In theory, the basic direction of domestic telecommunications policy is set by Congress and implemented through rulemaking proceedings, principally before the FCC. The reality is that Congress moves at a glacial pace in enacting telecommunications legislation and the FCC often struggles with vexing issues such as whether the special access market is competitive and how to implement USF contribution reform.
Over the last decade, the focus of Wireless regulation has shifted dramatically to auctions and auctioned spectrum swaps and sales. Auctions are common ground for Congress in search of revenues, the FCC in promoting broadband and the carriers in expanding the capacity of their networks. Auctions and acquiring spectrum from auction winners are now embedded in the telecommunications marketplace.
Wave of Spectrum Consolidation
We are currently in the midst of a massive wave of spectrum consolidation. The recent catalysts are the two agreements between Verizon Wireless and the major cable operators under which the Wireless carrier would acquire the cable operators’ AWS spectrum acquired in Auction 66. In order to mitigate FCC and DoJ resistance, Verizon Wireless offered the now standard concession of assigning other spectrum to other carriers, in this case a substantial block of AWS spectrum to T-Mobile, conditioned on approval of its acquisition of the cable operators’ spectrum. The FCC duly inquired into the relationship of the two proposed transactions.
Not to be outdone, AT&T recently filed multiple applications with the FCC to secure the assignment of licenses in both the Upper and Lower 700 MHz bands and has recently announced an agreement to acquire a company called NextWave whose principal asset is Wireless Communications Service spectrum at 2.3 GHz.
As widely reported, the Verizon Wireless/cable company transactions will move forward. On August 16, 2012, the Department of Justice announced its acceptance of the transaction, imposing conditions on the joint marketing arrangement. On the same day, FCC Chairman Genachowski issued a press release outlining the key elements of the FCC’s yet-to-be adopted decision approving the transaction and the related spectrum transaction with T-Mobile. Accordingly, it is difficult to foresee any scenario in which the FCC would decline to approve AT&T’s proposed transactions.
Closer Regulation of Wireless Carriers’ Business?
As spectrum is concentrated in the major carriers, Wireless carrier business practices may face closer scrutiny. One condition to the FCC’s approval, announced in the Chairman’s press release, is that Verizon Wireless will “enhance its roaming obligations.” This could be another example of how challenging policy objectives are often achieved through merger conditions. The details of this “enhancement” should prove interesting inasmuch as Verizon Wireless appealed the FCC’s 2011 Data Roaming Order for which oral argument is currently scheduled for September 20, 2012.
After almost eight months of dialogue and, possibly, to remove a stumbling block to approval of its AWS spectrum acquisition, Verizon Wireless recently agreed to a Consent Decree—that included a $1.25 Million “Voluntary Contribution” to the US Treasury—to resolve allegations it had violated the FCC’s rules in requesting its Application Store Operator to filter (make inaccessible) eleven tethering Applications that customers could use to tether Verizon Wireless smartphones without paying Verizon Wireless’s monthly tethering fee[,]” which according to the Consent Decree, the Application Store Operator filtered.
The FCC alleged Verizon Wireless violated Section 27.16 of its FCC rules that provides the “C-Block licensee shall not deny, limit or restrict the ability of their customers to use the devices and Applications of their choice on the licensee’s C-Block network, with certain exceptions.” The C-Block is the 22 MHz (a pair of 11 MHz blocks derived from the “Upper 700 MHz Band”) nationwide license that Verizon Wireless acquired at auction several years ago. J. R. Raphael provides a spirited response to the carrier’s efforts to downplay the alleged violation.
While this Consent Decree likely will temper the behavior of all Wireless carriers for some time, it begs the question of why this rule—adopted in the FCC’s 2007 700 MHz Band Second Report and Order — has not been extended to all Wireless carriers or all Wireless broadband spectrum allocations. When presented with the opportunity, the FCC expressly declined to do so in its 2010 Net Neutrality Order. Presumably, this hands-off approach will change in the future.