In testimony presented yesterday during a hearing on "The Consumer Wireless Experience" before the U.S. Senate Committee on Commerce, Science, and Transportation, I stated that wireless exclusive handset arrangements promote, rather than suppress, competition. Because both the wireless services markets and handset markets are robustly competitive and showing no evidence of market failure, neither Congress nor the Federal Communications Commission should seek to prohibit such arrangements.

The hearing came approximately one year after a group of rural cellular carriers filed with the FCC a Petition for Rulemaking, asking the agency to investigate and outlaw exclusive handset arrangements between wireless carriers and equipment manufacturers. At the time of its filing, my colleague Berin Szoka and I penned a piece entitled, "Exclusive Handset Prohibitions: Should the FCC Kill the Goose that Laid the Golden iPhone?" The Rural Carriers Association argued in its Petition that the exclusives were the result of the exercise of market power by the "Big 4" wireless carriers and that such exclusivity is anticompetitive and limits consumer choice. Unfortunately for RCA, we noted, "it was Apple who sought its exclusive arrangement with AT&T (then Cingular)--not the other way around."

My testimony updated and elaborated upon the points made in the earlier piece. I counseled against government intervention on the grounds that the wireless service and handset markets are quite competitive, and that the dynamic created by the exclusive arrangement between Apple and AT&T that produced the iPhone allowed the two companies to bridge the gap between the technologies of today and the disruptive innovations of tomorrow. Moreover, it is undeniable that the breakthrough success of the iPhone has spurred a wave of competitors. If every wireless carrier had been able to sell the iPhone when it was initially released, I noted, it seems unlikely there would have been as much carrier support for developing competing products like the Google G1, RIM Blackberry Storm, Samsung Instinct or Palm Pre.

In support of my conclusions, I referred lawmakers to evidence in the FCC's most recent Commercial Mobile Radio Services Report and industry data which illustrates there is healthy competition in the wireless services and handset markets. The typical exclusive handset agreement grants the carrier an exclusive distribution right for a particular handset model or set of features for a limited period of time. Exclusive handset arrangements, I explained, augment this competitive mobile environment by allowing manufacturers to quickly bring new products to market and creating incentives for carriers to heavily promote and subsidize the costs of the handsets. A guaranteed minimum order from the manufacturer, another common feature of such agreements, can remove some of the risk associated with a new product offering, thus permitting riskier and more innovative designs. Such agreements also allow experimentation with new business models.

Prohibiting exclusive handset arrangements would likely only harm consumers, without significantly benefiting competition in the wireless market. A prohibition on such arrangements would effectively require each handset manufacturer to develop versions of each phone that would operate with every network technology, thus increasing costs and decreasing product differentiation. Because handset differentiation is a key means of attracting customers in an almost completely saturated market, prohibiting exclusive agreements would force carriers to compete on price alone, making a return on network investment more difficult. Eventually, this could lead to one or more of the current providers exiting the market. In other words, prohibiting exclusivity would likely lessen, rather than enhance, competition and consumer welfare. Even setting limits on the terms for exclusive arrangements, while less disruptive than an outright prohibition, would entail difficult decisions over exactly what the permissible period of exclusivity should be.

In my testimony, I stated that "If the FCC prohibits the exclusive partnerships between manufactures and carriers that make it possible to master the technical challenge of device innovation and to finance such risky ventures, all Americans will miss out on the dramatic benefits of innovation and increased mobility of Internet access."

After charting a "light touch" regulatory course for wireless for the past sixteen years, it would be a shame if policymakers were to let a rampant case of "iPhone envy" dictate regulatory policy for the one sector of the electronic communications industry long held up as the "poster child" of the successful "de-regulatory, pro-competitive" regulatory framework established by the FCC.

Looks like we can count on another tax landing on our cell phones soon thanks to the taxaholics in the Obama Administration. According to Jeff Silva of RCR Wireless:

Though details on the Obama budget are few and far between, some information was made available. The administration estimates that spectrum license fees would raise $4.8 billion over the next 10 years.

Don't be fooled into thinking that wireless carriers will just eat those fees. Those fees will be coming to bill near you soon in the form of another stupid government tax burden on our wireless phones.

You know, because we're not already paying enough in taxes on our phones.

(P.S. I'm actually a little surprised that the "progressives" in this administration would support this proposal since a tax on mobile phones will end up being about as regressive as taxes can get.)

As Berin and I have noted here before (here and here), there seems to be no shortage of competition and innovation in the mobile operating system (OS) space. We've got:

1. Apple's iPhone platform,


2. Microsoft's Windows Mobile,


3. Symbian,


4. Google's Android,


5. BlackBerry,


6. Palm OS (+ Palm's new WebOS),


7. the LiMo platform, and


8. OpenMoko.

I am missing any? I don't think so. Even if I have, this is really an astonishing degree of platform competition for a network-based industry. Network industries are typically characterized by platform consolidation over time as both application developers and consumers flock to just a couple of standards -- and sometimes just one -- while others gradually fade away. But that has not yet been the case for mobile operating systems. I just can't see it lasting, however. As I argued in my essay on "Too Much Platform Competition?," I would think that many application providers would be clamoring for consolidation to make it easier to develop and roll out new services. Some are, and yet we still have more than a half-dozen mobile OS platforms on the market.

Regardless, the currently level of platform competition also seems to run counter to the thesis set forth by Jonathan Zittrain and others who fear the impending decline or death of digital "generativity." That is, technologies or networks that invite or allow tinkering and all sorts of creative uses are supposedly "dying" or on the decline because companies are trying to exert more control over proprietary or closed systems.

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.

In June, 2008, my colleague Berin Szoka and I wrote a short piece urging the FCC to refrain from prohibiting the sorts of wireless handset exclusivity deals that brought us innovative "smart phones" like the Apple iPhone (AT&T), Samsung Ace (Sprint Nextel) and Samsung Katalyst (T-Mobile), as well as the recently announced Google (T-Mobile) G1. Some rural cellular companies, through the Rural Cellular Association (RCA), have been trying to prohibit such exclusive deals, and have not only petitioned the FCC for a rulemaking aimed at prohibiting these contractual arrangements, but have also raised the issue in several unrelated proceedings, including the FCC's reviews of the proposed merger of Verizon Wireless and ALLTEL and joint venture of Sprint Nextel Corporation and Clearwire Corporation.

The complaint of the rural cellular companies is that the exclusives have the effect of essentially shutting them out of the burgeoning market for advanced wireless services and equipment, and that they need government intervention to compete. We urged the FCC to refrain from taking action on the RCA petition, suggesting instead that rural wireless players get together, pool their resources, and work with handset manufacturers to develop their own smart phones. RCR Wireless now reports that small carriers may be doing just that by forming NextGen Mobile, LLC, a consortium of more than two dozen existing GSM mobile operators and winners of advanced wireless services (AWS) and 700 MHz licenses in recent FCC auctions.

According to the report, all members of NextGen Mobile operate, or anticipate operating, networks based on the Global System for Mobile (GSM) family of technologies, including 3G Universal Mobile Telecommunications System (UMTS) technologies and eventually the next-generation Long Term Evolution (LTE) technologies. In addition to achieving economies of scope and scale for its members in terms of RF optimization, billing, customer care, roaming and network operations, NextGen Mobile will enable the smaller operators to influence the development of smart phones:

"Hasn't Steve Jobs learned anything in the last 30 years?" asks Farhad Manjoo of Slate in an interesting piece about "The Cell Phone Wars" currently raging between Apple's iPhone and the Google's new G1, Android-based phone. Manjoo wonders if whether Steve Jobs remembers what happen the last time he closed up a platform: "because Apple closed its platform, it was IBM, Dell, HP, and especially Microsoft that reaped the benefits of Apple's innovations." Thus, if Jobs didn't learn his lesson, will he now with the iPhone? Manjoo continues: Well, maybe he has--and maybe he's betting that these days, "openness" is overrated. For one thing, an open platform is much more technically complex than a closed one. Your Windows computer crashes more often than your Mac computer because--among many other reasons--Windows has to accommodate a wider variety of hardware. Dell's machines use different hard drives and graphics cards and memory chips than Gateway's, and they're both different from Lenovo's. The Mac OS, meanwhile, has to work on just a small range of Apple's rigorously tested internal components--which is part of the reason it can run so smoothly. And why is your PC glutted with viruses and spyware? The same openness that makes a platform attractive to legitimate developers makes it a target for illegitimate ones. I discussed these issues in greater detail in my essay on"Apple, Openness, and the Zittrain Thesis" and in a follow-up essay about how the Apple iPhone 2.0 was cracked in mere hours. My point in these and other essays is that the whole "open vs. closed" dichotomy is greatly overplayed. Each has its benefits and drawbacks, but there is no reason we need to make a false choice between the two for the sake of "the future of the Net" or anything like that. In fact, the hybrid world we live in -- full of a wide variety of open and proprietary platforms, networks, and solutions -- presents us with the best of all worlds. As I argued in my original review of Jonathan Zittrain's book, "Hybrid solutions often make a great deal of sense. They offer creative opportunities within certain confines in an attempt to balance openness and stability." It's a sign of great progress that we now have different open vs. closed models that appeal to different types of users. It's a false choice to imagine that we need to choose between these various models.

Portland's muni wi-fi experiment has failed. [Add it to the list of failures]. According to Broadband Reports, taxpayers are going to be on the line for $60K:

Portland had high hopes of being one of those cities where citywide wireless networks might actually work but those hopes did not pan out. Earlier this summer, Wi-Fi provider MetroFi announced that the company could not afford to continue operating the network there. Attempts to sell it off failed and the network was shut down. That's not the end of the story, though. In order to launch the network, MetroFi had to set up 600 (arguably unsightly) antennas throughout the city. The company had claimed that these antennas would be removed by the end of July but they remain up; MetroFi says that they still plan to follow through on removing them but city staff members report fears that the company is too strapped for cash to keep their end of this bargain. Estimates for removal are around $90,000; subtracting out a $30,000 bond for removal that was part of the MetroFi contract would still mean that Portland's taxpayers could pay up to $60,000 to get those antennas taken down.

A few days ago, I posted an essay about the recent history of "moral panics," or "technopanics," as Alice Marwick refers to them in her brilliant new article about the recent panic over MySpace and social networking sites in general.

I got thinking about technopanics again today after reading the Washington Post's front-page article, "When the Phone Goes With You, Everyone Else Can Tag Along." In the piece, Post staff writer Ellen Nakashima discusses the rise of mobile geo-location technologies and services, which are becoming more prevalent as cell phones grow more sophisticated. These services are often referred to as "LBS," which stands for "location-based services."

Many of phones and service plans offered today include LBS technologies, which are very useful for parents like me who might want to monitor the movement of their children. Those same geo-location technologies can be used for other LBS purposes. Geo-location technologies are now being married to social networking utilities to create an entirely new service and industry: "social mapping." Social mapping allows subscribers to find their friends on a digital map and then instantly network with them. Companies such as Loopt and Helio have already rolled out commercial social mapping services. Loopt has also partnered with major carriers to roll out its service nationwide, including the new iPhone 3G. It is likely that many other rivals will join these firms in coming months and years.

These new LBS services present exciting opportunities for users to network with friends and family, and it also open up a new world of commercial / advertising opportunities. Think of how stores could offer instantaneous coupons as you walk by their stores, for example. And very soon, you can imagine a world were many of our traditional social networking sites and services are linked into LBS tools in a seamless fashion. But as today's Washington Post article notes, mobile geo-location and social mapping is also raising some privacy concerns:

Oakland Wireless appears to be in trouble. Add it to the list.

[Actually, is anyone out there keeping a running tally of the muni failures? If so, let me know so I can just start linking to it instead of all the random blog links. ]