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We’ve heard a lot recently about the pressing need for government action to free up more radio spectrum for wireless communications.
Regulators pay attention because, when people can’t use their mobile devices, they notice and make themselves heard. And service providers are struggling to meet the rapidly growing demand created by consumers’ desire for innovative devices, applications and content delivered wherever and whenever they want.
But focussing on spectrum alone is unlikely to solve wireless network congestion. Spectrum is a finite resource. To satisfy increasing consumer demand for wireless broadband, more efficient use of wireless spectrum is needed.
A key factor in encouraging efficient use of spectrum has been overlooked in policy discussions. Wireless providers can add capacity without obtaining more spectrum by adding antennas, generally referred to as cell sites. Additional cell sites allow the same spectrum to be used by even more consumers. Importantly, each additional cell site requires a wired connection to the global internet.
So why don’t wireless companies pursue this approach to adding more capacity? The answer lies in the economic self-interest of the two largest wireless companies, AT&T and Verizon. Because they control the supply of wired connections needed for each additional cell site, they can keep their competitors’ costs high for additional wired connections, and at the same time create a perception of scarcity for wireless services.
AT&T and Verizon provide the vast majority of the wired connections in their service territories, including wired connections to cell towers. Their dominance in wired connections is neither surprising nor new. Only they have wired networks to nearly every location.
Other wireless carriers must buy some amount of wired connections from AT&T or Verizon because they will be the only choice in many locations. The higher the prices for wired connections, the more money flows into AT&T and Verizon’s coffers from other wireless companies, businesses and consumers.
AT&T and Verizon maintain their dominance in wired connections by demanding that customers commit to buy as much as 90% or more of their wired connections from them. Customers that refuse are denied access to enormous discounts for each wired connection, and instead must pay highly-inflated “list prices.” Customers that agree must severely restrict their purchases from competitive suppliers, or risk paying “shortfall penalties” to AT&T and Verizon.
The result is that AT&T and Verizon reap large profits from the sale of wired connections, while companies like mine, that have the capital and the desire to invest in wired connections, are “locked out” of the market. Increased rates or shortfall penalties paid to AT&T or Verizon prevent customers from using cheaper and better competitors for all but a small portion of their needs.
Consumers feel the impact through very high wireless data plan charges and caps imposed on usage, including throttling the use of so-called “unlimited” data plans. Other wireless competitors pay huge amounts of money directly to their main competitors AT&T and Verizon, thus assuring that the other wireless companies will be much less formidable competitors to the two dominant companies.
The FCC has the power to prevent these anti-competitive practices. But in spite of more than seven years of “investigation,” the FCC has failed to act. Like so much else in Washington, powerful companies can slow or prevent needed reform by employing clever lobbyists who are expert at delaying. AT&T and Verizon say that Level 3 just wants the FCC to interfere with their contracts so that we can get more business from their customers.
It’s true that companies like Level 3 could benefit if the FCC breaks these monopolistic lock-up arrangements, but only if we can provide better service at a lower price. Robust competition will drive investment, better quality and lower prices for consumers and businesses that depend on underlying wired connections for vital services.
It’s time for the FCC to act. Our wireless future depends on access to reasonably priced, efficient wired connections to the global internet. Unblocking the wired connection bottleneck and unleashing the power of competition is the most effective way to expand and improve wireless service.
