March 8 (Bloomberg) -- Tantalizing reports that Americans might soon be getting free nationwide wireless Internet access, courtesy of the Federal Communications Commission, have turned out to be exaggerated. But wouldn’t we all welcome mobile connectivity at a reasonable price? The FCC should take steps to make that possible through competition in the wireless marketplace.
Right now, Verizon Wireless and AT&T Inc. dominate the market for wireless data as a duopoly, together accounting for more than two-thirds of all U.S. subscribers and most of the wireless industry’s profits. The other three of the five biggest mobile-phone companies -- Sprint Nextel Corp., T-Mobile USA Inc. and MetroPCS Communications Inc. -- are small by comparison. And the big keep getting bigger: In the fourth quarter of 2012, while Verizon added a record 2.1 million subscribers to its base of 90.4 million wireless retail subscriptions, and AT&T added more than three-quarters of a million subscribers to its 106 million retail connections, Sprint, T-Mobile and MetroPCS all lost subscribers.
The two giants have the market power to impose very low monthly usage caps, beyond which consumers are charged exorbitant overage fees, and “shared use” plans that allow the companies to extract additional revenue per household from families sharing buckets of data.
More important, Verizon Wireless and AT&T hold most of the licenses the FCC has issued for low-band wireless spectrum. This spectrum, which travels through walls and over great distances, gives the company a “tremendous advantage” over high-band licensees such as T-Mobile, Verizon’s chief technology officer, Tony Melone, told analysts in 2010. A single tower transmitting over low-band spectrum can cover three to three and a half times the geographic area of a high-band transmitter.
This means that Verizon Wireless can run its nationwide network using far fewer towers than T-Mobile needs to provide similar coverage. These low-band spectrum holdings create a barrier to entry that other carriers have trouble overcoming.
So people got excited when the Washington Post reported last month that the FCC was planning to make more Wi-Fi spectrum available for use by any home or business without permission. The Wi-Fi signals we currently use to connect to the Internet are the last 50 feet of a wired connection; Wi-Fi allows us to share home and business wires without signing up for the wireless carriers’ data plans.
Verizon and AT&T themselves already rely extensively on Wi-Fi to avoid having to increase the capacity of their own networks. The big difference between current Wi-Fi and the proposed additional Wi-Fi is that the new uses would be in low-band spectrum. While signals over high-frequency spectrum carry lots of information, they degrade very quickly over distance -- which is why your current Wi-Fi connection at work fades as soon as you walk away from your office.
More Wi-Fi would make one element of a wireless network -- the frequencies -- “free.” But a wireless network still can’t exist without being close to a wired Internet connection, and someone has to pay for that.
Still, new spectrum for Wi-Fi is a good idea, because it would have greater range than current Wi-Fi and would foster innovation. But it would have far less range than Verizon Wireless and AT&T provide, and thus wouldn’t supplant the need for most people to have a mobile data plan.
If we want more competition for Verizon Wireless and AT&T, Wi-Fi alone won’t do it. We must ensure that low-band licensed (paid-for) spectrum is available to challengers who won’t be limited by the range constraints of Wi-Fi. The FCC has an opportunity to do that: In 2014, it plans to have TV broadcasters give up some of their low-band licensed spectrum for resale to wireless data carriers.
This so-called incentive auction, which allows the broadcasters to share in the proceeds, is our last best chance to weaken the grip of the wireless duopoly. Broadcasters need to be urged to cooperate by contributing all the spectrum they don’t need. And the FCC needs to get the auction rules right so Verizon Wireless and AT&T aren’t allowed to snatch it all up for themselves. Otherwise, we will see no change.
All American businesses want competition and innovation in the wireless space that will drive lower prices, wider choices of inexpensive devices, and greater investments in capacity. The FCC needs to make sure they get it.
(Susan P. Crawford, a contributor to Bloomberg View and a professor at the Cardozo School of Law, is the author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” The opinions expressed are her own.)
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