The FCC voted today to mandate that larger mobile network operators enter into data roaming agreements with smaller mobile operators. The ruling says that mobile operators must let competitors use their networks, and will force companies to enter into agreements that will allow the use of their network at a “reasonable rate.” The FCC has now, in essence, imposed price controls over data roaming charges. This regulation of contracts between companies is problematic on a few different levels, both from a legal perspective and a market perspective.
In announcing the vote, FCC Chairman Julius Genachowski said:
Indeed, every commenter that filed in this record, other than the two largest nationwide incumbents, asked the Commission to adopt data roaming rules. From both a policy and legal perspective, standing idle in the face of this record would amount to shirking our responsibility.
Of course this makes total and complete sense. If enough rent-seekers want something, then the government should impose its will and grant it to them through regulatory means. Didn’t you know that’s how Washington works? As ACI’s President rightly contended, this is only further evidence that the FCC is open for business.
Lobbying for this new mandate has come from smaller and rural mobile companies, including Cricket Communications, T-Mobile, and Sprint. Their goal is to better compete with larger mobile companies, such as Verizon and AT&T, without having to make the large capital expenditures on infrastructure that the larger companies have had to make. They’re looking for a greatly reduced price in data roaming charges on the back of the billions of dollars in investments that larger mobile companies have made. As Steve Pociask mentioned on this very blog a few days ago, this is a classic case of rent-seeking. These smaller firms are attempting to manipulate the legislative process to get better outcomes for themselves that they wouldn’t have otherwise received in the marketplace. It’s often done under the guise of consumer advocacy, but what’s really happening is a financial benefit being transferred from one company to the next at the hands of government. It only undermines the economic benefit that consumers receive from companies competing for their business.
The FCC currently requires that cell phone companies allow competitors to use their networks for voice roaming. It can do this because voice communications fall under what’s known as common carrier rules. This allows the FCC to mandate that all cell phone companies must enter into agreements with other cell phone companies, using the same “reasonable rate” standard. The FCC’s authority to regulate data roaming, however, gets into some very dicey territory. According to a court ruling, data transmission is treated as an information service, and therefore doesn’t fall under the same rules as common carriers. The FCC, in an attempt to impose net neutrality on broadband service providers, has been eager to classify them as common carriers, but have so far not found the grounds to do so.
FCC Commissioner Robert McDowell, in dissenting from the decision, explains the legal problems in his remarks:
Even though the order attempts to explain otherwise, in mandating the provision of data roaming and establishing a means for dispute resolution that includes adjudicating terms and rates, my colleagues in the majority are, in essence, imposing a Title II common carrier regulatory regime in violation of Title III of the Communications Act and contrary to Commission precedent. The effort to justify characterization of today’s action as something other than a common carriage decision is understandable, for the law compels it. The problem, however, is that data roaming is what the law sees as a ‘private mobile service.’ In other words, the service is considered a ‘mobile service’ under the Act, but not a ‘commercial mobile service or the functional equivalent of a commercial mobile service.’ Because data roaming is not a commercial mobile service, Section 332(c)(2) of the Act prohibits the Commission from subjecting the provision of data roaming to common carrier regulation.
In citing another reason for today’s ruling, Genachowski said that “Roaming deals are simply not being widely offered” and the requirement will spur investment and promote competition. So that’s how it works? You encourage investment by telling smaller carriers that they don’t need to invest in their own infrastructure—they can just ride on the investment of larger carriers? This reasoning is akin to saying that consumers would buy more cars if they can borrow someone else’s.
The other serious problem with the arguments coming from those seeking the data roaming mandate is that of market failure to bring data roaming to customers of smaller mobile carriers. Carri Bennet of the Rural Telecommunications Group says, “Regarding data roaming, there is no question that there is a severe market failure.” But what market failure is she talking about? AT&T and Verizon are already entering into agreements with smaller wireless companies. More deals are struck every day. It’s called the free-market, and it’s working just fine. It’s in the best interest of companies like Verizon and AT&T to open their networks to smaller companies. They’ve spent billions of dollars on the infrastructure, and they’re willing and eager to lease out the infrastructure to other companies. When the government interferes with these agreements, they’re creating yet another level of bureaucracy along with an artificially controlled price, which is detrimental to the marketplace and inevitably hurts consumers.
Zack Christenson is a Chicago-based digital strategist who writes on tech policy.