Friday, April 8, 2011

News Flash!—FCC Identifies Market Failures in Wireless Marketplace

     The FCC’s recent Second Report and Order on data roaming obligations of facilities-based operators (see http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-11-52A1.doc) offers two fascinating insights, only one of which will receive much attention.  Scholars and practitioners alike will concentrate on the FCC’s use of Title III spectrum management as the basis for mandating data roaming negotiations, backed up by formal complaint resolution.  Analysts will marvel at how the Commission has managed to impose an interconnection regime without convincingly addressing how information service providers lawfully bear such duties.  Additionally the Commission  does not fully explain how the duty to negotiate on commercially reasonable terms and conditions does not constitute common carriage and a “duty to deal.”   
     In a future blog I will address these issues, but now will consider another matter unlikely to get coverage.  This document is very, very important, because the FCC clearly identifies instances where the nature and type of wireless competition is inadequate to guarantee data roaming agreements between the major national carriers, such as AT&T and Verizon, and just about any other carrier.   Only AT&T and Verizon opposed a data roaming obligation,  because, as noted by the Commission, these carriers have refused to deal (¶24) and market consolidation “has reduced the number of potential roaming partners for some of the smaller, regional and rural providers” while also reducing the need for AT&T and Verizon to secure reciprocal roaming agreements (¶27).
     Such candor coming from an agency that never saw a wireless merger it could not approve and has never disputed industry claims how tirelessly they have to compete.  So if the wireless marketplace is so vigorously competitive would it not stand to reason that AT&T and Verizon would have to offer nationwide data roaming so that their data coverage maps show ubiquitous access?   If this market operated competitively would not AT&T and Verizon conclude that they should offer smaller carriers reciprocal access, even if doing so offers greater opportunities for little carriers to offer a competitive national data access service.
     It appears that the FCC acknowledges a market failure existing for a category of service that will become increasingly important.  If as advertized smartphones have become the functional equivalent of a wireless computer, then carriers have to offer near ubiquitous broadband access.  A deliberate strategy of denying interconnection by AT&T and Verizon, which the FCC identifies as occurring, constitutes an intentional tactic to exploit their market power and to further differentiate their services as superior. 
     We can dispute whether these two carriers have a compulsory duty to deal—as common carriers, or licensed spectrum users-- but one fact is indisputable: the need for the FCC to compel interconnection means that no market-driven incentive exists for AT&T and Verizon to offer interconnection reciprocity.  The FCC had to intervene, because the so-called competitive wireless marketplace would not prevent two dominant carriers from exploiting their dominance to achieve anticompetitive goals.

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