"Regulate first, ask questions later" makes for a backwards policymaking process. Unfortunately, legislation recently introduced in Congress adopts that backwards approach. The Next Generation Wireless Disclosure Act (H.R. 2281) would require the FCC to adopt new regulation of next-generation wireless network service disclosure practices…and then later conduct a study on network disclosure practices and performance in market. The bill would also call on the FCC to assume new responsibilities as a 4G wireless reliability ratings board.
H.R. 2281 would saddle advanced services with special regulatory burdens without having established any kind of actual problem that warrants specific new rules. There already are laws against unfair and deceptive trade practices. And the regulation called for by H.R. 2281 ignores the check provided by competition in the wireless market. Such regulation risks hampering rapidly evolving wireless networks that are only now beginning to reach 4G service levels.
And compelling wireless carriers to publish government-set reliability standards even poses First Amendment questions, since less intrusive alternatives are available to the FCC to address network reliability concerns. H.R. 2281 looks to tie down wireless networks with added regulatory burdens when Congress should instead be looking to free up more spectrum for commercial wireless use so that carriers can meet surging consumer demands and give them next generation services at faster speeds and with greater reliability.
According to the text of H.R. 2281, within 180 days of passage the FCC must adopt new rules requiring wireless providers of 4G services to disclose: (1) "guaranteed minimum transmit and receive data rates for Internet protocol packets to and from on-network hosts for the service, expressed in megabits per second"; (2) "[t]he reliability rating of the service" based on a standard method to be established by the Commission "which shall be based on the data session start success percentage (network accessibility) and the data session completion success percentage (network retainability) of the service"; (3) service price; (4) any additional charges not included in the service price; (5) detailed descriptions of its "network management policies of the service with respect to Internet protocol packets to and from on-network hosts"; (6) [t]he "technology used to provide the service" – whether it be LTE, WiMax or HSPA+; and (7) a website address containing terms of service and coverage areas. Also, wireless carriers would have to provide these disclosures prominently and frequently "in all marketing materials for such service, at the point of sale of such service, and (in the case of postpaid advanced wireless mobile broadband service) in all bills for such service" (emphasis added).
Apparently, the regulation called for in H.R. 2281 is motivated by concerns that wireless carriers are puffing up their services' data speeds and reliability beyond actual performance capabilities. Strangely, however, the bill directs the Commission to conduct a study of 4G wireless practices and performance within one year after the bill's passage. That is, the FCC would be required to complete its study within 185 days after it adopts rules governing the subject it's supposed to study. Here, apart from all other problems, H.R. 2281 surely takes a wrong-headed approach.
Obviously, it makes far more sense to first conduct a study of the subject under consideration before imposing regulation on the subject. Such a study could help provide a factual basis for deciding whether there is an actual problem in the market and for deciding whether new regulation specific to 4G wireless service is the best way to address any such problem.
The bill's findings provide no data-driven basis for concluding that a unique, 4G wireless service disclosure problem exists. After all, wireless carriers are only in the early stages of rolling out 4G services. So H.R. 2281 instead requires specific new regulation on a speculative, prophylactic basis.
Given the competitiveness of the wireless market there is good reason to question whether specific new regulation regarding next generation wireless network disclosure and performance is necessary or wise. According to the FCC's 2011 Wireless Competition Report, "[t]he percentage of the population covered by at least two mobile providers using 3G or 4G network technologies increased from 73 percent in May 2008 to nearly 92 percent in July 2010. In addition, the percentage of the population covered by three or more providers increased from 51 percent in May 2008 to 82 percent in July 2010." And "approximately 68 percent of the population is covered by at least four mobile broadband providers." (We will have more to say about the Report in a subsequent blog post.) Even assuming the AT&T/T-Mobile merger goes through, consumers in most parts of the country would continue to have choice of service from three national carriers – the merged AT&T/T-Mobile, Verizon and Sprint – plus at least one other carrier. Fourth carrier candidates include multi-metro regional providers such as MetroPCS, Leap (Cricket), and US Cellular, recent entrants such as Clearwire also providing choices to consumers; and any of the more than one hundred small, facilities-based regional providers operating in single geographic areas.
With that kind of marketplace competition, carelessness and dishonesty becomes risky business for wireless carriers. Those carriers that routinely overstate their network performance capabilities risk losing customers to their competitors. And those carriers offering realistic assessments of their network capabilities and providing reliable service are well-positioned to lure customers away from those who might be careless or dishonest. Choice and churn provide a check and a balance on the conduct of wireless carriers that should not be ignored.
Most consumers are probably not likely to closely track the data speeds and other performance characteristics of their purchased services with exacting precision. But it's certainly within the ken of most consumers to recognize when their service drops calls, allows for mobile web-surfing at a snail's pace, or takes too long to download files to their handsets. Dissatisfied consumers can change wireless carriers. And even without new regulation specific to next-generation wireless services, in particularly egregious circumstances consumers can still consider legal action.
Wireless carriers are already subject to general prohibitions on unfair and deceptive trade practices. If a wireless carrier were to push particularly egregious kinds of deception in its sales pitches, most consumers in most states could file consumer protection lawsuits. Generally, state consumer protection laws require plaintiffs to prove an unfair or deceptive act or practice affecting the public interest occurred within a trade or business causing the plaintiff an injury to his or her business or property.
H.R. 2881's requirement that the FCC come up with a next generation wireless network reliability ratings system and require wireless carriers to display FCC conclusions also raises concerns. As an institutional matter, there is good reason to be skeptical about government establishing ratings system for advanced information networks in dynamic markets. Even the FCC concedes this general point in its 2011 Wireless Competition Report, stating that "[t]he measurement and representation of the overall quality of a provider's network…present a number of challenges…there is neither a single definition of network quality nor a definitive method to measure it." Engineering and operating wireless networks involves a complex series of constraints that must be balanced by competing carriers, depending on the particular kinds of wireless technologies and devices they are supporting as well as spectrum propagation characteristics, geography, backhaul facilities usage, and data traffic volumes. Wireless networks undergo constant upgrades as new cell towers and are constructed and co-located, as new backhaul arrangements are made, as new devices are put to market, and as data traffic trends on the network change.
Those complexities also pose challenges to any practical implementation of government-set standards. There is the risk of creating a snapshot, partial picture of network reliability based on data session start and completion success percentages that may reflect the FCC's own judgment about reliability but that others may think leaves out other considerations. There is also the likelihood of government standards becoming a drag on wireless carriers that are constantly upgrading their networks. Reliability testing disclosure burdens may not take stock of the latest wireless network performance upgrades, aspects of particular network management such as data prioritization, or geographical factors.
Regulation requiring wireless carriers publish government-set standards also amounts to a compelled speech mandate that raises constitutional issues. Advertising that is inherently or implicitly misleading receives no First Amendment protection. But where no deception is involved, commercial speech regulation is subject to the test set out by the Supreme Court in Central Hudson Gas & Electric Company v. Public Utilities Commission of California (1985). Under Central Hudson, non-misleading commercial speech regulation is permissible where: (1) it advances a substantial government interest; (2) it directly advances that interest; and (3) it is not more extensive than necessary to achieve that interest. The government bears the burden in justifying its regulation to alleviate a real problem in a material way, as opposed to regulation with only a vicarious connection to a merely conjectured problem. And the government must demonstrate that less burdensome alternatives will not suffice to directly advance the substantial interest at stake.
Finally, it is important to consider H.R. 2881's proposal for next-generation wireless regulation in the context of wireless' recent regulatory history. Since 1993, wireless has flourished thanks in significant part to light-touch regulatory treatment. The absence of government intrusion has fostered approximately $285 billion in capital expenditures over the last dozen years, declining revenues per minute for voice and text messaging, and rapid innovation in new smartphone devices, applications, and services. But next generation wireless disclosure regulation now joins the pipeline of regulatory proposals that includes: early-termination fee regulation, handset exclusivity regulation, bill shock regulation, text messaging and common short code regulation, smartphone app regulation and smartphone manufacturing regulation (such as FM chipset mandates). Not to mention wireless network neutrality regulation that was adopted by the FCC in December.
Rather than risk harm to one of the most productive sectors of our economy with a regulatory pile-up, the Congress should instead focus its efforts to what will undoubtedly ensure faster and more reliable wireless service in the future: freeing up more spectrum. The best thing that Congress can do to ensure high speeds and reliability for wireless broadband is to promptly enact legislation giving the FCC authority to identify and auction additional spectrum for commercial use.
Right now, more spectrum, not more regulation, will benefit wireless consumers the most.
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