Analysis: FCC encourages open networks

09 May 2011 | Kavit Majithia


With the Federal Communications Commission’s (FCC) latest involvement in the US telecoms market being to rule that the country’s largest telcos must open their networks to allow for more competition, other markets and their regulators have begun to reassess existing data roaming agreements.

In the US, as in most markets, data roaming between operators had been voluntary. But with a growing fear that the larger operators can exploit their network size, the FCC ruled Verizon and AT&T must open up their networks – a decision which was immediately condemned by both companies. Verizon pointed to the simple business economics of the ruling, which declares a carrier like Verizon must carry the traffic of another carrier on its network, although it has not nearly made the same investment Verizon has.

“By forcing carriers that have invested in wireless infrastructure to make those networks available to competitors that avoid this investment, at a price ultimately determined by the FCC, this order discourages network investment in less profitable areas,” says Tom Tauke, EVP public affairs, policy and communications at Verizon. “It is a defeat for both consumers and innovation fostered by true competition.”

Verizon says it has already struck over 40 voluntary data roaming agreements with competitors in order to meet customer satisfaction, and Tauke has expressed his concerns “that the FCC is taking action even though it does not have the statutory authority to do so.” The ruling means Verizon and AT&T must open their networks so smaller competitors have access to offer mobile data and internet services, as an extension of the existing network-sharing agreement that makes it mandatory for voice calls.

“The FCC has stepped into the murky arena of domestic roaming agreements,” says Jan Dawson, chief telecoms analyst at Ovum. “Until now, these agreements have been done on a commercial basis between willing partners, but as would-be buyers have found, Verizon and AT&T have been less than willing to offer roaming at the prices they want.”

International data-roaming tariffs have proved a sensitive topic for operators, and using a domestic network operator’s network abroad is extremely costly for the end user in all markets. This could be set to change globally, after Russia and Poland have agreed to reduce mobile roaming rates, with rumours that Russia will extend this agreement further to Finland as well; a significant reduction in roaming tariffs is now expected on Russian networks. This follows on from a similar agreement between Singapore and Malaysia, with reductions on roaming costs of up to 30% in the price of a voice call and up to 50% for sending an SMS between the regions, which will apply to all operators in both countries.

Jonathan Bell, VP product marketing at communications company OpenCloud, believes that such roaming agreements will hurt the service side for existing subscribers, as bandwidth is lowered and quality of service is compromised, with operators facing an increased cost on its infrastructure. “If I were selling pizzas and my regional government told me I had to take new customers from another vendor I’d be delighted,” he says. “But it is different for mobile operators, considering the more costly changes to core network infrastructure which is less easy to adapt. Using an approach to establish a protected service quality for their own subscribers and more effectively manage the evolution of service levels and charges for roamers, at least would help reduce the pain and potentially turn this from a net loss in to a net gain situation.”

A Yankee Group report on AT&T’s proposed T-Mobile USA deal (see news analysis p22) identifies that Tier 2 players, which have lobbied with regulators for open networks for years, must push aggressively for even stronger roaming agreements, considering the potential size of AT&T’s network if the deal goes through. If approved, the analysis firm also identifies the need for Deutsche Telekom, although exiting the market, to establish itself as a key European roaming partner in the US to enable reduced international roaming tariffs between the regions.

“The FCC’s decision is a reflection of the fact that Verizon and AT&T have been able to afford a nationwide coverage for 3G, in the way others haven’t,” says Dawson. “The regulator has recognised that these two players are rather different animals from the rest of the operators and that some regulation is required to keep them in check as they become increasingly powerful.”