Friday, August 29, 2008

Don't Roam Backwards

The Federal Communications Commission is considering whether to revise the policy it adopted – unanimously – to exclude from its automatic roaming mandate requests from mobile service providers to roam in their home markets. “Roaming” occurs when a subscriber of one mobile service provider utilizes the facilities of another mobile service provider with which the subscriber has no pre-existing relationship to place or receive a call. The Commission requires that a service provider accede to roaming requests by unaffiliated carriers except where the requesting carrier has a wireless license or spectrum usage rights in the same geographic area as the would-be host provider.

In other words, there is an automatic roaming right unless both providers have spectrum rights in the same overlapping area, the requesting carrier’s home market. Of course, in that instance, the two providers are free to negotiate a mutually satisfactory roaming agreement on a voluntary basis.

Several mobile service providers and rural carrier interests have asked the FCC to revoke the home market exclusion from the automatic roaming mandate, or at least to revise it substantially to preserve the automatic roaming entitlement. This the Commission should not do. Were it to do so, it would be another instance of the agency looking backwards through the regulatory rearview mirror, rather than forwards.

Recall the reasons why the Commission adopted the home market exclusion only a year ago. According to the Commission, an automatic roaming right in the home market of the requesting carrier “does not serve our public interest goals of encouraging facilities-based service….” The agency says this is because:

"[I]f a carrier is allowed to ‘piggy-back’ on the network coverage of a competing carrier in the same market, then both carriers lose the incentive to build out into high cost areas in order to achieve superior network coverage. If there is no competitive advantage associated with building out its network and expanding coverage into certain high cost areas, a carrier will not likely do so."

The Commission’s rationale – to encourage facilities build-out by preventing mandated piggy-backing on another carrier’s facilities – is sound. It was this very reason, the deterrence of incentives to invest in facilities, which caused me to oppose for so long the agency’s “Unbundled Network Elements” network sharing regime. The Commission’s UNE network sharing rules were tilted too far in the direction of mandatory piggy-backing on the in-place facilities of incumbents.

There are certainly echoes of the long-running UNE saga in the roaming controversy. In the 1999 AT&T v. Iowa Utilities Board case, the Supreme Court held that the FCC’s UNE rules were unlawful because they required unlimited network sharing. What Justice Stephen Breyer said in his concurring opinion has particular relevance here:

"Nor can one guarantee that firms will undertake the investment necessary to produce complex technological innovations knowing that any competitive advantage derived from those innovations will be dissipated by the sharing requirement...Increased sharing by itself does not automatically mean increased competition. It is in the unshared, not in the shared, portions of the enterprise that meaningful competition would likely emerge."

Eventually, the wisdom embodied in Judge Breyer’s opinion held sway when the courts forced the FCC as a matter of law to abandon the agency’s overly expansive UNE network sharing regime. The conclusion that the regime discouraged facilities-based investment was central to the courts’ decisions.

To be sure, the facts relating to the UNE regime and the mobile roaming issue are not precisely parallel. But the same underlying principle is at issue in both instances. Mandated network sharing discourages both carriers – the one with the facilities and the one without – from further innovation and investment that lead to more robust competition. The UNE network sharing requirement, in effect, established a regulated resale mandate, and the same would be true with respect to elimination of the home market exclusion, even though the FCC sunset the mobile carrier resale obligation over five years ago.

This does not mean that the Commission might not tweak its roaming rules to allow some in-market roaming entitlement for some limited time or on some circumscribed basis if it determines that some form of narrow relief is warranted on a transitional basis. For example, if the requesting carrier’s spectrum rights are encumbered for some period of time so that, in effect, use of the spectrum by the requesting carrier is not feasible, then some form of transitional relief from the home market exclusion may be warranted.

But in reconsidering the roaming regime, the Commission should not roam backwards by adopting a UNE-style mandatory network sharing regime. When it based the home market exclusion on the principle that network piggy-backing discourages facilities build-out, the Commission too must have heard the echoes of its unfortunate UNE experience.

Going forward, the FCC should stick to principle.