This article was co-written with Frank Louthan.
It’s mind-boggling why after 20 years of successful wireless policy, the Federal Communications Commission (FCC) would make such a drastic change in course. Earlier this year, on in a party-line vote, the FCC imposed Title II – 1930s telephone monopoly regulation – on America’s dynamic wireless broadband networks. Wireless broadband has exploded with little to no regulation, and such rules do not bode well for the future of investment in wireless broadband infrastructure or mobile application innovation. Mobile operators were quick to challenge the decision in court, and fortunately it appears that the court is receptive to the cornerstone argument that wireless broadband should be treated differently with regard the FCC’s “Open Internet” or net neutrality rules.
Historically, the FCC treated wireless broadband with a light regulatory touch because it was an emerging and evolving technology. It was exempt from prior rules for good reason. Wireless carriers need to manage networks to deliver a quality experience under capacity constraints and to deploy different revenue strategies to recover the considerable costs of purchasing licensed spectrum and requisite network builds. As such, the wireless industry was allowed to experiment with different business models and partnerships, and consumers have only benefited. The AT&T/ Apple partnership to launch the iPhone in 2007 catalyzed an unprecedented era of mobile innovation. But such a deal under the FCC’s new rules such a deal would be scrutinized, if not prohibited.
Partnerships are essential to innovation. In the same way as advertisements appeared on TV so that viewers didn’t have to pay, content owners or advertisers would consider paying for data usage to reduce the amount mobile subscribers’ would pay for wireless broadband. Mobile video providers and streaming app companies can use partnerships to reduce the cost to consumers of enjoying TV on their phones, tablets, connected cars, and other devices. This is very attractive to consumers and content providers, but the FCC wants to vet every offer before it’s ever tried, essentially picking winners and losers.
In response to consumer needs and wants, companies are putting together innovative offerings. The popularity of T-Mobile’s “Binge-On” and “Music Freedom” offerings speak to the fact that consumers love getting discounts and, whenever possible, something for free. These content packages offer customers the ability to stream video and music without it counting towards their data plan. T-Mobile’s strategy is a win for the consumers and content providers, allowing the company to manage limited bandwidth across a range of different networks while giving consumers extra value in their package. Even FCC Chairman Tom Wheeler called “Binge-On” pro-competitive and pro-innovation.
But the Chairman’s comment is at serious odds with his policy. Wheeler claims that cumbersome rules are needed to protect consumers from new and untried wireless products and services. However, the success of Internet companies—and the vigorous adoption of wireless broadband by consumers—–has occurred almost exclusively with no such rules against it in place.
Consumers have benefited from the Internet’s ever-expanding reach, enhanced capabilities, and faster speeds to the point that most Americans are reliant on wireless broadband each and every day. Prior to Chairman Wheeler’s onerous rules, this increase in demand for wireless broadband allowed consistent investment across the industry. If wireline broadband had lighter regulation, it’s likely that there would be more investment there as well. Imagine if the cable companies and telcos could provide Internet products for specific markets or content. An example would be a sports network or premium video content, such as HBO, delivered in higher quality at higher speed. Consumers and content providers would only pay for the additional quality they desire. Those who don’t desire it would not need to pay.
Such products would benefit all consumers because the additional investment the phone and cable companies would make in order to offer this technology would result in better network reliability and speeds for the other consumers and businesses on the network regardless of how they subscribe. But the rules the FCC adopted place an outright ban on any kind of innovative offering, saying that if one party wants to pay more for a specific service, it disadvantages another, even if the two services have nothing to do with each other.
In the recent oral arguments for the case, the court didn’t seem to buy the FCC’s argument that wireless broadband is the same as wireline. One judge noted that not only is there no evidence of harm, it is “utterly reasonable” that different services are allowed different levels of quality. He provided the example of refrigerated cars on a railroad providing one set of cargo its necessary requirements while not impinging on other traffic. The court’s decision will come next year, but if nothing else, if the decision overturns the FCC’s imposition of Title II on wireless broadband, it would be good news for consumers and content providers. More choice and investment in the marketplace would result.
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