WASHINGTON, March 15, 2011 – Despite fanfare regarding the end of exclusivity for the Apple iPhone with the launch of a CDMA version, the reality is that many carriers are still unable to attain certain devices. While the majority of current subscribers now have access to the once-exclusive iPhone, because AT&T and Verizon have been allowed to create a duopoly in the wireless industry, from a competition standpoint, AT&T and Verizon are the only two carriers with access to the device. Translation: Less than 2 percent of domestic wireless carriers have access to one of the nation’s most coveted devices.
Just as the iPhone is not the only smartphone on the market, it is also not the only device that is unavailable to consumers. Due to exclusive handset arrangements, consumers are left to choose between robust coverage where they live or the latest hot device they desire.
Old Issue, New Problems
The anti-competitive and anti-consumer harms of exclusive device arrangements are well documented, and will only get worse if not solved with the launch of 4G networks. Since May 2008, in its Petition for Rulemaking Regarding Exclusivity Arrangements Between Commercial Wireless Carriers And Handset Manufacturers filed with the FCC, Rural Cellular Association (RCA) has led the charge to end exclusive handset arrangements.
Following the filing of the Petition for Rulemaking and subsequent increased scrutiny by both chambers of Congress, the FCC, and the Department of Justice, Verizon Wireless agreed to make its exclusive handsets available to carriers serving 500,000 subscribers or fewer six months after introduction by Verizon Wireless. This concession, in the form of a letter to House Energy & Commerce Committee leadership in July 2009, was a step in the right direction, and an acknowledgement of a growing problem.
While a step in the right direction, Verizon’s concession was not a solution. Verizon Wireless has not shared the specifications needed to test and prepare a network for a new device with eligible carriers, a process that takes up to nine months, in a timely manner that would allow for launch six months following the release by Verizon Wireless. As noted by a coalition of public interest groups, including Consumers Union, Free Press, and Media Access Project, in a letter to Congressional leadership following the Verizon Wireless concession, “Fifteen months in the handset market is the difference between ‘cutting edge’ and ‘obsolete.’” In press reports on the concession, it was acknowledged that “this is the smallest possible compromise Verizon could offer.”
While Verizon Wireless’ concession managed to alleviate the mounting political pressure to end exclusive handset arrangements, in the meantime, the two largest carriers found another way to create technologically exclusive handsets for their networks. Even if ordered to share their devices with competitive carriers, these newly developed devices will only work on AT&T or Verizon Wireless’ networks.
Interoperability: A Necessity for the Future
To prevent other competitive carriers from obtaining new devices for 4G networks, the two largest carriers did not waste any time. Upon obtaining the majority of the spectrum available from the license auction from the DTV switch, AT&T and Verizon went straight to work to “wall off” their newly acquired “beachfront” spectrum.
With Verizon acquiring nationwide license to the C Block, and in turn the entire Band Class 13, they approached the 3rd Generation Partnership Project (3GPP), a non-governmental international standards making body, and were allowed to develop equipment that will operate solely on Band Class 13. Seeing Verizon Wireless’ actions, following the auction, AT&T returned to the 3GPP and created a Band Class 17, carved out of the existing Band Class 12, to allow AT&T to develop equipment that will operate solely on its network.
The fact that Verizon Wireless and AT&T have been able to develop network specific devices means that, for the first time, interoperability is not present throughout the 700 megahertz (MHz) spectrum. At the birth of the cellular industry, the Reagan-era FCC mandated interoperability to ensure competition, and subsequently interoperability became the practice in the auctions of the PCS and AWS spectrum. With restrictive equipment specifications combined with market dominance, AT&T and Verizon Wireless have effectively balkanized the nation’s spectral resources in the 700 MHz, despite the fact that all carriers deploying mobile broadband networks in the 700 MHz band, as well as the public safety community, will be utilizing the same Long Term Evolution (LTE) technology.
While the issues surrounding interoperability can be very technical, the real-world implications to consumers are plain and simple. The actions of the largest two carriers have limited access and service to all wireless consumers. Furthermore, all devices, even those created for Verizon Wireless and AT&T, will be more expensive to consumers due to reduced economies of scale.
This is a long way around to try to answer to the question at hand: how to bring more handsets to more carriers. Congress and the FCC must act immediately to end exclusive device arrangements and restore interoperability to the wireless market. It is my hope that they do so before this growing problem gets worse, and while the other 98 percent of carriers are able to stay in business.
Steven K. Berry is President & CEO of the Rural Cellular Association (RCA), the nation’s leading association for wireless providers serving regional and rural markets in the United States. The licensed service area of RCA members covers more than 80 percent of the nation.