Wireless Carrier Ambivalence about Wi-Fi and What This Tells Us About Competition and Incentives

            Once upon a time, well over a decade ago, most wireless carriers saw Wi-Fi as a technological competitor.  The carriers always metered traffic then and wanted their subscribers to “use their minutes” rather than conserve them.  Subscribers could not “bring their own device, because the carriers managed a closed distribution link, selling most handsets and restricting the resale market.  Because the wireless carriers had a shared monopsony (buyers’ monopoly), they could dictate terms and conditions, including a prohibition on Wi-Fi access.  Nokia determined it could disable an installed Wi-Fi chip rather than redesign some handsets.

            Time passes and now wireless carriers adore Wi-Fi.  The carriers want subscribers to offload traffic onto Wi-Fi.  Better yet, U.S. carriers have lobbied the FCC to permit them to use unlicensed Wi-Fi spectrum for their commercial, licensed services.  Note what a sweet deal this would be as the carriers could avoid having to competitively bid and pay for some spectrum.

            Obviously the complete 360 degree reversal of position reflected changed circumstances.  But does the integration of a Wi-Fi option show how robustly competitive marketplaces operate, or are their other factors in play?  It gets murky, particularly in this partisan and contentious time.  A free marketer could use this reversal of position as evidence of how competition destroys business plans and forces ventures to enhance the value proposition for consumers. 

            I readily accept that marketplace competition imposes discipline and forces “sleepless afternoons.”  However, the free marketer overstates her case, because of other factors that either have nothing, or little to do with competition. 

            First, one should consider spectrum supply and demand.  As wireless service demand grew and bandwidth requirements expanded, e.g., streaming video, wireless carriers considered Wi-Fi a free and easy way to offload traffic.  Wi-Fi abated spectrum scarcity.  Additionally Wi-Fi provided network access where dead zones existed, because of zoning restrictions, particularly difficult terrain and perhaps the financial burden from having to install ever more cell tower sites.

            Competition does pay a major role in stimulating demand for service, but one has to look at the market structure of the industry.  You might not know that the FCC first created a wireless duopoly with a guaranteed license and market head start for incumbent wireline telephone companies.  Back then, Republican and Democratic FCC Commissioners had no problem collectively agreeing on this sweet deal. 

            Over time, two more facilities-based carriers entered the market.  As late entrants, often using spectrum at higher frequencies having less geographical coverage, these carriers had to offer a better deal to acquire market share.  But these late to market entrants had to think quite strategically about how much of a better deal to offer.  Carriers like Sprint used the prices of the two major incumbent wireless carriers, Verizon and AT&T, as a price ceiling.  Sprint was more likely to match or slightly discount the price of the incumbents, relying on features to stimulate churn and new subscriptions.  Sprint offered handset subsidies, offered not to start metering until the second minute of use and provided free automatic number identification, a feature that cost carriers virtually nothing to offer.   

            Remarkably the wireless marketplace did not show much price competition until quite recently.  I used to compile charts showing the near identical terms, conditions and prices of the four national carriers.  So much for robust price competition; the carriers have mostly competed on features.

            TMobile has aggressively used feature competition to acquire market share.  This “uncarrier” maverick has provided most of the consumer friendly feature innovations, including lower roaming fees, particularly abroad, the option to buy and use your own phone, zero rating, etc.

            Simply put, wireless carriers compete because they have to, not because they want to.  Their initial reaction to Wi-Fi was to block its use.  They embraced the technology, because they had to, not because they wanted to enhance the value position for subscribers.

            Wireless carriers are not charities, nor are they role models supporting an unregulated telecommunications marketplace.

             

Paying Mooching Carriers—Wi-Fi Spectrum Use by Licensed Operators

            Some stakeholders support a growing strategy by incumbent carriers to offload ever increasing bandwidth demand onto other networks including unlicensed Wi-Fi.  See https://www.qualcomm.com/.../making-the-best-use-of-unlicensed-spectrum

           Others consider this a clever tactic to reduce spectrum auction payments while contributing to congestion in frequency band designed to provide consumers with an unlicensed, unmetered and cheaper alternative to licensed carrier service.  http://www.infoworld.com/article/2942455/networking/lte-u-is-coming-to-take-your-wi-fi-away-consumer-advocates-warn.html#tk.drr_mlt.

             Not so long ago, carriers prematurely handing off traffic to another carrier risked being branded as a “hot potato” router.  See a 2013 blog entry on the subject: http://telefrieden.blogspot.com/2012/03/hot-potato-routing-and-real-or-imagined.html.

The consolidated Bell System took pride in offering “one system with end to end responsibility.” Now it does not seem to matter if another carrier handles traffic if the strategies accrue cost savings.

             It should come as no surprise that incumbent licensed carriers would prefer consumers not have an unlicensed alternative, particularly in light of the billions paid for spectrum. Whether provided free, below cost, or on profit generating terms, municipal Wi-Fi is reviled as socialism.  Many legislators have bought this logic, even though they don’t seem to fret over taxpayer subsidized stadiums, golf courses, cemeteries, libraries, sewers and water authorities.  With righteous indignation, opponents of municipal Wi-Fi networks claim the socialists ignore the rule of law.  Never mind the law was championed, (make that written) by stakeholders keen on removing, or reducing any unmetered option.  They would love a prohibition on home Wi-Fi routers, but somewhere a line can be drawn where federal authority preempts “states’ rights” and offers consumers a much welcomed option to increase the value of a broadband subscription. 

            Incumbent carriers must maneuver a difficult course where they tolerate (if not welcome) some free spectrum, if they can use it for commercial purposes, coupled with a global bar on the socialistic version called municipal Wi-Fi.