Response to Questions for the Record from Senator Olympia Snowe
Rob Frieden Pioneers Chair and Professor of Telecommunications and Law Penn State University 102 Carnegie Building University Park, Pennsylvania 16802 (814) 863-7996; rmf5@psu.edu web page: http://www.personal.psu.edu/faculty/r/m/rmf5/ blog site: http://telefrieden.blogspot.com/ 1) Spectrum Reform—Inventory as a First Step Effective spectrum management requires both government and private users to use this natural resource efficiently by implementing cost effective spectrum conservation techniques. In light of ever-increasing demand, all public and private users must consume only that amount of spectrum they need, without an opportunity to hold in reserve (“warehouse”) unneeded spectrum, or to spread the demand for active channels of spectrum use inefficiently over a large span of allocated frequencies. Effective spectrum management also requires that users treat spectrum as a scarce resource, regardless of whether they acquire the right of use without having to pay for the privilege, or after competitively bidding. I agree with Senator Snowe’s view that the first step in promoting more efficient spectrum use requires a comprehensive inventory of actual usage. This undertaking, which would require some confidential treatment of national security spectrum uses, would provide an essential, empirical record of actual, current usage. Such benchmarking can provide a starting point for comparing actual use with what the Federal Communications Commission (“FCC”) and the National Telecommunications and Information Administration (“NTIA”) identify as allocated use in their master tables of spectrum allocations for private and government uses, respectively. Inventory results will require comprehensive analysis before anyone can make conclusions about efficiency. Reports of limited actual spectrum use may not necessarily identify a specific
2 frequency band as a candidate for reallocation, including the transfer from public to private use. Limited loading of channels in any specific frequency band may simply mean that users have only recently acquired the right to share the spectrum with incumbent users, a spectrum conservation technique increasingly applied in light of technological innovations. I am glad to see more attention to the complex matter of spectrum management, because wireless uses will become an increasingly important means for accessing the Internet and other sources of information, communications, and entertainment. All spectrum users must appreciate the need to conserve spectrum and to share it if technologically feasible. However, the current debate whether television broadcasters can share unused channels (“white space”) 1 with others using low-powered wireless devices shows how incumbents can forestall the duty to share spectrum. Incumbent users want to maintain the status quo and the existing administrative process that rewards first in time registrants and license applicants with superior rights of spectrum access. Over my academic career, I have written extensively on the international and domestic process of spectrum allocation, assignment, and licensing. 2 The international spectrum management process requires multilateral cooperation and compromise among nations, under the auspices of the International Telecommunication Union. Concerns about spectrum efficiency may become subordinate to a process that allocates slivers of spectrum based on static definitions of service.
1
See In re Unlicensed Operation in the TV Broadcast Bands Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 GHz Band, 21 F.C.C.R. 12,266 (2006), recon. den., 24 F.C.C.R. 109 (2008); Michael Calabrese, The End of Spectrum ‘Scarcity’: Building on the TV Bands Database to Access Unused Public Airwaves, New America Foundation Working Paper No. 25 (June, 2009); available at: http://www.newamerica.net/files/Calabrese_WorkingPaper25_EndSpectrumScarcity.pdf.
2
See, e.g., Rob Frieden, MANAGING INTERNET-DRIVEN CHANGE IN INTERNATIONAL TELECOMMUNICATIONS, (Norwood, MA: Artech House, 2001); Balancing Equity and Efficiency Issues in the Management of Shared Global Radiocommunication Resources, 24 UNIVERSITY OF PENNSYLVANIA JOURNAL OF INTERNATIONAL ECONOMIC LAW, No. 2, 289-327 (Summer, 2003).
3 Invariably, proponents of the next greatest spectrum use must vie with incumbents who assert superior usage rights and an inability to share the spectrum. 2) Mobile Spam and Cybersecurity As wireless devices evolve to function much like portable personal computers, problems relating to spam, viruses, and malicious spyware will proliferate. Wireless handset users will have to devote more time, money, and effort to install and apply the same safeguards used to protect personal computers. Additionally, the federal government and wireless carriers should continue to pursue a partnership to provide safeguards, such as the “Do Not Call Registry” program 3and enforcement of the CAN-SPAM Act of 2003. 4 I believe the FCC and the Federal Trade Commission could do a much better job at enforcing existing laws. Because wireless devices use spectrum, the potential for interception of and interference with communications may exceed wire-based options. I expect instances of identity theft, spamming, denial of service attacks, and other types of cyber terrorism to grow. The federal government will need to ensure that essential network infrastructure remains protected, primarily by encouraging carriers and end users to pursue safeguards. Such safeguards should promote user privacy and should eschew the imposition of extensive government oversight and regulation. However, I appreciate that national security and law enforcement issues may require federal intervention. Likewise, carrier efforts ostensibly to protect subscribers and promote network management should not violate subscribers’ privacy, or favor the carrier’s affiliated sources of content and services.
3
See 47 C.F.R. § 64.1200(c)(2)(2008); Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Report and Order, 18 F.C.C.R. 14014 (2003); Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Report and Order, 7 F.C.C.R. 8752 (1992).
4
Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003Public Law No. 108-187, codified at 15 U.S.C. 7701, et seq.
4 3) Handset Exclusivity Handset exclusivity agreements certainly provide carriers and equipment manufacturers with opportunities to distinguish their products and services. For example, AT&T’s exclusive rights to distribute the Apple iPhone provides the carrier with a significant competitive advantage while enhancing the cachet of the Apple brand. However, exclusive agreements may have an adverse impact on innovation in the wireless marketplace and exacerbate the divide between the kinds of equipment and services urban residents can acquire, but rural residents cannot. Exclusive handset agreements also generate incentives for carriers and equipment manufacturers to rely on a single business model that combines the offer of a subsidized handset in exchange for a two-year service commitment and financial penalties for early termination of service. Consumers acquire over 85% of all wireless devices when they initiate, or renew wireless service at the retail outlets of the four major carriers, and at “big box” stores such as Best Buy and Walmart. In light of such a concentration of carrier buying power, wireless handset manufacturers have refrained from selling directly to consumers, or via retailers completely unaffiliated with a particular wireless carrier. Wireless equipment manufacturers readily defer to the decisions of carriers about what handset features consumers can and cannot have. From my perspective, the marketplace for innovation in handset design has become constrained by carriers who control the supply and type of handsets available in the marketplace and who determine what features consumers can use. Such control raises the cost of handsets, even as it reduces their versatility. Apple and AT&T regularly tout that iPhone users currently can download and activate more than 30,000 software applications and services. During the hearing on June 17, 2009, each of the panelists agreed that wireless devices have become something increasingly like a handheld personal computer. However, computer users have access to millions of software applications and services, not the 30,000 selected jointly by the handset manufacturer and wireless carrier. For any of the millions of
5 software and service vendors, unable to acquire shelf space at the Apple Apps Store, their innovations may not reach a critical mass in the marketplace. I believe that the FCC’s implementation of its longstanding Carterfone policy for wireless carriers would stimulate innovation and create market-driven incentives for carriers to promote network accessibility, both in terms of handset access and subscribers’ opportunities to download software applications. If we expect wireless devices to become the functional equivalent to personal computers, then consumers must have the same freedom to attach devices to wireless networks as they have for attaching devices, such as computers, to wired networks. 4) Wireless Network Compatibility Issues
Senator Snowe’s second question about exclusive agreements between wireless handset manufacturers and carriers raises the matter of access to cutting edge technology by subscribers of smaller Tier 3 carriers. The question also addresses the broader issue of incompatibility among various spectrum interfaces, operating standards, and software platforms used by different carriers. During the June17th hearing, Senator Warner expressed concern about fragmentation and balkanization of the wireless marketplace, because of proliferating, but incompatible standards. Since its inception, wireless cellular radio service in the United States has not used a single transmission format. Unlike Europe and other regions of the world, U.S. wireless carriers opted for several incompatible transmission formats, including Time Division Multiple Access techniques, such as the Global System for Mobile communications (“GSM”) standard, and Code Division Multiple Access. U.S. cellular radiotelephone service providers operate on three separate frequency bands, (two in the 800-900 MHz band and one at 1900 MHz) with a fourth one becoming available on frequencies that used to provide analog television in the 700 MHz band. Additionally, first generation analog cellular service has migrated to second and third generation digital formats.
6 In addition to spectrum and other format issues, the evolution of wireless handsets into personal computers now raises issues of interface and operating standards compatibility, much like the challenge of linking Apple computers with ones using Microsoft and other non-Apple software. Wireless compatibility involves greater, but manageable complexity, because of the use of radio spectrum. However, the issue of compatibility becomes even more challenging in light of the number of different interfaces, formats, and operating systems currently available. Apple, Microsoft, Research in Motion, Palm, Symbian, Google, and other ventures now offer incompatible smart phone operating systems. Developers of innovative software applications currently have to choose which operating systems to support. Many new ventures lack the financial resources to create several versions of the same software application to ensure compatibility with all handsets. When the four major wireless carriers execute exclusive handset arrangements, innovation may suffer, because the carriers and handset manufacturers reduce the number and type of handsets available to subscribers and subscribers in rural locale may not even get the chance to use the most desirable, new handsets containing the latest and greatest features. Currently carriers and handset manufacturers seek to have their operating systems, transmission format, and application interfaces become the de facto industry standard. In some instances, a single standard can promote innovation, provided an open interface allows all developers to compete fully and fairly for the opportunity to reach consumers. However, in many instances, including the current wireless marketplace in the U.S., handset exclusivity and undisclosed agreements between carriers and wireless handset manufacturers lock out software application developers and lock in subscribers to the small portion of available services carriers and handset manufacturers want consumers to have. The incentive to maintain a closed network increases when carriers have to think about ways to prevent subscribers from accessing software and services outside of what the carrier
7 offers in its “walled garden,” because such flexibility would reduce revenues and the carriers’ ability to recoup handset subsidies. The fact that Apple and AT&T block subscriber access to Skype and other Internet long distance telephone services provides an example of incentives that favor locking out access to competing innovations. AT&T surely wants to acquire as many new subscribers as possible, even if it has to offer “free” or underpriced handsets to clinch the deal. In exchange for the handset subsidy, subscribers have to accept terms in AT&T’s contract of service that reserves to the carrier the right to prevent subscribers from using software that could reduce AT&T revenues, including the highly lucrative long distance telephone rates the company charges for international calls. AT&T blocks subscribers from launching software, like that offered by Skype, that enables users to make free or inexpensive international and domestic long distance calls. AT&T allows subscribers to launch Skype only via Wi-Fi access to the Internet. I do not dispute that AT&T can lawfully execute a contract, even a non-negotiable, “take it leave it” one. However, the reach and scope of the limitations AT&T imposes surely reduce the versatility of wireless devices that everyone concludes will become a major type of personal computer. Bear in mind that the restrictions AT&T and other carriers impose on subscribers persist even after the subscriber has reimbursed the carrier for its subsidy, and even when subscribers activate service with used, or unsubsidized handsets. Exclusive handset agreements make sense for carriers and equipment manufacturers only when the Carterfone policy does not apply for consumers of wireless service. If wireless subscribers had the freedom to attach any device to the wireless network, which has existed for over forty years in wire-based telecommunications markets, the companies would derive little in any financial benefits from exclusivity. Consumers would benefit from a robust and open marketplace for innovations in both handsets and wireless service.