Earlier this week we wrote up a Department of Justice brief urging the Federal Communications Commission to reallocate as much spectrum as possible for the wireless industry. Wireless, the DOJ says, is the best chance we’ve got at creating a more competitive broadband landscape. “Given the potential of wireless services to reach underserved areas and to provide an alternative to wireline broadband providers in other areas, the Commission’s primary tool for promoting broadband competition should be freeing up spectrum,” the DOJ told the FCC on Monday.
But now comes a policy letter from the Department of Commerce’s National Telecommunications & Information Administration (NTIA) suggesting that the wireless fix may not be so clear cut.
“Although early projections from [the] industry are encouraging, it is premature to predict when, or even whether, these wireless broadband services will provide the competitive alternatives that can benefit consumers of all services, including wireline,” NTIA chief Larry Strickling wrote to the Commission.
A duopoly, at best
It’s not like Strickling disagrees with DOJ’s assessment of the problem. Both agencies think that the national broadband market isn’t competitive. They both cite the FCC’s Broadband Status Report, released in September. That survey concluded that most households can access the services of two fixed broadband providers, max. “50-80 percent of homes may get speeds they need from only one provider,” the report added.
And NTIA concurs that it’s unlikely that wireless broadband providers are going to do much heavy lifting to fix this problem in many areas of the United States. Given the hefty fixed costs of expansion, chances are that only the densest areas of the US will see further middle mile development. “The economics of providing wireline broadband Internet access service suggest that market forces alone may not produce additional entry,” Strickling warns.
So can wireless fill the gap? Maybe. “The fact that some wireline customers seem willing to switch to wireless service suggests that the two offerings could become part of a broader marketplace,” NTIA speculates. But the letter advises the FCCkeep several factors in mind. First, a big chunk of the wireless industry is owned by AT&T and Verizon. Are they really going to market their wireless products as an alternative to their wireline offerings?
“Finally, we need to be mindful of how future developments in the applications and Internet services markets can affect demand for broadband,” Strickling notes. “Are there ‘killer’ applications on the horizon that will be supported by wireline providers but not wireless?”
What does NTIA say the government should do about this? Commerce still thinks the FCC should mobilize to make more spectrum available for wireless by reallocating the commercial bands and government licenses. But, as DOJ noted, the big bugbear is who gets the licenses after they’ve been freed up. And Strickling agrees that just running a vanilla auction exposes the process to the risk that the incumbents will buy up the spectrum for no other reason than to warehouse it.
The rest of the letter offers a litany of recommendations similar to the DOJ’s, especially the need for clearer consumer pricing and policy disclosure rules. You can expect the controversy over Verizon’s $350 early termination fees to serve as the principal flashpoint in this area.
But how much will clearer rules matter if consumers have no or few choices among broadband providers? As the FCC makes more spectrum available, it seems likely that pressure is going to come on the agency to set up sale rules that don’t favor the incumbent telcos. DOJ’s letter explicitly mentioned Clearwire, T-Mobile, and Sprint as the competitive carriers “that could provide broadband services comparable to those of existing providers.” That’s a pretty clear sign of the kind of outcome at least one arm of the government favors.
One thing is for sure. It’s telling that FCC, NTIA, and the DOJ are already having this conversation long before the FCC has worked out how to free up more licenses for wireless, suggesting that everyone is quite serious about getting that done as fast as governmentally possible.