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Monday, October 27, 2008

Exactly Backwards
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Two rural cellular associations, Rural Telecommunications Group, Inc. (RTG) and the Rural Cellular Association (RCA), are importuning the FCC to delay its scheduled November 4, 2008 vote on the proposed merger of Verizon Wireless and Alltel Corp.
until the FCC resolves three pending industry-wide matters that "impact the competitive wireless landscape." The currently pending matters identified are: (1) a rulemaking reexamining the roaming obligations of commercial mobile radio (CMRS) service providers; (2) a rulemaking regarding exclusivity arrangements between CMRS carriers and handset manufacturers; and (3) a rulemaking considering the imposition of a spectrum aggregation limit on all commercial terrestrial wireless spectrum below 2.3 GHz. RTG and RTC argue that action should be taken on all three rulemaking proceeding before the FCC acts on the license transfer proceeding.

This is exactly backwards. Because the FCC has teed-up in industry-wide rulemaking proceedings all of the contentious issues raised in opposition to the proposed merger, it should proceed expeditiously to address the merits of that transaction, leaving the industry-wide issues to be dealt with in the rulemaking proceedings. This would return some semblance of rationality to a license transfer review process run amuck.

Backwards also describes the direction the three pending rulemakings would take the wireless industry: back to the days of a pervasive regulatory framework suited for the cellular duopoly of old. Although the wireless industry is undeniably undergoing consolidation, it remains competitive, as the FCC found in its last Annual CMRS Competition Report. More importantly, while opponents of the Verizon Wireless-Alltel merger focus solely on consolidation of existing market participants, they ignore imminent new entry in wireless markets.

For example, USA TODAY reports that Cox Communications plans to launch a wireless phone service "in the second half of 2009 that ultimately will make the No. 3 cable operator a rival of AT&T, (T) Sprint (S) and Verizon (VZ)." In the FCC's recent 700 MHz auction, Cox won 14 A Block and eight B Block licenses, and, in addition to wireless phone service, may also be planning to offer a wireless broadband service within its service footprint. Another 700 MHz auction winner, direct broadcast satellite provider EchoStar Communications, won enough E block spectrum to create a nearly-national terrestrial network, reportedly giving EchoStar the opportunity to create its own facilities-based "triple play" services, an objective it long has sought. Cox and EchoStar will be joined by Comcast, Time Warner, and Bright House, who plan to use "New Clearwire," a company formed by combining the fourth-generation wireless assets of Sprint Nextel and Clearwire Corp., to provide voice and data services to mobile subscribers. In other words, no less than five of the top ten multichannel video programming distributors in the nation are poised to enter the wireless voice and data marketplace as either regional or national competitors.

As to the Verizon Wireless-Alltel merger, the FCC should expeditiously conclude its license transfer review on the merits by confining itself to examining only merger-specific public interest harms and benefits and leave industry-wide issues for determination in industry-wide proceedings. The same admonition holds true of the FCC's review of the Sprint-Clearwire transaction: the agency should refrain from extracting extraneous "voluntary" agreements from the license applicants merely because it can. The severe institutional problems associated with the FCC's tendency to exceed its statutory powers in the area of license transfer reviews were ably elucidated in a law review article written by Bryan Tramont, entitled "Too Much Power, Too Little Restraint: How the FCC Expands Its Reach Through Unenforceable and Unwieldy "Voluntary" Agreements," published in the December, 2000 issue of the Federal Communications Law Journal, 53 Fed. Comm. L.J. 49 (2000). If anything, the problem has only increased in magnitude in recent years.

When the FCC does take up those industry-wide requests to re-regulate the wireless industry, one would hope that it makes "evidence-based" decisions, taking into account both consolidation and off-setting competitive entry. It is worth noting that that the areas least regulated by the FCC appear to have been among the most successful in terms of bringing new and innovative services to consumers. It is time the FCC incorporated this understanding into its policy- and rulemaking decisions.

posted by Barbara Esbin @ 4:55 PM | Broadband , The FCC , Wireless

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