Three Reasons to Heed Michelle Connolly on Wireless Competition

Michelle Connolly is a former Chief Economist of the Federal Communications Commission. Indeed, the only person, I believe, to hold that position on two separate occasions. Good cred.

Dr. Connolly is also a highly distinguished Professor of Economics at Duke University, my alma mater. Another good cred.

Finally, Michelle is also a long-time member of the Free State Foundation's Board of Academic Advisors. Another really good cred.

Please don't ask me to choose which of these is most important!!!

No matter! Any one of them alone, of course, is sufficient to spur me to recommend for your consideration Professor Connolly's new paper, Competition in Wireless Telecommunications: The Role of MVNOs and Cable's Entry into Wireless. You can find it here on the T-Mobile-Sprint merger website or here on SSRN. (Dr. Connolly acknowledges that the report was underwritten by T-Mobile but states that the opinions expressed in this report are hers alone.)

If you are interested in better understanding the marketplace context of the proposed T-Mobile/Sprint merger and the competition analysis that the regulatory authorities are undertaking, I heartily commend the entire report to you. But, in the meantime, here I highlight just a few key excerpts:

"This report examines the competitive effects of Hybrid Mobile Network Operators (HMNOs) — mobile virtual network operators that rely in large part on self-deployed facilities — on the market for mobile wireless services and recommends that the Federal Communications Commission (FCC) broaden its now antiquated definition of the mobile telephony and broadband market to account for HMNOs. HMNOs share certain characteristics of both facilities-based carriers (Mobile Network Operators or MNOs) and non-facilities-based providers of mobile services (Mobile Virtual Network Operators or MVNOs). An understanding of MVNOs therefore partially illuminates the competitive impact of HMNOs, but HMNOs are poised to play a competitive role in the wireless marketplace that goes substantially beyond that of traditional MVNOs."

"HMNOs use a combination of facilities to provide wireless service and are not as reliant on MNOs as are pure MVNOs. Cable operator HMNOs own high-capacity network facilities that enable them to offload a majority of the voice and data traffic coming from mobile devices onto their fixed broadband networks. For example, rather than relying solely on their MVNO agreements to use Verizon’s mobile network, Comcast and Charter use their own extensive Wi-Fi hotspot networks to deliver wireless service to their customers over wide geographic areas. Comcast and Charter thus are providing wireless service using a hybrid strategy, combining traditional non-facilities-based MVNO agreements and facilities-based MNOs. (Emphasis in original.)"

"HMNOs should be considered as part of the relevant mobile services market. Cable HMNOs’ entry into the wireless market has already increased competition. The impact of this intensified competition on price discipline will grow in the next couple of years. Accordingly, any analysis of the mobile telephony/broadband market must at the very least include HMNOs. (Emphasis in original.)"

On behalf of the Free State Foundation, Senior Fellow Seth Cooper and I filed comments and reply comments in the FCC's proceeding to consider the proposed T-Mobile/Sprint merger in order to provide context for the agency's consideration, including the competition analysis. As with Professor Connolly's paper, if you are interested in the merger, I hope you will review the FSF comments and reply in their entirety.

Here is a brief excerpt from each that, in relevant part, is consistent with Dr. Connolly's conclusions in her paper.

From FSF's August 27 Comments:

"Wireless market entry by Comcast and Charter Communications using hybrid Wi-Fi/cellular mobile wireless networks as well as DISH Network’s planned launches of IoT and 5G networks diminish the likelihood of significant price increases, post-merger. Commission precedents like the CenturyLink/Level 3 Order (2017) factor such entry into the review analysis."

"Of course, reciting the market shares above might be read to suggest that mobile broadband is a properly defined market for purposes of competition analysis, but this likely is no longer the case. It is more likely that wireless and wireline broadband services properly are part of an overall broadband communications market – a broader broadband market, if you will – as these two market segments become increasingly substitutable. Traditional market definitions, such as a “mobile broadband” market, are now likely to be overly narrow, just as "cable" is certainly outdated and overly narrow as a meaningful product market definition."

From FSF's September 18 reply comments:

"The Commission should reject any artificial rule demanding four nationwide mobile wireless providers. Post-merger, consumer choices will still include three nationwide mobile service providers, plus regional providers, and hybrid Wi-Fi/cellular service providers Charter Communications and Comcast. “New T-Mobile” would likely be a stronger competitor. And the proposed merger would provide New T-Mobile an accelerated pathway for nationwide 5G network coverage that neither provider would have by themselves."

Again, if you're interested in knowing more about the dynamics of competition in the wireless marketplace, I commend to you Michelle Connolly's newly-published paper, Competition in Wireless Telecommunications: The Role of MVNOs and Cable's Entry into Wireless. And while you're at it, you might also read the Free State Foundation's comments and reply comments submitted in the FCC's T-Mobile/Sprint merger proceeding.

Verizon Now Offers 5G Residential Broadband in Four U.S. Cities

On October 1, 2018, Verizon launched 5G residential broadband access in Houston, Indianapolis, Los Angeles, and Sacramento. For only $50 a month for existing Verizon customers and $70 a month for non-existing Verizon customers, consumers in these four cities are able to access speeds of 300 Mbps and peak speeds of up to 1 Gbps.

Verizon is the first major carrier to launch a 5G network, but there is a lot of competition between wireless providers. It is only a matter of time before the 5G revolution expands to more U.S. cities and providers offer mobile capabilities for consumers on the go.

The Video Marketplace Is Competitive

Video Competition
Infogram

FCC Wireless Infrastructure Order Will Spur 5G Deployment

California Governor Jerry Brown Should Veto Net Neutrality Bill

California Governor Jerry Brown has until September 30^th to sign or veto SB 822, the “California Internet Consumer Protection and Net Neutrality Act,” which would impose even more burdensome net neutrality regulations on broadband ISPs than the FCC’s 2015 Title II Order. If he does not sign or veto SB 822 by September 30^th, the legislation becomes law.

As Randolph May and I stated in a recent Perspectives from FSF Scholars titled “California Net Neutrality Bill Would Stifle Network Investment,” SB 822 would prohibit or heavily restrict consumer-friendly innovations, like paid prioritization and zero-rated services. SB 822 also would contribute to the creation of a "patchwork" of differing state net neutrality regulations, hindering the delivery of interstate communications services for broadband providers and discouraging network investment throughout California.

In summary, Governor Brown should veto SB 822.

FCC Proposal Would Protect Internet Services from Local Government Regulations

Under the leadership of Chairman Ajit Pai, the Federal Communications Commission already has compiled a record of clearing away barriers to the deployment of next-generation broadband services to all Americans. At its September 28 public meeting, the Commission can build on that record by keeping broadband Internet networks free from local government regulations. 

The Commission will vote on a proposal that would expressly prohibit local governments from misusing their cable franchising authority to regulate "information services" such as broadband Internet services. Its proposal also would limit in-kind payments from new entrants and cable incumbents seeking to offer video services in local markets. There are solid statutory bases for the Commission’s worthy proposal. And its adoption would further Congressional policies favoring free market competition and innovation in advanced communications services.

Section 621(a)(1) of the Communications Act recognizes that states and their local governments may require cable operators to obtain franchises in order to provide cable TV service within their respective states or localities. However, "a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise." Other statutory provisions place further limits on local franchising authorities (LFAs). For instance, Section 622(b) caps the amount of franchise fees a LFA may collect from a cable operator for any 12-month period to 5% of the cable operator’s gross revenues for providing cable services during that period.

In a 2007 order, the Commission found that some local government franchising processes imposed barriers to entry that inhibited competition. The agency also found that local franchising processes could unnecessarily burden and disadvantage incumbent cable operators in competing with entrants. Accordingly, the Commission issued rules and guidelines for implementing Sections 621 and 622. 

The Commission determined that the regulatory jurisdiction of LFAs extends only to video services provided over cable networks, and not to non-cable services provided over "mixed-use" networks. Refusals to award a video franchise based on matters involving such non-cable services were deemed unreasonable and therefore impermissible. Additionally, the Commission determined that "in-kind" contributions charged by LFAs in exchange for video franchises are included within the 5% cap on franchise fees. Importantly, a second 2007 order extended those rules to incumbent cable operators. The Commission recognized that the term "cable system" in Section 602(7)(C) "does not distinguish between incumbent providers and new entrants" and that incumbents could be put at a competitive disadvantage if subject to different rules. 

In Montgomery County v. FCC(2017), the U.S. Court of Appeals for the Sixth Circuit concluded that the Commission failed adequately to explain the scope and statutory basis for its "mixed-use" network and "in-kind" contribution rules. The Sixth Circuit effectively narrowed the application of those rules and remanded the matter to the Commission. To its credit, the Commission is now proposing to shore up the previous "mixed-use" network and "in-kind" contribution rules with clearer definitions and fuller explanation of their statutory bases.

With respect to "mixed-use" networks, the Commission's proposal would in all cases prohibit LFAs from regulating information services offered by cable operators, including broadband Internet access services. Under Section 624(b), LFAs "may not ... establish requirements for video programming or other information services." Significantly, the Commission's proposal includes a persuasive analysis indicating "information services" in Section 624(b) is equivalent to Title I's definition of the term and that "Congress intended to bar LFAs from regulating information services." 

Rightly, the Commission's proposal recognizes that LFA regulation of broadband services "would frustrate the light-touch information service framework established by Congress that the Commission previously has found necessary to promote investment and innovation." The Restoring Internet Freedom Order(2017) reclassified broadband Internet access services as lightly-regulated Title I "information services." And the order expressly preempted any "economic" or "public utility-type" regulation of broadband services by state and local governments, including entry and exit restrictions, because such regulation would disrupt federal deregulatory policy goals. Consistent with this federal light-touch policy, the Commission’s proposal expressly would preempt LFAs "from requiring incumbent cable operators to obtain franchises to provide broadband Internet access service." 

Further, the Commission's proposal would clarify that in-kind contributions would count toward the 5% cap on how much LFAs can require cable operators to pay to obtain cable franchises. The 5% cap would apply regardless of whether the in-kind contributions required were cable related or non-cable related, keeping LFAs from overextending their limited authority. Also, the Commission's proposal delineates categories of expenses that are excluded from the 5% cap on contributions, such as capital cost payments for providing public, educational, and government (PEG) access. Those exclusions carefully track with statutory provisions and should satisfy any reviewing court of law.

In all, the Commission's cable LFA proposal is legally solid. And it would protect Internet services from regulatory overreach. By keeping local regulators in check consistent with the Communications Act, the Commission can help ensure a market-oriented environment favorable to the deployment of next-generation broadband services.  The ultimate beneficiaries of such an environment are the nation's consumers.

Commissioner Rosenworcel Is Already Looking Towards 6G

At the September meeting, the FCC will vote on the Wireless Infrastructure Order that would reduce state and local barriers to small cell deployment by limiting pole attachment fees and streamlining administrative processes. Adoption of this Order undoubtedly would advance the implementation of 5G wireless technology throughout the United States.

But interestingly, FCC Commissioner Jessica Rosenworcel is already looking towards 6G. In a speech at the Mobile World Congress Americas on September 13, Commissioner Rosenworcel said that the FCC should revisit spectrum policy of the future, particularly with relation to valuation, auction, and distribution.

With regard to spectrum distribution, Commissioner Rosenworcel said the FCC should consider using blockchain as a way to enable smarter and more decentralized dynamic spectrum access techniques:

Blockchains are distributed databases that can be securely updated without central intermediaries. That makes them ideal for a bunch of uses—and everyone has a blockchain idea right now. So here’s mine: Instead of having a centralized database to support shared access in specific spectrum bands, we could explore the use of blockchain as a lower-cost alternative. If the effort succeeds, this could reduce the administrative expense of dynamic access systems and increase spectral efficiency. We also could foster new hierarchies of band-specific rights and new models for lightweight leasing. Plus, the public quality of recording this information using distributed ledger technology could help expose patterns that inspire new technical innovation and even change the way we use wireless.

The FCC still must continue to reduce regulatory barriers to small cell deployment and promote the advancement of 5G wireless technology throughout the U.S. But it is also important that FCC Commissioners are looking towards the future to ensure that the wireless market will experience a smooth transition from 5G to 6G.

Kudos to Commissioner Rosenworcel for her forward-looking ideas!