Let The Sun Shine on Open Access

July 26, 2007 ,

If most of the members of the House Telecommunications Subcommittee spent as much time studying the industry over which they have jurisdiction as they do reciting talking points from their Bell patrons, then it's just possible that consumers and the economy might actually see some benefits from what the panel does.

The July 24th hearing on oversight of the Federal Communications Commission (FCC) provided a fine opportunity for the Subcommittee members to show what they know about their topics. Depending on how you look at it, they either didn't disappoint, or they did.

There was no getting around the hot topic du jour – the auction of the 700 MHz spectrum. In some important respects, this auction is not like the others that have come before it. The spectrum is of the highest quality for carrying voice and data traffic, and there won't be any more like it for the foreseeable future. This is the slice of the public's airwaves now used by broadcasters for over-the-air analog TV. The FCC is due to make a decision on the auction rules on July 31.

Some of us in the public interest community and some enlightened souls on the commercial side of the equation had the idea that part of the spectrum should be set aside for wholesale use. That is, rather than have a Verizon gobble it all up, again, one-third of the 60 MHz up for auction in January 2008 would have to be made available in a way that smaller entrepreneurs and innovators could have access to it, or that larger companies could be free to lease spectrum at wholesale to offer different types of services and features than currently allowed by the spectrum holders – the incumbent wireless companies. A true open access policy would be the icing on a very big cake. The big four carriers already have licenses worth about $120 billion, with Verizon holding half of that.

Also on the table is the idea that consumers shouldn't be tied to their wireless carriers by telephones. A phone that works on one network should be able to work, or be made to work, on all networks. Consumers paid for the phones, and should be able to use them. FCC Chairman Kevin Martin has dubbed this flexibility as “open access.” Those of us who have pushed for real open access don't think so. To us, real open access involves open devices, no blocking of applications, access to spectrum and non-discriminatory interconnection.

But to certain members of the subcommittee, those proposals were out of the bounds of reality. Rep. Fred Upton (R-VZ), the senior Republican on the panel, set the tone for the discussion when he called even Martin's “open access” provisions “a gamble” and an “experiment at the expense of the American taxpayer. Rep. Charlie Gonzales (D-ATT), brought out his old confusion argument from the Net Neutrality debates, and said that “open access means different things to different people” and suggested that open access would dictate that Apple use something other than iTunes.

Reps. Dennis Hastert and Marsha Blackburn, both (R-ATT), attacked even Martin's plan. Hastert said he was “disappointed to hear” that Martin would “impose regulations like open access.” Blackburn, disregarding the actual terms of the law that prohibits making auction revenue a factor in setting the service rules, also criticized “burdensome and unnecessary open access regulations.” Rep. Mike Ferguson (R-VZ) wanted an auction “uninhibited by conditions or regulations.”

Let us take a deep breath, a step back and look at these supposed “experimental” and “burdensome” concepts. Only in today's wireless world would such descriptions apply.

The first, which Martin correctly describes as a “modest step for innovation, is a mere 39 years old. The concept of a consumer being able to use a telephone or other device of his or her choosing on the telephone network was established in 1968 after a years-long brutal battle with the real Ma Bell during which AT&T asserted the right to prohibit covers on telephone books. Since then, the FCC has come up with an easy and painless way of making certain devices don't harm the network. The shorthand is “Part 68” for the section of the FCC rules that apply. The FCC doesn't even do the Part 68 evaluations any more. The American Council for Terminal Attachments (ACTA) does it, or the manufacturer can self-certify, and in each case an engineering evaluation is all that's required. That process wouldn't be hard to replicate for a wireless world.

The second concept, wholesale access, similarly is not as revolutionary as it might seem if considered in another concept. In fact, major carriers are in that very business today on their wireline side. AT&T issued its second quarter earnings on July 24 with its “ninth consecutive quarter of double-digit growth.” In its earnings presentation, AT&T described itself: “AT&T is a leading provider of wholesale services, providing a full portfolio of reliable and highly secure network, data and IP solutions locally and globally for carriers, wireless operators, cable providers, systems integrators, Internet service providers and content providers.” AT&T had $3.5 billion in wholesale revenue in the last quarter. And even if that was down a bit from the year earlier, it's a nice chunk of change.

Verizon reports its earnings next week, but in its first quarter report, the company reported a modest growth in wholesale revenue.

To see where the wholesale model has really taken off, look across the pond to British Telecom. After a bit of sturm and drang, BT got with the program (or programme, if you prefer), and now wholesale is a big part of their business. The company reported on July 26 that wholesale revenue increased seven percent from the second quarter last year, and that it has almost one billion pounds Sterling in wholesale revenue.

It's an interesting question to ask on whom auction regulations would be “burdensome.” Perhaps for AT&T or Verizon there might be some additions to their already large organizations, but it's not as if the structures aren't there to handle new business. Certainly the benefits of said alleged burdens would be immense if innovation and competition were the result. Those are supposed to be the goals, not the accumulation of as much revenue as possible. As with number portability, the companies won't go voluntarily because it's too hard to give up their stranglehold on the spectrum. It's unfortunate, but the FCC is the only way to develop a wholesale market.

If one were cynical enough to say that revenue should be a goal, even if that's not the law, then an unencumbered auction isn't the way to go, either. Letting the Bells loose in the past only resulted in rigged auctions in which the government got less revenue than it might have in more scrupulously planned auctions.

Martin has said that the true “open access” position would be a step backward. He is mistaken. Much like the enlightened position he has taken on access to devices, it would be a step forward. The alternative, doing nothing at all, is the step back, because it would leave consumers and innovators at the mercy of the big carriers. It seems that's the result many members of the Subcommittee desire and that's what they will get.