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Before the
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, DC 20554

In the Matter of:

Implementation of Section 6002(b) of the Omnibus Budget Reconciliation
Act of 1993 (WT Docket No. 09-66)

Annual Report and Analysis of Competitive Market Conditions With Respect
to Mobile Wireless including Commercial Mobile Services

Petition of Public Knowledge et al. for Declaratory Ruling
Stating that Text Messaging and Short Codes are Title II Services or are
Title I Services Subject to Section 202 Nondiscrimination Rules (WT
Docket No. 08-7)

SUMMARY

Text messaging services are a distinct market segment within the wireless
ecosystem. Text messages use different technology and protocols from both
voice and data, and therefore cannot be effectively understood as merely
a sub-element of either market. The text messaging market currently
suffers from a number of problems, including anti-competitive pricing and
the stifling of free speech. In order to resolve the ongoing failures in
the text messaging market, the Commission must classify text messages as
a distinct market segment separately regulated under Title II.

ARGUMENT

I. TEXT MESSAGING^[1]
IS AN INDEPENDENT MARKET AND SHOULD BE VIEWED AND REGULATED AS SUCH

A. The Commission Will Not Be Able to Properly Analyze the Wireless
Ecosystem Without Recognizing Text Messaging as a Separate Market Segment

In the above-referenced Notice of Inquiry (NOI), the Commission expressed
a desire to improve its analysis of competition in the wireless
market.^[2] As noted
in the NOI, previous attempts to analyze the wireless market have failed
to take into account the entirety of the “mobile wireless
ecosystem.”^[3]
As a result, previous reports failed to accurately capture the dynamics
of the full wireless market. Any future attempt to understand and analyze
the mobile wireless ecosystem will be deficient unless the Commission
recognizes that a number of distinct market segments, including text
messaging, compose the wireless market.^[4]

Text messages are a technologically distinct service, priced as a
separate service for consumers. Problems in the text messaging market
segment impact the wireless ecosystem in a manner distinct from problems
in other market segments. In the past, the failure of the Commission to
consider text messaging as a separate service harmed consumers who were
overcharged by carriers for text messaging service, unable to choose
innovative third party services that integrate text messaging, and had
messages blocked by carriers.^[5] As Public Knowledge detailed in its outstanding text
messaging petition, many of these problems in the general text messaging
market also manifest themselves in the sub-market for text messaging
short codes.^[6]
Unless the Commission recognizes text messaging (including short codes)
as a separate market, it will ultimately fail to identify and address
these and other underlying deficiencies.

B. Text Messages Use Technology and Protocols That Are Different From
Both Voice and Data Services

Text messages are short messages generally sent from one wireless handset
to another, or between wireless handsets and short code services. During
transmission, a message travels from the sender’s wireless device
to a cellular tower, at which point it is transferred to the
carrier’s telephone network.^[7] This process is reversed to bring the message to the
receiver’s wireless device. ^[8]

The messages themselves are limited to 160 characters. This character
limit is not arbitrary. Instead, the text message character limit allows
text messages to be transmitted in a wireless control channel normally
used for network operational purposes, essentially allowing service
providers to broadcast the data without incurring additional
costs.^[9] The use of
this control channel allows text messages to be transmitted in spectrum
that is already used for network operation, and not require that carriers
dedicate additional spectrum to text messaging. As a result, text
messages use spectrum to communicate in a uniquely efficient manner.

While the path of a text message is similar to that of a voice phone
call, the use of the control channel differentiates the two. Voice phone
calls require additional spectrum beyond what is needed simply to operate
a network, because each conversation requires a clear channel for
communication.^[10] As a result, at a given time a provider’s
network can only support a limited number of users, and each additional
user imposes additional costs on a provider. Spectrum capacity limits the
number of calls that a given provider can support at a given time in a
way that it does not similarly limit the number of text messages.

Data, unlike either voice or text messaging service, does not use the
traditional wired telephone network to transfer information. Instead,
data services use packet switching to route data to the correct
destination.^[11]
However, like voice and unlike text messaging, data services cannot make
use of control channels to transfer data. Each additional data user
requires additional spectrum access and backhaul data capacity, and heavy
data usage increases demand on wireless networks.^[12]

Each of these services, voice, text, and data, use different protocols to
transmit different types of information. Consumers purchase the services
separately, often use them separately, and are billed for them
separately. The Commission should look to the nature of the different
services provided and recognize that these characteristics delineate
separate market segments.^[13]

In the past, the Commission recognized separate markets for services that
were much less distinct than those considered here. In approving the
AOL/Time Warner merger, the Commission singled out Instant Messaging (IM)
for special consideration.^[14] Unlike voice, text, and data offered by wireless
carriers, IM shared a platform (IP-based communication) with any number
of other services offered by AOL, such as email and web surfing. However,
the fact that consumers used it as a separate application justified
viewing it as a separate service.^[15]

C. Carriers Offer Text Messages as Additional, Separate Services

Although it is important to recognize the technical differences between
voice, data, and text messaging services in order to illustrate how text
messages make up an independent market segment, it is also important to
consider how the marketplace treats text messages. All major wireless
carriers treat text messaging as an offering distinct from both data and
voice services.^[16] This illustrates both that text messages are a
separate market and that text messages should be recognized as separate
Title II services.^[17]

When purchasing a wireless subscription, carriers generally offer
consumers three categories of service: voice, data, and
text.^[18] A
consumer chooses how much (be it minutes, messages, or bits) of each
service he or she wishes to purchase, and the carrier prices the plan
accordingly. A consumer’s choice on any of the three variables
impacts the monthly subscription charge. Just as with voice and data,
carriers often present consumers with a number of different text message
service tiers, and give consumers the ability to choose between paying a
per-message fee and purchasing varyingly sized “buckets” of
messages.^[19]

II. MARKET SHORTCOMINGS IN THE TEXT MESSAGING MARKET WILL CONTINUE TO
HARM THE BROADER WIRELESS ECOSYSTEM UNTIL THE REGULATORY STATUS OF TEXT
MESSAGING IS RESOLVED

A letter from Senator Herb Kohl, Chair of the Senate Antitrust
Subcommittee to major wireless carriers recognized that text message
pricing is “hardly consistent with the vigorous price competition
we hope to see in a competitive marketplace.”^[20] This pricing largely results from
the fact that text messages are generally “shrouded
attributes” in the wireless market.^[21] While some consumers may take the price of
text message plans into account when evaluating competing wireless plans,
more often text message pricing is overshadowed in the mind of consumers,
or shrouded, by more expensive components of the plan such as voice or
data. As a result competitors in the wireless market, which has
traditionally been considered competitive,^[22] act in an uncompetitive manner with
regard to text messages without being concerned about marketplace
repercussions.

A. Prices For Text Messages Offered By Major Carriers Rise In Concert

Pricing for text messages vividly illustrates the failure of the
unregulated text messaging market. Although carriers point to the falling
per/message cost of text messages when questioned on this topic, they do
so in the context of bulk and/or unlimited messaging plans. Carriers fail
to address the rising costs of sending text messages to users who pay on
a per message basis.^[23] What is noteworthy about this trend is not only
that the costs rise together, but that they rise at all. As described
above, text messages are essentially free riders on existing network
infrastructure. It is highly unlikely that the nominal cost to a carrier
to transmit a text message has increased over time. In fact, in a
functioning market one would expect to see the prices of text message
fall to their marginal costs – a number approaching
zero.^[24]
Instead, the price per MB of this uniquely efficient communications
technology is at least four times greater than the cost to transmit data
to the Hubble Space Telescope orbiting 353 miles above the surface of the
Earth.^[25]

B. The Commission’s Failure To Formally Announce That Text
Messaging Is A Separate Title II Service and Treat it As a Separate
Market Segment Harms The Free Circulation Of Speech And Ideas, As Well As
The Development Of Competing Services

As Public Knowledge detailed in prior filings before the Commission,
^[26] each
wireless carrier exercises the power to independently decide whether to
accept text messages sent to its customers.^[27] This gives carriers the ability to
prevent subscribers from receiving text messages that the carrier, in its
own judgment, deems objectionable. In the past, carriers have blocked
messages that subscribers requested to receive on the grounds that the
carrier objected to the content of the message.^[28]

The ability of carriers to block text messages raises at least two
concerns. The first is competitive. In at least one instance, a company
that used text messaging to initiate a low-price long distance voice
calling service found its text messages blocked by carriers.^[29] The carriers asserted
that they had the right to use their control of the text messaging system
to prevent competitors from reaching their customers.^[30]

The second concern is more fundamental. In another instance, a carrier
blocked political text messages sent to subscribers who had asked to
receive them.^[31]
The carrier justified its actions on the grounds that it had the right to
block any messages that it considered objectionable.^[32] With millions of Americans relying
on text messaging for information on a wide range of topics, allowing a
private company to screen the messages for political speech that it finds
objectionable has the potential to undermine political discourse and the
free exchange of ideas.

The Commission can begin to address these concerns when it acts on Public
Knowledge’s outstanding petition to clarify that text messages are
Title II services.^[33] Once the status of text messaging is clear,
carriers will be required to allow interconnection with their networks
and be unable to block messages that they deem to be objectionable. Text
messaging is a form of speech that is, from a regulatory perspective,
functionally identical to voice. Therefore, the Commission should
regulate both under the identical title. Unjust and unreasonable
discrimination which is not permitted in voice should also be prohibited
in text messaging.

CONCLUSION

The Commission’s attempt to consider the entirety of the wireless
ecosystem is a significant step towards effective and reasonable
regulation. It is critical that the Commission examine each market
segment separately in order to consider the unique factors that help
shape them. Once the Commission identifies text messaging as a separate
market segment, it will be able to begin to address the failures of the
text messaging market. Swift recognition of text messaging as an
independent service regulated under Title II is the first step towards
making sure that the text messaging market operates in a way that brings
value to all consumers.

Respectfully Submitted,

Public Knowledge

Harold Feld
Jeffrey Pearlman
Public Knowledge
1875 Connecticut Ave. NW
Suite 650
Washington, DC 20009
(202) 518-0020
hfeld@publicknowledge.org

Michael Weinberg
Law Clerk
Public Knowledge
1875 Connecticut Ave. NW
Suite 650
Washington, DC 20009
(202) 518-0020
mweinberg@publicknowledge.org

September 30, 2009

^[1] For the purposes
of this comment, “text message” and “text
messaging” refers to messages sent through the Short Messaging
Service (SMS) by way of traditional telephone numbers as well as short
codes.

^[2] Inquiry into
Competition into Wireless Competition, WT Docket No. 09-66, Notice
of Inquiry, ¶ 14 (Released August 27, 2009).

^[3] Id.

^[4] Id. at
¶ 15.

^[5] For the purposes
of this comment, the single term “block” describes any one or
more of three actions – the blocking of an individual text message
by a wireless carrier, the refusal of a wireless carrier to allow a
provisioned short code to access its network, and the refusal of the
short code provisioning body (the Common Short Code Administration) to
provision a code. For more information of these actions, see
Public Knowledge, Free Press, Consumer Federation of America, Consumers
Union, EDUCAUSE, Media Access Project, New America Foundation, U.S. PIRG,
Petition for Declaratory Ruling, WT Docket No. 08-7, Dec. 11, 2007,
at http://www.publicknowledge.org/pdf/text-message-petition-20071211.pdf
[hereinafter Petition].

^[6] See
Petition.

^[7] As noted in the
Petition, the person-to-person nature of text messages along
with the separate provisioning of service, places text messages well
under the umbrella of Title II services.

^[8] See
Randall Stross, What Carriers Aren’t Eager to Tell You About
Texting, N.Y. Times (December 28, 2008), at http://www.nytimes.com/2008/12/28/business/28digi.html.

^[9] Id.

^[10] See
Thomas Farely & Ken Schmidt, Cellular Telephone Basics,
at http://www.privateline.com/mt_cellbasics/.

^[11] See
Yueh-Way Sun & Moni Malek, Wireless Infrastrucure: Routing IP
packet data over GRPS wireless nets, CommsDesign.com, Nov. 27, 2001,
at
http://www.commsdesign.com/design_corner/showArticle.jhtml?articleID=16503788.

^[12] See,
e.g. CTIA The Wireless Association, Written Ex Parte Communication,
GN Docket No. 09-51, September 29, 2009; Jenna Wortham, Customers
Angered as iPhones Overload AT&T, N.Y. Times, Sept. 2, 2009,
at
http://www.nytimes.com/2009/09/03/technology/companies/03att.html?_r=1&hp.

^[13] See,
e.g. National Cable & Telecommunications Assn. v. Brand X Internet
Services, 545 U.S. 967 (2005) (recognizing that categorizing
services by their nature is an acceptable practice).

^[14] See
Application for Consent to the Transfer of Control of Licenses and
Section 214 Authorizations by Time Warner Inc. and America Online, Inc.,
Transferors, to AOL Time Warner Inc., Transferee, CS Docket No.
00-30, Memorandum Opinion and Order, ¶¶ 128-200 (Released Jan.
22, 2001).

^[15] Id.

^[16] See
generally “Features,” AT&T Wireless, at

http://www.wireless.att.com/cell-phone-service/services/services-list.jsp?LOSGId=7150000142&splittable=true;
“Select Features,” Verizon Wireless, at
http://www.verizonwireless.com/b2c/store/controller?item=planFirst&action=viewFeaturesAccessoriesfromPhone.

^[17] See
Petition.

^[18] See
generally “Features,” AT&T Wireless, at

http://www.wireless.att.com/cell-phone-service/services/services-list.jsp?LOSGId=7150000142&splittable=true;
“Select Features,” Verizon Wireless, at
http://www.verizonwireless.com/b2c/store/controller?item=planFirst&action=viewFeaturesAccessoriesfromPhone.

^[19] Id.

^[20] Letter from
Senator Herb Kohl, Chairman, Antitrust Subcommittee, Senate Judiciary
Committee to AT&T, Verizon Wireless, Sprint, and T-Mobile (Sept. 9,
2008).

^[21]
See Xavier Gabaix and David Laibson, Shrouded Attributes,
Consumer Myopia, and Information Suppression in Competitive Markets,
The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 505-540,
(May 2006) at http://www.econ.yale.edu/~shiller/behmacro/2003-11/gabaix-laibson.pdf.

^[22] The wireless
market at the national level has traditionally be considered competitive
because there are four national carriers. However, at the local level
this classification is much more nuanced and suspect.

^[23] See
Joint Comments of Consumer Federation of America, Consumers Union, Free
Press, Media Access Project, New America Foundation, and Public
Knowledge, WT Docket No. 09-66, at 10-11.

^[24] Id.

^[25] See
Mike Nizza, Costs of Text Messaging vs. Space Transmission, N.Y.
Times The Lede Blog (May 12, 2008) at
http://thelede.blogs.nytimes.com/2008/05/12/costs-of-text-messaging-vs-space-transmissions/.

^[26] See
Petition.

^[27] See
id. at 3-6.

^[28] Id.

^[29] Id.

^[30] Id.

^[31] Id.

^[32] Id.

^[33] Even if the
Commission concludes that text messages are not a separate market to be
regulated as an independent Title II service, it should regulate text
messages under Title II as a service adjunct to the existing Title II
service of voice. See Verizon California, Inc. v. FCC, No.
08-1234 (D.C. Cir. Feb. 10, 2009).