The New FCC: Investigating the Wireless IndustryThursday, September 03, 2009
All five of the FCC Commissioners have been sworn in and are getting down to work. One of the first tasks they will undertake is to investigate the wireless industry on a variety of fronts. They plan to analyze innovation and investment, competitive conditions, and consumer billing practices.
The announcement of this inquiry was met with cheers from the Internet companies and Internet users who still believe the Internet is free so they should be able to access it for free over wireless. But this is really about those who "discovered" wireless late wanting in on the action and the perception that wireless networks are charging way too much money for their services. The first is sour grapes, and the second is not reality.
Today, we enjoy some of the cheapest wireless voice and data rates in the world. According to the most current study by Merrill Lynch (Q-3 2008), we pay an average of $ 0.06 per minute including long distance and roaming. In Japan, they pay $0.27 per minute, and in Europe, even with calling party pays factored in, they pay more than $0.20 per minute. Data rates are also lower in the United States than in most other countries by a wide margin, and U.S. revenue growth per subscriber has declined every year since 2002.
When the FCC released its third notice of proposed rulemaking for the 700-MHz D Block for public safety, it stated that $40 per device per month was an acceptable price for the public safety community to pay for wireless broadband-apparently the FCC doesn't think consumers should have to pay that much.
Those who believe they fly free on the Internet are just plain naive. They pay for DSL, cable, or Wi-Fi access, OR someone else is paying for their access, perhaps the owner of a coffee shop. In a recent survey I did in Las Vegas, landline service providers were charging between $20 and $55 per month for DSL and/or cable Internet connections at various speeds, and wireless network operators were charging between $40 and $70. I believe there should be a premium for wireless access because of the costs involved and the investments that have been made.
This leads to the real issue the FCC is looking at: Will having more competitors drive pricing lower? Do we need another nationwide network operator or two to push the incumbents into lowering prices? There seems to be a consensus that if we have more operators we will have more competition and, therefore, lower pricing.
I maintain that we already have fierce competition at various levels, and that adding more players will not result in better pricing-especially since network operators are investing heavily in next-generation technologies that will lower their costs and make it feasible for them to lower pricing in the near future anyway.
Wireless bandwidth is a finite resource that must be managed. Even the landline Internet connection providers are charging different rates for different speeds and some have found that they have to limit the amount of data consumed by any one individual. Wireless providers have less bandwidth available than landline providers and have to manage their networks more efficiently. Pricing is one way to equalize the demand and the load on the networks.
And then there is the issue of needing more networks. I have written plenty of articles about how many networks can be supported by a given population. Rather than going through this again, I will refer you to a Fierce Wireless article (http://www.fiercewireless.com/story/network-operators-how-many-can-survive/2009-08-19).
Would the FCC's granting of two more nationwide wireless licenses change the competitive landscape? I don't think so. There may be special introductory offers to attract customers to a new network, but I don't believe we'll see any reaction from the other network operators. There is a cost to doing business. Many people don't seem to understand this or they don't want to understand.
Providing services is about making a profit. I hope that once the FCC has started digging into these issues it will come to understand that we already have a very competitive wireless environment in the United States and artificially creating an even more competitive marketplace will end up with the newcomers being bought up by the incumbents or going out of business and leaving their customers to fend for themselves. Last time I looked, we lived in a free market society. Market forces will determine the need for more networks-not some government agency.
While all this is going on in the United States, in the EU there is dissension in France about a fourth 3G license (priced at about one-third of what the original three operators had to pay) and how many operators are needed. Jean-Bernard Levy, Chairman of Vivendi, SFR's parent company, posed the following question: "Does France really need a fourth operator while several other countries are moving from four to three? It has just happened in Australia, is imminent in Spain and the UK." China also recently cut the number of wireless operators from six to three, but I guess the trends in the rest of the world are not being considered as important in the United States-I guess we know better?
Where were those who believe we are not being treated fairly by wireless network operators only a year and a half ago when the 700-MHz spectrum was up for auction? If they truly believed they could build a new network and provide the same level of service to customers for less money, why didn't they buy the spectrum and put together a network? Why did they wait until after the fact to complain that existing wireless operators have an advantage?
Oh, I forgot, they want the spectrum for free (the ASW-3/4 band). On it they will graciously build out a nationwide network that will provide free 786-Kbps service to anyone who wants it, and charge others for faster service. Wonder how much they will have to charge for this faster service to satisfy their investors?
Andrew M. Seybold