Wednesday, April 22, 2009

The Wrong Time for Regulatory Intervention in the Wireless Market

On April 3rd, Free Press submitted a letter to acting Chairman Michael Copps requesting that the FCC reaffirm that wireless services are explicitly subject to the Commission's Internet Policy statement. In the letter, Free Press expressed concern that wireless carriers were preventing consumers from running applications and services of their choosing on their wireless devices. The Commission would be making a mistake if it chose to take any regulatory action in response to the Free Press letter.

The wireless market is competitive and one area where carriers are competing for consumers is in the implementation of "openness" on their networks. To appeal to subscribers, carriers have embraced the emergence of applications marketplaces such as the Apple App Store, Google Android Market, Blackberry App World, and, soon, the Verizon Hub service. Truly for the first time, a typical subscriber, using a variety of phones on a variety of networks, is able to customize his or her wireless experience. Now is not the time for the government to intervene in an attempt to define and enforce its idea of "openness" when, clearly, competition is moving wireless carriers in that direction naturally.

AT&T and T-Mobile have recently come under fire for limiting their customers' access to certain applications on the Apple App Store and the Google Android Market respectively. AT&T allowed Apple to release a Skype application, but required it to operate only over Wi-Fi and not on its commercial network. Meanwhile, T-Mobile requested that Google bar users on the T-Mobile USA network from accessing applications that would allow them to tether their phone's data connection to a computer. Some question whether these examples set a precedent for carriers to limit the applications their users can access.

The reality is that these applications marketplaces have replaced the traditional heavily-restricted carrier-run download sites that limited consumers to only a select handful of specifically chosen applications. Instead, this new model for wireless content is driven by any and all software developers that might be interested. Apple, Google, and Blackberry have all released their software development kits and set up portals for individual vendors in order to encourage involvement and applications development. The Apple App Store currently features over 28,000 applications that have been downloaded over 500 million times reinforcing Apple's claim that "there's an app for that."

And it is clear that U.S. consumers still love their phones. According to CTIA, at the end of 2008, the U.S. wireless industry had over 270 million subscribers, up from around 255 million at the end of 2007. CTIA has also found that cell phones are involved in the everyday life of 87% of the U.S. population. FierceWireless' breakdown of subscribership by carriers shows that, other than Sprint, the major wireless carriers, including AT&T and T-Mobile, have seen significant growth in their subscription rates over 2008. AT&T increased from 71.4 to 77 million subscribers, T-Mobile from 30.8 to 32.8 million subscribers, and Verizon from 67.2 to 80 million subscribers. Only Sprint saw a decline in subscribers from 52.8 to 49.3 million.

Much of this growth seems to be attributable to people flocking from landline phones to data plan-equipped wireless phones in order to take advantage of their newly developing capabilities. A report from Nielsen Consulting on wireless substitution showed that at the end of June 2008, 17.1% of U.S. households had replaced their landline phones for wireless phones. This percentage has grown by 3-4% every year and does not appear to be slowing. In January, the FCC's report on the state of competition in the CMRS marketplace estimated that U.S. subscribers who paid for mobile Internet access increased 28% from the first quarter 2007 to the first quarter of 2008. Revenues from wireless data services have risen to more than $32 billion in 2008, a 39% increase over 2007.

As wireless carriers strain to operate under existing spectrum limitations, some form of network management is always going to be necessary in order to ensure that services are able to be delivered efficiently and economically. But as evidenced by the market's recent move towards open platforms, carriers are still under intense competitive pressure to offer a superior product that appeals to constantly evolving consumer preferences. Given this competitiveness and the fast-changing nature of the wireless industry, the various parameters of services are clearly better set by the marketplace, rather than government fiat. Commission regulation at this point would just be unnecessary and counterproductive.