FCC Working on Device Interoperability Rules, Girding for Another Battle With Verizon, AT&T

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By Paul Barbagallo  

The Federal Communications Commission is laying the groundwork for yet another battle with Verizon Wireless and AT&T Inc. over competition policy.

According to agency and industry sources, the FCC is expected to begin a formal rulemaking process by midyear that could result in manufacturers of handsets, chipsets, and network equipment being required to make their products compatible with all frequencies across the entire 700 megahertz band of radio spectrum—not just particular slices under the control of Verizon and AT&T.

“If you're a carrier that has only 1 million subscribers, you can't buy a handset that's uniquely designed for your 700 MHz band spectrum that's anywhere near cost-competitive to that of a Verizon or AT&T,” Steven Berry, president and chief executive officer of the Rural Cellular Association, told Bloomberg BNA in a phone interview. “This world is all about scale.”

“Once my customer leaves my network and tries to go to another, they can't roam because it's technologically impossible.”Ben Moncrief C Spire Wireless Some manufacturers have declined requests to build phones and network equipment for C Spire Wireless, Cavalier Telephone, and U.S. Cellular, among others, for precisely this reason. If a manufacturer cannot sell 65 million to 80 million units globally, Berry noted, “they're just not making money.”

At the same time, many of the smaller, more regional carriers have stalled in their efforts to roll out the next generation of wireless coverage—4G—using the airwaves they purchased at the FCC's 700 MHz band auction in 2008.

“[Verizon and AT&T] have used their monopsony control over the lower 700 MHz band to create separate ‘band classes' and leverage their scale over vendors to procure devices and network equipment that are exclusive to that band class,” Ben Moncrief, director of government relations at C Spire, told Bloomberg BNA in a phone interview. C Spire is the eighth-largest wireless carrier in the United States with 900,000 customers in Mississippi, the Memphis metropolitan area, the Florida panhandle, and parts of Alabama and Georgia.

In the 700 MHz-band auction of 2008, Verizon acquired most of what is known as the C Block, paying $9.6 billion for 108 licenses. AT&T bought 227 licenses for $6.6 billion in the B and C blocks. And a number of smaller mobile network operators purchased licenses in the lower A, B, and C blocks. After the auction, the 3rd Generation Partnership Project, an industry standards-setting body, created four “band classes” within the 700 MHz band—12, 13, 14, and 17. Band class 13 was designated for Verizon's upper C Block spectrum; band class 17 for AT&T's lower B and C Block spectrum; and band class 12 for the smaller operators' lower A, B, and C Block spectrum (Band class 14 was created for the upper B Block and spectrum allocated for public safety use). Thus, all handsets, chipsets, and network equipment made for band class 13 are incompatible with band class 17 or band class 12, and vice versa.

Verizon and AT&T, which declined to comment for this report, are alleged to have persuaded manufacturers to make products only for band classes 13 and 17. Both companies have refuted the charge in filings with the FCC. Verizon, citing the 25 licenses that the company purchased in Block A for $2.57 billion, said the RCA-backed “700 MHz Block A Good Faith Purchasers Alliance” offers “no plausible suggestion for why such a state of affairs would be true.”

Verizon also recently blasted an agreement between C Spire and Samsung Telecommunications America to construct a 4G LTE network. To Verizon, the companies' deal “undermines” C Spire's arguments and confirms that the “interoperability mandate lacks any factual justification.” (RCA later responded with an ex parte filing saying “that rural and regional [carriers] still cannot acquire interoperable equipment at economically competitive prices.”)

AT&T, meanwhile, has claimed that one of the underlying reasons for separating the 700 MHz blocks into different band classes is interference—the proximity of A Block spectrum pairs to TV broadcast transmissions on one hand and high-power broadcast transmissions in the unpaired 700 MHz D Block and E Block on the other.

AT&T has further questioned whether so-called “full-spectrum”devices would ultimately “appeal” to customers. Such phones, AT&T said, would have far less functionality, far more weight and bulk (with additional chipsets and antennas), and would come with a far bigger price tag.

In similar filings with the FCC, Qualcomm Inc. warned that an interoperability mandate would “imperil” the company's ongoing development of chipsets for the lower and upper 700 MHz bands while “driving up the cost of devices.”

Also siding with Verizon and AT&T, Motorola, which supplies network equipment, has defended the 3GPP standards-setting process as open, fair, and reflective of “engineering and manufacturing constraints.”

Small Carriers Worry About Lack of Roaming.

But until the FCC intervenes, some smaller players believe they will be disadvantaged. Not only will they not have 700 MHz band handsets to sell to their customers, they argue, but in addition, their customers will not be able to roam onto Verizon's and AT&T's 4G LTE networks.

“Because we would use a different band class in the lower 700 MHz band than AT&T, FCC rules would allow AT&T to say, ‘Sorry, no 4G roaming. You're using a different band class,'” noted C-Spire's Moncrief. “Once my customer leaves my network and tries to go to another, they can't roam because it's technologically impossible.”

Nearly a year ago, the FCC issued a rule requiring nationwide wireless carriers to enter into “commercially reasonable” data-roaming agreements with one another, subject to certain limitations. Among those limitations, a provider may, for example, condition a roaming agreement on another provider offering service with a generation of technology “comparable to the one it seeks to roam on.”

More so than Verizon and AT&T, smaller, rural, and regional carriers depend on roaming agreements to stitch together a larger geographic footprint.

Thomas Gutierrez, a senior partner at Lukas, Nace, Gutierrez & Sachs LLP representing King Street Wireless, which holds 152 licenses of 700 MHz spectrum in 27 states and is partnering with U.S. Cellular to offer 4G LTE services to U.S. Cellular's customers, said interoperability in the 700 MHz band will be crucial to avoiding what he called the “technical incapability trap” in 4G roaming negotiations.

Gutierrez, who as a former FCC attorney helped craft the agency's original cellular radio rules, noted that, historically, there has always been an “effective interoperability demand” in wireless communications.

“The industry, as well as the agency, knew in the early 1980s that interoperability would yield the best outcome for everyone,”Gutierrez told Bloomberg BNA in a phone interview.

The FCC at that time ruled that “with respect to mobile stations, all units must be capable of operating at least over the entire 40 MHz of spectrum [666 channels].” This was necessary, the FCC had said, to “ensure full coverage in all markets and capability on a nationwide basis.”

But some industry analysts and telecommunications consultants say the smaller carriers are most fearful about losing revenue from roaming agreements.

Historically, smaller, rural, and regional carriers have relied on fees from the larger nationwide carriers to support their core business. When a customer of AT&T's, for example, travels to a rural part of the country where AT&T does have not network coverage and downloads an e-mail on a smartphone, AT&T pays the rural carrier to allow that customer to roam on the rural carrier's network.

This arrangement has been compromised by the bifurcation of the 700 MHz band.

“If the FCC forces Verizon and AT&T to be able to roam on the smaller carriers' A Block networks, Verizon and AT&T have to put A Block baseband processor chips and filters in every one of their phones,” Roger Entner, an analyst at Recon Analytics who follows the wireless industry, told Bloomberg BNA in a phone interview. “Hence, manufacturing volumes will go up dramatically and costs will come down for the rural carriers … compared to if only the smaller need those chipsets.”

Like others who oppose a device interoperability mandate, Entner cautioned that with added electronics in every phone, what he termed a “least common denominator chipset,” the price per handset will increase.

For Verizon and AT&T, Entner noted, the cost of installing more chips in more phones is greater than the “utility” they get by allowing their customers to roam on smaller carriers' networks.

“It costs more money and the battery life is shortened,”Entner said. He added: “It's one thing to require the big carrier to allow the little carrier to roam on them. The smaller carrier has only limited coverage. But what [interoperability] would mean is forcing Verizon customers to roam C-Spire's 4G network in Hattiesburg, Miss. If Verizon doesn't want to roam on C-Spire's 4G network but would prefer to give their customers their own 1X network, then let them. The larger carriers might not want to roam because they might not need to roam.”

With efforts under way to free up as much as 500 megahertz of spectrum for commercial broadband networks over the next 10 years, the FCC will be under increasing pressure to ensure competition in an industry marked by consolidation and radically transformed by technology.

For the agency, requiring device interoperability, especially in the 700 MHz band, is one way to level the playing field.

The Last Beachfront.

Spectrum in the 700 MHz band has been referred to as the last “beachfront property” in the wireless world. Because the band is at a lower frequency than cellular and digital wireless services, it has a far greater range, and it penetrates walls more effectively.

These airwaves had once been used for UHF television, but were freed up by the move to digital television. And there may be more 700 MHz coming online, which may give the agency reason to act.

Broadly, the problem for the FCC, according to Richard Bennett, a senior research fellow at the Information Technology and Innovation Foundation, a nonpartisan research institute in Washington, is not “selling out the future for the sake of increased competition in the present.”

“These sort of mandates positively inhibit the deployment of new technologies after they've been designed and developed,”Bennett told Bloomberg BNA in a phone interview. “It ultimately puts the regulator in the position of deciding what kind of technology all the mobile networks in the country are going to operate on.”

Bennett also sees a “conceptual disconnect” in the debate surrounding device interoperability.

The phone in mobile communications, Bennett said, is more a part of the network than in historic landline telecommunications.

“It's intelligent. It has to do things that a traditional telephone does not do,” Bennett said. “It has to modulate its power levels based on the proximity to the tower. It has to hunt for different frequencies when other frequencies are busy. It has to control battery life. It is not a dumb device that you just plug into the wall.”

Bennett said that device manufacturers will be under a “technical squeeze” to install the many antennas for 2G, 3G, 4G network connectivity, global positioning systems, Wi-Fi, and Bluetooth.

“That's the hardest problem to solve,” Bennett said.