank you, Mr. Chairman.
I love it when people agree on things. And it looks like
we're all agreeing on: we need more spectrum. So, kind of going
down the line--anybody that wants to chime in, starting with
Congressman Largent--what is the greatest roadblock? What's the
number one stumbling block to creating more spectrum?
Mr. Largent. Well, I'd answer--two things. One is on the
auction that's immediately scheduled to occur in 2014. One, we
have to keep it on schedule. And that's going to be a
challenge, with the vacancies at the FCC today. Second, the
additional spectrum that we need, beyond broadcaster spectrum,
it--well, even with it--going back to the broadcaster spectrum,
it's--there's no way to assure how much spectrum is going to be
available, because they may not buy into it.
Now, we're working--our companies are working with the
broadcasters, trying to erase as many difficulties as we
possibly can to try to free up 120 megahertz of spectrum, if we
can. I don't know if that's going to be possible. You know, put
that one on hold, and watch and see.
In addition to that, though, we're going to need--if we get
to the 500 megahertz of spectrum that was called for in the
National Broadband Plan, then we have a lot of work left to do,
and the Government is not always willing to part with the
spectrum that they have.
Of all the usable spectrum that there is, the Government
owns 70 percent of it. So, 30 percent, we have--or, Wi-Fi has,
or somebody else has, other than the Government; 70 percent,
they have. So, we have to find a mechanism to coerce the
Government to give up some of their spectrum. And that's hard
to do, because they're sitting on spectrum that, you know, they
were given, and there's no reason that they have to give it up,
because they don't get the----
Senator Johnson. But, don't----
Mr. Largent.--they don't get the auction proceeds--now. We
think they should. But, they don't get the auction proceeds, so
why voluntarily give up spectrum that you have? So, that's
going to be an issue for us, going forward.
Senator Johnson. So, the short answer is: government.
Mr. Largent. The Government has a lot of spectrum. We need
to try to figure out a way to free it up.
Senator Johnson. Yes. And government's not that easy to
coerce.
[Laughter.]
Senator Johnson. Mr. Berry.
Mr. Berry. I agree with Steve, that there are two areas to
look at. You know, you go where the vast majority of it is. And
one is, government owns exceedingly amounts--large amount of
spectrum. And they do need to be much more efficient, and we do
need to find a way that we can move them out, where they're
compensated. And, actually, when you think about it, we get--
they get new devices, they get new technology. LTE networks are
five times more efficient than the 3G networks that are out
there now. If government thought that way, they might say,
``Well, maybe I could get five times more efficiency out of
spectrum--less spectrum.''
And the other is the broadcasters. You know, 120 megahertz
would be nice. I mean, you've got to ask yourselves--the
broadcasters, for all the good they have done, 90 percent of
the American people listen to their broadcasts over some other
wireline capability, either a dish, a satellite, or cable. And
10 percent--8 percent of the American people listen to it over
the air. What is the economic justification for those two
imbalances? When $166 billion is estimated, of new growth in
the economy if we added 500 megahertz of spectrum, I think we
know where we have to go get it.
Senator Johnson. OK.
Mr. Berry. It's a tough decision.
Senator Johnson. Mr. Webster?
Mr. Webster. Senator, in addition to the comments from the
previous two witnesses, I think there is a burden--or a hurdle
will be a lack of urgency. This is not necessarily a problem
that is just going to be coming in the future; it is starting
to get to be immediate issue now, and is going to require
action to get as much spectrum as quickly as possible out into
the marketplace.
The second issue, especially in terms of the voluntary
incentive auction, is going to be--the education needs to be
driven by the FCC to the broadcasters, themselves, especially
in the major metropolitan areas, where they have the biggest--
the biggest need for the spectrum. We can't necessarily expert
a broadcaster to understand all the nuances of the
telecommunication world, and that's a big area that the FCC
could strongly contribute in to help make that auction a
success.
Senator Johnson. OK.
Mr. Nagel.
Mr. Nagel. I think one of the things is, sort of, the
concept of incumbency in some of these spectrum bands. If you
look at--look at the 5, you know, gigahertz band, which is
probably the most promising, from the standpoint of making
large channels to drive really, really fast Wi-Fi. It's the
idea that, sort of, ``I own it.'' And I think that what we--
what we need to do is sort of have a new view, which is
spectrum sharing. You know, there are people in almost all
spectrum now. And so, we have to really develop this concept
of, how do we share amongst ourselves, develop the rules so
that things like Wi-Fi, which is a secondary service, work
with, sort of, licensed and other incumbents?
Senator Johnson. Mr. Ford.
Mr. Ford. Entitlement to what you have licensed, which is
what everybody said. I've been thinking about the Government
issue a lot lately, and I think the problem is, we have a
command-and-control management of spectrum in this country, and
we need to inject the market, not in fiddling with the
incentives of the Government, but inject the market into the
management of spectrum, itself. Because these problems--when
you can start moving money around, people get interested in
talking to you. But, now we've got to deal with the FCC and the
NTIA and maybe Congress, and try to get all these things done,
and it's just--and mainly so--I mean, I don't know if the
broadcasters are taking money from the Government in the
spectrum auction, or the Government is taking money from the
broadcasters in the spectrum auction, but if you can get the
market involved in the management of spectrum, then I think
it'll move a lot quicker than it is.
Senator Johnson. Ms. Derakhshani, I know I'm over time, but
I hate to not give you the opportunity.
Ms. Derakhshani. Very quickly? Great, thank you.
So, we would say, beyond the problem, freeing up spectrum
and getting it to market, it also must be built upon quickly.
Consumers won't be able to benefit from this additional
spectrum unless it's built out upon. And, for that reason, I
would say that we disagree with Dr. Ford's analysis that
consumers will benefit from spectrum going to the largest
carriers. Economic theory, as useful as it may be, doesn't
necessarily serve as a proper metric for consumer welfare.
Senator Johnson. Thank you.
Well, Mr. Chairman, I think, to--just to summarize, it's
going to require urgency from the Federal Government, and I
certainly appreciate your holding this hearing, because we've
got to create that sense of urgency, that type of leadership.
Thank you.
Senator Pryor. Thank you.
Senator Nelson.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Well, what happens if we don't release a
lot of spectrum? So, Mr. Largent, what I'd like to ask is, To
what degree can you make equipment and systems more effective
if that were the scenario to play out?
Mr. Largent. Yes. Well, I would rely on the experts on
that. And so, I'd look to a company like Qualcomm, which builds
efficiency into wireless networks. And their CEO said, at our
show, not this year but last year, that we are fast approaching
the time where we've gotten all of the efficiency out of the
market that's available, that they don't have any new tricks up
their sleeve to develop more efficient systems to take
advantage of the spectrum that we have today--that we're going
to have to have more spectrum, is the bottom line.
And what are the results if we don't get more spectrum? I
can tell you that it--what you will see happen--my guess--I've
never been told this, but my guess is, you'll see higher
prices, because when--that's how a carrier or a manufacturer
deals with inefficiency in the marketplace and a lack of new
materials or new spectrum, is by raising the prices. So, that's
the only way that you can monitor or control the usage that's
on your system that you have today. And that's not--that's not
the world that we want to see.
Senator Nelson. The way Congress is operating is not the
world that I want to see, either. And yet, we find that it
often doesn't work.
Anybody else want to comment on that?
Mr. Ford. Higher prices and lower quality, that's what'll
happen. And you'll find innovative new business plans. Comcast
building out its Wi-Fi network--people will start using that
kind of model, but it won't be, really, what people want; it'll
be an imitation of what people want.
Senator Nelson. Mr. Webster?
Mr. Webster. Yes. Just to use my Beltway analogy, Senator,
from opening comments, if there's nine times more traffic on
the Beltway in 5 years, there's going to be a great loss of
productivity, a great loss of quality of life. It would affect
the economy and actually make for a thoroughly unpleasant
experience for us all.
I think the way to solve this, no question, is going to get
more licensed spectrum available, more unlicensed spectrum.
There is a requirement, on technology innovation, to continue
to improve the efficiencies, as we've seen with the difference
between 3G and 4G. And there also is going to be a need to have
network management that is appropriate to actually direct the
proper supply to the demand when it's actually going to be
necessary to optimize the experience for all. It's a
combination of all four of those. It's not an either/or but a
both/and scenario.
Senator Nelson. So, Cisco can do all of it to make it a lot
more efficient.
Mr. Webster. Senator, I wish I could tell you that were the
case. But, we definitely can advance on the technology
innovation, and we can be ardent advocates to help promote
national broadband for the betterment of this country and all
others around the world.
Senator Pryor. Thank you, Senator Nelson.
Mr. Berry, did you have a comment on that last comment?
Mr. Berry. Oh, I was just going to--thank you--I was just
going to say that we are going to have to get better on the
technological side. I'd say 90 percent of our capacity has been
through technological innovation, not increasing spectrum.
And--over the last 20 years--we are getting to that point, that
there has to be significant breakthroughs. And whether it's
software-defined antennas and radio--frequency skipping radios,
we're always looking. But, they're 5 or 10 years away, and
we're on an immediate head-on collision.
There's other things that we can do right now to--
especially in some areas--to enhance and--the efficiencies of
the spectrum that's currently there. I know that, last year,
Senator Klobuchar and Senator Snowe introduced the legislation
that would actually put some real flexibility in utilizing
unused spectrum in those rural and regional markets. And
hopefully, we'll start looking at innovative ways to do that.
It won't stave off the draconian impact, but it will allow us
to survive a few more years.
Thank you.
Senator Pryor. Mr. Webster, let me ask you a quick
question--I see that we're being joined by another colleague,
here, but let me ask you a quick question about spectrum.
We've all talked about how we need more spectrum, but is it
fair to say that not every area of the country needs more
spectrum, that, for a lot of areas of the country, it's just
really an infrastructure limitation more than, truly, a
spectrum limitation? Although there are clearly some urban
areas and congested, kind of, metropolitan areas that
definitely need more spectrum. Is that fair to say?
Mr. Webster. In our experience, every major operator in the
developed world is in need of spectrum, one way or another.
Certain developing nations don't necessarily feel the pinch,
but, very much in the United States, there are going to be
requirements of both licensed and unlicensed. We are seeing--to
your point, Senator--definite need in the very dense
metropolitan areas, right now, where there's just a very high
concentration of people and devices looking to take advantage
of the benefits of that. That's why any and all spectrum that
can be made available for use would be helpful.
Senator Pryor. And let me just follow up on that, if I
could. And that is, are there ways that we could offload the
need for spectrum with some of our wireless devices? For
example--I'll just give you a couple--where a wireless device
could pick up, just, over-the-air broadcast television and
radio. Does that move the needle much, in terms of the need for
spectrum?
Mr. Webster. Sir, in terms of the overall demand of
offload, you very much are accurate, in that there is going to
be a need to offload from the more tightly constrained licensed
radio spectrum, or cellular radio, off to the unlicensed radio
spectrum, largely through Wi-Fi. And the key is going to have--
to be those two technologies working together as seamlessly as
possible to have a very smooth mobile experience. In terms of
broadcasting over the air, that is one option to consider;
however, the vast majority of demand now is on-demand, where
broadcasting to many doesn't necessarily work.
Senator Pryor. I see.
Senator Rubio.
STATEMENT OF HON. MARCO RUBIO,
U.S. SENATOR FROM FLORIDA
Senator Rubio. Thank you.
My first question--either Dr. Ford or Mr. Largent could
help answer this--is about secondary spectrum markets. And
considering the growing spectrum demand that we have, and the
amount of time it takes to get spectrum from auction or
clearing it to the marketplace, secondary market transactions
become that much more important and necessary in order for
carriers to acquire spectrum. So, should FCC approval of these
transactions be streamlined, particularly for smaller
transactions? Do you have any thoughts on how we should do
that?
Mr. Ford. Well, I recently wrote a paper on that, at least
certain aspects of it. I think, certainly, if you've got a
capacity problem, a spectrum problem, and somebody has some
that they don't need, and somebody does, you make a transfer.
But, always, these transfers get bound up in the politics of
the deal, and people see opportunities to, you know, impose
voluntary conditions and things of that nature. I think a lot
of the smaller deals do go through. It's when you start
getting--as we've been talking about here today, when you start
getting AT&T and Verizon involved, then you run into problems,
where people are saying there's too much spectrum
concentration.
But--the FCC has been a little slow, but they've actually
approved deals recently without too many conditions on them, so
there's some help there. But, there are many--that secondary
market issue needs to be figured out and resolved, and I'm--I
don't know all the problems with it, but it's not working as
well as it should.
Mr. Berry. You raised the issue of the secondary market.
The secondary market is not actually working for the smaller
carriers right now, because they're always being outbid by the
largest carriers, because spectrum is at a premium need. And if
you look, in the last 2 years, there were a little less than
1,200 license transfers, 800 license transfers went to AT&T and
Verizon. In the last year, 300 license transfers went to AT&T
and Verizon with under 1 gig in the spectrum. What we haven't
talked about here today is the efficiency of the spectrum
itself, and how much more efficient certain sizes--certain
spectrum and propagation values are over a higher gigahertz
spectrum.
So, that the secondary market hasn't worked, I'd like to
see ways to enhance it. And I think Senator Klobuchar's bill,
last year, would help open up some of those secondary markets
for the smaller carriers. It's something I think we should
still be exploring.
Senator Rubio. My second question--and again, anyone can
help answer this; I think I know the answer, but I want to make
sure--is that I know the industry is really focused on the 25
megahertz from 1755 to 1780, but do we have a cost estimate for
clearing Federal users from that 25 megahertz? And if we don't,
I guess the question is, why not? And doesn't that really hurt
the chances of clearing it?
Mr. Largent. The industry's actually done a study on that,
and they've used government figures to come up with this
result. But, the result was, it was going to cost about $4.6
billion to move the Federal users.
Mr. Berry. I should note that--Steve is exactly correct,
but if you pair that with the 2155 to 2180, the entire value of
those two pairings--and you have to sell 2155 to 2180 by 2015,
according to the direction of Congress--the value of those two
paired spectrum would be $12 billion. So, there's an
opportunity, here, for us to act, and act now, and I totally
agree with Steve on that.
Senator Rubio. OK. And my last question is based off the
testimony of Mr. Webster. You stated--this is a quote--that
``Mobility has the potential to generate hundreds of thousands
of more jobs if the Federal Government acts promptly to ensure
that additional spectrum is made available to fuel future
mobile broadband growth,'' end quote.
My question is, what happens if we don't? What happens if
we don't act promptly in that regard? What are the implications
for our economy? Maybe the FCC and the NTIA don't work together
to make more spectrum available.
Mr. Webster. Senator, I believe the implications are that
we're going to stall a very growing, thriving sector of our
economy. We're going to be minimizing productivity gains of all
different users, and impeding communications in our economy.
And, frankly, it will start to put us behind on the global
landscape. If we can't have strong mobile broadband, there are
going to be a number of sectors that will--very well may choose
to reside elsewhere. They will go someplace where they can
actually get the bandwidth they need to operate their global
businesses.
Senator Rubio. Thank you.
Senator Pryor. Thank you.
Senator Blumenthal.
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thank you, Mr. Chairman.
Thank you all for being here today. And I have a couple of
questions. I hope I won't cover ground that has been covered
already, from what I've followed.
Let me sort of pick up on a point that Mr. Berry was making
about the differences in spectrum--not all spectrum is created
equal, so to speak. And the Department of Justice recently
wrote to the FCC, as you know, to ask that the FCC weigh in on
exactly this issue, on how the Commission can structure its
spectrum policy to encourage competition and promote consumer
benefits. And the DOJ noted that, just like in real estate,
some spectrum is the equivalent of beachfront policy; and
others, less desirable.
So, since the beachfront property, so to speak, is already
heavily concentrated--I think 78 percent of the spectrum below
1 gigahertz belongs to--or, is controlled by AT&T and Verizon.
Let me ask both Mr. Berry and Mr. Largent, what can be done to
put more sensible limits on spectrum consolidation before
reviewing mergers? Do you think that there ought to be limits,
in reviewing mergers or conducting auctions? On approving other
spectrum license transfers, should the FCC account for the
differences in the quality of spectrum, particularly in low-
and high-frequency spectrum, in making those kinds of
judgments?
Mr. Largent. Well--yes, I--Senator, the ideal situation for
a carrier is to have both high-band and low-band spectrum. One
is better for when you're dealing with concentrated users, and
the other--and another type of spectrum is better to cover
broad areas in rural communities. So, ideally, carriers want to
have spectrum both below 1 gigahertz and above 1 gigahertz. So,
that's ideally.
But, I would say we have carriers on both sides of this,
and so it's kind of--it's an issue that we don't deal with at
CTIA, because there's not a unified position within the
industry about the direction that we should go.
Senator Blumenthal. Mr. Berry?
Mr. Berry. Senator, I'd--I have a chart here that you might
want to look at, if you can get a clerk to provide you. It's
actually a coverage comparison on the value of spectrum. And
the--and courtesy goes to Verizon for putting this together. I
think they did this for one of their stockholder meetings.
But, it shows that there is a significant difference in the
value of low-band spectrum and high-band spectrum. Matter of
fact, the build is four to five times as many towers to cover
the same amount of spectrum if you have high-band versus low-
band.
And this 600 megahertz spectrum that's coming available is
absolutely prime real estate. And that's why I think that the
FCC should do two things. One, they should finish the spectrum
aggregation proceeding that they currently have, and identify
what is a spectrum amount that is acceptable in every market.
And then they should put a trigger--a double trigger in there
that says, ``If you're in a market where you're exceeding or
about to exceed the spectrum trigger, then you ought to be able
to justify whether or not you need the spectrum, or not.'' I
think that those two things put in place for the auction would
probably end up limiting certain markets that AT&T and Verizon
could accumulate over a certain amount of spectrum--and that
would go a long way to making sure that smaller- and
intermediate-sized regional carriers could actually buy the
spectrum that they need to continue to be competitive.
Senator Blumenthal. So, you think there should be some kind
of sensible limits or controls or----
Mr. Berry. I think it'll bring certainty to the market, and
I--hopefully it will keep AT&T and Verizon bidding in the
market, and hopefully we'll have an ecosystem that everybody
can participate in. So, yes, I do believe there should be some
type of gating mechanism so that one carrier cannot walk away
with the pie.
Senator Blumenthal. Let me shift to text messaging. Maybe
you can explain, Mr. Largent, why there is a discrepancy
between the low cost of transmitting text messages for the
mobile carrier and text-messaging rates, which seem to be
increasing.
Mr. Largent. Well, I can tell you that I, personally--my
rates aren't increasing. And it's not because I'm the head of
CTIA. My wife's rates aren't increasing, either, because we
have an all-you-can-eat plan. And the majority of Americans
have a plan similar to that, where they pay one fee. I think
it's----
Senator Blumenthal. Well, my understanding is that,
actually, most consumers, or many of them, are paying more for
text messaging. Over the past several years, carriers have been
offering fewer options in text-messaging plans, and at higher
rates. Most carriers now compel consumers to choose between a
$20-a-month unlimited text-messaging plan or a per-message rate
of 20 cents. So, the options are fewer. You may have chosen one
where the cost, incrementally, does not rise. But, for other
consumers, text-messaging costs are increasing. And the point
is that the costs for the carrier are not increasing.
Mr. Largent. Well, what I would say is, the great thing
about this innovative industry, there are always ways that you
can get around that, as well. There's many applications you can
download on your phone, where there's no cost to text message.
So, I just think, in this really creative, competitive,
innovative industry, there are ways to work around these
different issues that consumers have. And, frankly, that's why
this industry, to me, is so exciting and fun to be a part of.
Senator Blumenthal. Well, you should talk to some parents.
You've talked to your wife. You should talk to parents--I don't
know whether you have children--who have to pay their
children's cell phone bill. And that per-message rate, if
that's the one that they choose, can add up pretty quickly. And
the point, here, is that maybe there should be lower-cost
options for that per-message rate.
Mr. Largent. Right. And that's what I'm saying. There are
lower-cost options that are available. So, it's just a matter
of the consumer finding those out. And it's not like they're
hidden. If they look for them, they'll find them.
Senator Blumenthal. My time is expired, but I do appreciate
your being here. Thank you very much.
Senator Pryor. Thank you.
Senator Klobuchar. Thank you for your----
Senator Klobuchar. Thank you. I just want to follow up--no
questions, but I'm one of those mothers that didn't want to get
the unlimited texting, because I didn't want my daughter to
unlimited text. And I know what those higher bills are like.
So, thank you. And I still haven't changed. And I hope that
you'll change.
The questions I had was on spectrum. And we've talked a lot
today about how there's just this growing demand for spectrum.
We all know that. And with this increased discussion about
relocating government spectrum users in order to increase
spectrum available for commercial--for consumer broadband
usage, I know that Commissioner Rosenworcel has suggested
providing financial incentives to government agencies to
participate in relocation. And, as I understand it, she has
proposed allowing agencies to reclaim a portion of the revenue
that would come from auctioning off their spectrum, and this
would be used to relieve the significant budget pressures
facing all Federal agencies.
Could you explain, Congressman, if you envision such a
proposal could work?
Mr. Largent. I think it absolutely can work, and I support
that. And I've relayed those comments to the Commissioner about
that. I think it's a great idea.
Senator Klobuchar. OK.
Anyone else want to comment?
Mr. Berry. Yes. Actually, we did that in 2001/2002, when we
cleared 1710 to 1745. I was at CTIA at the time, and we passed
legislation that authorized the DOD to actually get reimbursed
for the cost of their new capabilities, moving to a different
slice of spectrum. And I agree with Steve--Mr. Largent--that it
will be helpful, and we ought to try it, because we need to get
more spectrum out of the Federal Government, for sure.
Senator Klobuchar. OK.
Anyone else?
[No response.]
Senator Klobuchar. OK. I am the Chair of the NextGen 911
Caucus, and we're always looking for ways to improve public
safety. Clearly, interoperability in the whole spectrum issue
will be helpful. And we've got, in our state, about 27 percent
of the Minnesotans living in rural areas, but almost 70 percent
of our motor vehicle accidents occur in rural areas. And we
know there are a number of reasons for this disturbing fact.
But, could you speak a little bit about the public safety
implications of widespread access to wireless networks,
especially in terms of decreasing response time? And could you
discuss, maybe--either of you, at the end there--how your
members are working with the FCC on the implementation of text-
to-911 services, which--we know a lot of people are now using
text to communicate with 911.
Mr. Largent. Sure. We're actively working with the FCC to
participate in the 911 panel that they have, the Committee.
And, you know, my hope is, is that we can expedite this
process. We have done a lot of work. And, frankly, though, a
lot of work still needs to be done, on the Government side of
the equation, to get them caught up, in terms of the equipment
that they have and the ability to receive information from
wireless carriers, that they can't now. So, that really is one
of the most inhibiting factors in delivering next-generation
911 service, is their ability to receive the information at
those centers that you're referring to.
Senator Klobuchar. Do you want to add anything, Mr. Berry?
Mr. Berry. Yes. We, too, are working with FCC. And
actually, have--are complying with the text--the bounce-back
for the text 911 bounce-back. And the smaller carriers, may
take them a little longer. And I think we're working with FCC
to actually be able to meet the NG-911 requirements. But,
it's--absolutely right, with that capability comes a
responsibility. And our carriers, I think, are stepping up to
the plate.
But, Steve is absolutely right, it would be nice to have
PSAPs, and the public service--or public answering systems--
compliant, also.
Senator Klobuchar. Very good.
You raised, Ms. Derakhshani, about the issue of cramming,
earlier in your testimony. And I know there are intricacies to
the wireless industry. But, at the same time, I've seen
consumers show me their bills in Minnesota, not just on the--on
regular phones, but also on the wireless. And I know the FCC's
looking into this. And how underreported do you think it is? I
just know--we had a Lutheran minister who went through his bill
every single day, and then found it. And I just don't think
everyone's doing that and looking at their bills that
carefully.
Ms. Derakhshani. Absolutely. We think this is a very
important issue. We've been alerting our readers to the
practice of cramming, and telling them to carefully look at
their bills every single month. But the fact is that when
consumers do not anticipate these charges--when consumers do
not initiate the requests to have these charges, they're not
looking for them. This further contributes to the problem.
Industry often points to the fact that these numbers--the
complaint numbers simply aren't there. But, the fact of the
matter is, these numbers are underreported because many
consumers have no idea that this practice is taking place.
Senator Klobuchar. OK.
I'll put my last question on the record--I see Senator
Ayotte's here--but, to you, Mr. Berry, and it's just about the
interoperability issue.
I thought it was good, Senator Warner raised that. It is
true that we need the interoperability to do the unlocking. And
my question was going to be focused on the rollout of 4G
service and the problems with that, in rural areas, if we don't
have interoperability. So----
Mr. Berry. Well, especially in the lower 700 megahertz
band. Without interoperability, it's going to be a long time
before our carriers can get devices.
Senator Klobuchar. Exactly.
Thank you very much.
Senator Pryor. Thank you.
Senator Ayotte.
STATEMENT OF HON. KELLY AYOTTE,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Ayotte. Thank you, Mr. Chairman.
I appreciate the witnesses being here today.
Mr. Ford, I've got constituents in more rural areas of New
Hampshire--Coos, Carroll County, and to some extent, Grafton
County--that really don't yet have full access to the wireless
or broadband capacity that they need. Roughly a third of
American households don't even have a landline.
And then, for economic activity and growth, what can we do
to increase access and deployment in these areas? How does a
competitive marketplace increase access in more rural settings?
I'm also going to have a follow-up to Mr. Berry.
Understanding you represent the smaller carriers, I'd like to
hear your thoughts. I'm not a big fan of the Universal Service
Fund, the way it is structured now, because New Hampshire is a
$25 million annual net donor. We have these needs that I'm
talking about that are real needs in rural areas of my state.
I'd ask Mr. Ford, first, just from the competitive side,
what are your thoughts on rural development?
Mr. Berry, count me as someone who doesn't want New
Hampshire to continue to be a net dolor to this fund. As
someone who represents the smaller carriers, how do you suggest
we address the disparity and equity issue of states like mine
receiving 37 cents for every dollar we contribute to the
Universal Service Fund?
Starting with Mr. Ford.
Mr. Ford. Well, whether the market is competitive or not,
there are going to be areas of the country where it just
doesn't pay for a private company to provide service. And, in
those cases, if the Government can make it happen, they've got
to come in with some kind of universal service program. But,
like you have noted, those programs aren't all that good. And
that's the--a fundamental problem with government trying to do
nearly anything, and the problem with just being--living in a
place where it's not economic to serve. In some cases, there's
an economic case that comes from a carrier, who wants to be
nationwide and wants to sell coverage, who might cover an area
that's not really profitable, in and of itself, except for the
fact that people may vacation there or drive through or
something like that. But, there are just a lot of areas where
there's no business case. If the Government wants to come in
and try to create a business case in some way, that's possible.
Competition is a problem, in some respects, because, in the
old days, we did, sort of, internally funded universal service,
where a carrier served the whole area, and he would take
profits from an urban area and shift them over there, and that
was fine. When competition developed, the margins were stolen
by the competition, and you couldn't support that internal
subsidy.
There are probably some very creative ways to do it. I
think that Universal Service may keep people from really
searching out those competitive ways to solve that problem. You
know, the Government could do some simpler things--build
backhaul towers that could be shared, those sorts of things. I
just don't think there's much discussion of that--I'm not
certain of that--partly because there is this system that's
supposed to take care of it, and people kind of think that's
going to do it.
Senator Ayotte. Right.
Mr. Ford. And it doesn't. And if I wanted to, maybe--if I
could get a little bit of money--I talked to a guy who had
arranged to build a wireless network on some water towers in a
little community in north Alabama, and he couldn't get any help
to do it. It wasn't very expensive--$60,000 or something is all
he needed. Couldn't get it from the NTIA on the broadband
thing. You know, I think it's just really a failure of an
institution. And maybe that institution will always fail. Maybe
government just can't do it, and we just have to live with it.
Senator Ayotte. Mr. Berry?
Mr. Berry. Thank you, Senator.
Universal Service Fund and CAF, the Connect America Fund.
You should be outraged that there----
Senator Ayotte. I'm outraged for my constituents----
Mr. Berry. Well, you should be.
Senator Ayotte. You don't have to tell me.
Mr. Berry. Well, you share the same position as most of the
wireless carriers. We contribute 44 percent to the Universal
Service Fund, and wireless carriers take less than 20 percent
of the Universal Fund dollars. The so-called ``reform'' on USF
was disastrous to wireless--rural wireless carriers. It totally
decimated the revenue. Sixty percent increase to ILECs, 6
percent increase to RLECs--rural electric; 60 percent reduction
to wireless carriers. It's an outrage to say that we did
anything to improve broadband--high-speed mobile broadband in
rural America. And your state was one of the ones that got
really severely hit.
I'd like to see a program at the FCC that is technology
neutral and gives everyone an opportunity to bid. What they're
doing with CAF-1 and CAF-2 and the Mobility Fund, I think it
was outrageous. And the wireless carriers continue to support
USF contributions--like I say, to 44 percent of the total
fund--and take almost nothing.
There's a few things--I'd love to talk to you, offline, on
some of the things that we're working on at the FCC to make
them--or at least get them to look at their next phase of CAF-1
and CAF-2. You're talking about a CAF-1--Connect America 1--for
wireline companies that was $300 million, and $185 million of
it was not accepted by the wireline companies, because they did
not want to commit to carrier-of-last-resort responsibilities.
We had wireless carriers more than willing to do that. So, I'm
sitting there saying, ``What's the policy that we should
pursue?'' We should recognize that, in some areas of the United
States, wireless will be the most efficient and most effective
deployment of high-speed mobile broadband. And the Federal
Government ought to recognize that, it is a substitute
technology.
So, I'd love to talk to you about some of the things that
we're working on, and hopefully, you know, we could make some
positive inroads down there.
Thank you.
Senator Ayotte. I would appreciate that.
And I know that my time is up. I've got a couple of more
questions that I will submit for the record.
But, I appreciate you all being here, and I'm glad to hear
that you're as outraged as I am for New Hampshire.
So, thank you.
Senator Pryor. Senator Ayotte, thank you for being here.
And I do have one follow-up question for Ms. Derakhshani,
and it's about cramming. Years ago, when I was Attorney
General, we dealt a lot with this, just on your home telephone
and cramming on bills. I remember, with telephone service, it
was hard, because your typical telephone bill is not the same
every month, you know, depending on if you're using long
distance or whatever's going on. So, sometimes the customer
doesn't really know, kind of, what their average is; and if
it's a little high one month, they don't even look at it. And I
assume that's pretty true with a lot of wireless plans, as
well. I mean, you can get the packages and get all the data and
all that. But, you know, a lot of this just depends on month-
to-month.
So, the question is, do you think that the wireless
companies should do something proactive? Like, for example,
maybe send a text to their customers when something is placed
on the bill so the customer can be notified and see it and
verify it.
Ms. Derakhshani. Absolutely. We were really glad that this
was the case in the bill-shock proceeding. We hope that this is
an effective way to alert consumers, to help ensure that they
don't go over their plan limits.
We were really glad to see that the landline rules were put
into effect last year at the FCC. These rules more clearly
separated out third-party charges. We would love to see this
for the wireless context, as well.
But, I really do think that carriers need to play an active
role in ensuring that consumers are provided with the tools and
the information that they need--not only to make meaningful
choices, but to also protect themselves against abusive
practices.
Senator Pryor. Thank you.
Well, I want to, again, thank the panel. We've kept you for
2 full hours. I don't think that was our intention. But, I
think we had 12 Senators come and ask good questions, and a
couple, three, asked two rounds' worth. So, I want to say thank
you very, very much for your participation today, and your
preparation.
This is going to conclude the hearing, but what I want to
say before I drop the gavel is that we will keep the record
open for 2 weeks, and members can submit questions. And some of
them said that they would submit questions. So, we'd appreciate
you all getting back with us as quickly as you can, once those
questions come in.
Again, thank you all for your participation. You're
outstanding and really helped the Subcommittee understand the
lay of the land when it comes to wireless.
We're adjourned.
[Whereupon, at 4:31 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Question Submitted by Hon. Amy Klobuchar to
Steven K. Berry
Question. Consumers who have made investments in their devices,
which are not always cheap, should be able to take their purchases with
them to any network, unlocking is one way to ensure this . . .
interoperability is another. Consumers don't always realize that they
are being cornered into one service by a device. How does lack of
interoperability impact the rollout of 4G service to rural America and
the quality and cost of services they receive?
Answer. The lack of interoperability in the Lower 700 MHz spectrum
band has a significant negative impact on a carrier's ability to
provide 4G LTE mobile broadband service to rural America. Absent
interoperability, competitive carriers, including those who provide
service in rural America, who have invested nearly $2 billion in
spectrum in the Lower 700 MHz band, are largely unable to secure the
devices necessary to deploy and provide mobile broadband services. The
Lower 700 MHz band, known for its superior propagation characteristics,
is particularly important for rural areas. Using this spectrum,
competitive carriers can service rural areas more economically and with
fewer towers than they would with higher frequency bands. The lack of
interoperability is significantly impeding the rollout of 4G service to
rural America.
As you noted during the hearing, interoperability is required for a
consumer to take an unlocked phone and use it on another network.
Similarly, interoperability is required to allow a consumer to access
service through carrier roaming relationships with other networks while
outside their home network area.
The Federal Communications Commission (FCC) has an open proceeding
pending on this issue, and I strongly encourage the Committee to urge
the FCC to immediately restore interoperability to the Lower 700 MHz
band. Restoring interoperability to the Lower 700 MHz band would allow
competitive, rural, and regional carriers to utilize low band spectrum
that they have already purchased to deploy mobile broadband services in
the rural areas that they have historically served. In turn, millions
of rural, regional, and lower-income Americans will gain access to 4G
LTE mobile broadband services, and will see increased competition and
innovative pricing and plans in their local markets.