Comments Off

Tier-2 carriers are 21st century re-sellers on steroids

Today the Federal Communications Commission released an order on interoperability in the lower 700mMHz band where smaller competitive wireless carriers can roam on AT&T’s wireless network. I look at the order as a quasi private-public partnership where the FCC met the industry half-way by reworking its power emission rules in the 700 MHz block while AT&T voluntarily agreed to let smaller carriers roam on its network.

The most apparent winner here is the consumer. The ability to enjoy a seamless call experience increases consumer welfare by providing the consumer with additional choice in carriers. Why leave Sprint if that carrier can provide true nationwide calling by leverage its ability to roam on another network.

That to me is the downside of the FCC’s push to increase the roaming capabilities of the smaller carriers. To me all we have here is a reseller agreement on 21st century steroids. Today’s order says that rather than pursue go old fashioned capital formation and leverage it into your own facilities-based networks, just do a B-52’s impersonation and “roam if you want to.”

AT&T’s cost-benefit analysis probably led the company to the conclusion that we’ll pick up a little roaming revenue, but with the tweak in the emissions rules, we’ll be okay. I think in the long run it sends the wrong message that rather than go into the markets and buy cheap money, just make some noise with the regulators.

Steve Berry, president and chief executive officer of The Competitive Carriers Association, recently opined on CSPAN-2’s The Communicators that consolidation was decimating the Tier-2 wireless carriers. Well expect the decimation to continue not primarily because of mergers and acquisitions, but because all these smaller carriers end up being are sources of customer lists because without the expanded facilities-based networks that’s the only value that they will be able to boast about.

Comments Off

The FCC needs to relieve itself of self-importance mindset

Last Tuesday, Federal Communications Commission acting chairman Mignon Clyburn delivered remarks at the Competitive Carriers Association annual convention in Las Vegas, Nevada. Ms. Clyburn laid out some social policy goals for mobile communications for the commission post the 700 MHz interoperability solution committed to by AT&T over a week ago. Among the goals are:

1. Promoting competition
2. Empowering consumers
3. Unleashing spectrum
4. Spurring investment

Ms. Clyburn took the mantle from her predecessor, Julius Genachowski, crediting the FCC with market powers the FCC simply does not have and shouldn’t admit to having even if it did. I made reference to this in a tweet a couple nights ago: the Genachowski Syndrome. Let’s take, for example, the FCC’s promotion of competition in mobile services.

The type of competition the FCC refers to is the layman’s version of competition where each firm in the market is concerned about what the other one is doing. Sure in the real world T-Mobile is aware that Verizon and AT&T are the big dogs in the wireless market, but T-Mobile’s primary concern, as it is with any firm in a competitive market, is with the desires and demands of the consumer. If this were not the case then T-Mobile would not have successfully carved out a niche in the pre-paid wireless market. It would have paralyzed itself wondering what Verizon or AT&T’s next moves were, finding itself counting Euros instead of dollars. The FCC had nothing to do with T-Mobile carving out this niche. This had more to do with T-Mobile reading the demographics of the nation and where the economy was going.

In a competitive market, the market the FCC allegedly wants to promote, there would be free mobility of the resources wireless carriers need in order to produce their services. For mobile carriers that includes spectrum, access to towers, and public rights-of-way. Guess who provides bottlenecks that restrict access to these resources. To steal a phrase, it’s not that complicated. Local governments seek to extract tribute from carriers via franchise fees, rights-of-way permits, and zoning delays for towers. Meanwhile, the FCC and the U.S. Department of Justice scare investors with proposals to cap access to spectrum auctions.

And can we really say that the FCC’s 2011 rules mandating data roaming helped promote a competitive market? Roamers aren’t looking for new services or new service providers when trying to make a call outside of their carrier’s network. The expect their carrier to connect their calls no matter where they are. The FCC’s roaming rules only made it okay for a consumer to stay with a regional carrier when instead the consumer should have been exposed to the consequences of being with a lower tier carrier.

The lower tier carrier shouldn’t take all the blame. Some of the blame falls on larger carriers for not marketing a brand of service customers of smaller tier services would want to switch to. In addition, if competition drives innovation and infrastructure development as Ms. Clyburn alludes to, then why promote roaming, a policy that disincentivizes carriers from building national networks?

Bottom line, mandating roaming is not a public policy that promotes competition and the FCC should stop confusing being around during innovation with actually influencing competition.

Comments Off

Why the data roaming ruling may be bad for small carriers

Yesterday the U.S. Court of Appeals for the District of Columbia Circuit held that the Federal Communications Commission was empowered under Title III of the Communications Act to promulgate its data roaming rule. The rule, however, does not impose any common carrier obligations on mobile Internet providers.

In 2007, the FCC mandated that mobile voice carriers offer roaming agreements to other carriers on a just, reasonable, and non-discriminatory basis. The FCC invoked Title II of the Communications Act reasoning that mobile voice providers have a common carrier obligation to provide roaming.

The 2007 mandate did not extend to mobile Internet or mobile data carriers that entered voluntarily into roaming agreements with other carriers for mobile data.

The FCC’s rationale for its rule was:

1. The mandate would promote access to seamless mobile data coverage nationwide;
2. The mandate balances incentives for new entrants and incumbents to deploy advanced networks across the country; and
3. The mandate would foster competition among multiple wireless providers

Verizon and AT&T opposed the rule, arguing that the rule was unnecessary given that carriers were already entering voluntary agreements for data roaming and that smaller carriers would have reduced incentive to build their own networks.

On the surface, investors in large carriers such as AT&T and Sprint should not see any additional losses from the ruling. The data roaming rule has been in place from 2007 and given that no new rules or divestitures resulted from the ruling, I see no additional costs of compliance to AT&T or Verizon due to this legal proceeding.

I don’t see how in the long run the ruling would benefit smaller carriers. If anything they may see increases in whatever charges they are assessed by the larger carriers as a result of negotiations in for future agreements, and they can thank the FCC’s competition posture for this.

As spectrum becomes harder to come by, larger carriers may feel compelled to pass on higher costs of handling additional traffic from smaller carriers. Delays by the FCC in releasing spectrum compounded by burdensome and lengthy scrutiny of license transfers will make a scarce resource more expensive. Smaller carriers will not be able to have their cake and eat it too.

For example, smaller carriers will argue that they do not have the capital to expand their networks on the one hand while on the other criticize any attempts by the FCC to ensure that spectrum goes to the carriers with the greatest economies of scale and the larger client base that would be negative impacted by a lack of sufficient spectrum. Either way, smaller carriers are going to have to absorb the costs of expanding traffic on the network either through sucking it up and deploying their own networks or paying increasing costs for roaming.

Smaller carriers may find themselves being more of a price taker in negotiations for roaming because all a larger carrier has to show is that the roaming charge being negotiated is commercially reasonable, a lower standard than the classic just and reasonable standard.

In the immediate term, the ruling may be deemed by Verizon and AT&T as a loss, but in the longer term, smaller carriers may have simply delayed the inevitable.

Comments Off

Is Sprint squatting on spectrum?

Spectrum is a nonrivalrous, excludable good. Like any other wireless carrier, Sprint’s cell towers, cell phones, heck even their customers generate that electromagnetic field we call spectrum. Just like Sprint bids for access to spectrum from the Federal Communications Commission, we “bid”, usually on a monthly basis, for access to Sprint’s cell towers.

Our little hand held radios that we call cell phones and smart phones emit signals that eventually clog the highways and channels we refer to as frequencies. The greater the demand to access spectrum, the greater the cost to use it.

Sprint, like every other carrier, faces not just a spectrum crunch, but a cash crunch. Telling investors that roaming agreements are its best bet to conserving cash should put investors on edge. Also buying 30 million smart phones when your network isn’t ready for all that capacity doesn’t set well with me either.

I also have to wonder how Clearwire’s spectrum squatting is impacting Sprint’s decision to rely more on roaming agreements to service its customers versus building out its network? According to Sprint’s 10-K, Sprint has a wholesale agreement with Clearwire where Sprint resells Clearwire’s 4G service. Maybe Clearwire hasn’t built out to the areas where Sprint is relying on roaming agreements or Clearwire wants more money. I don’t know.

I do know that investing in your network and building it out puts your subscribers at ease. They do care that the carrier who says they are providing national service is the carrier that is actually carrying their national service.

Comments Off

Sprint acting more like a regional carrier

Posted January 25th, 2012 in AT&T, FCC, Government Regulation, mobile telephone, roaming agreements, spectrum, Sprint and tagged , , by Alton Drew

Sprint acting more like a regional carrier

Sprint and AT&T are at it again. AT&T is calling out Sprint on the Kansas City-based carrier’s use of roaming agreements versus building out a network to provide consumers with real facility-based services. Sprint alleges this is good for consumers because the practice allows the company to provide its nationwide service..

Sprint calls this good for consumers? When a consumer purchases the service of a national carrier, the consumer wants the certainty of knowing that her service is being provided point to point by the network of the wireless carrier to whom the consumer forks over its money. What Sprint is doing inefficiently pricing its services if that is the case.

Worse yet, this may also be indicative of Sprint’s continuous poor management; buying 30 million iPhones it apparently can’t build a network out to service the phones on. Hard to believe the FCC considers what Sprint is doing as optimal use of a scarce resource.

Is it really good for consumers and investors that a wireless carrier of Sprint’s size and stature is mismanaging itself into becoming a regional carrier?