Wu on Wireless: A Simple Solution?

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Tim Wu is one of the most insightful left-of-center tech policyscholars writing today. A couple of years ago, he did a fantasticpaper applying Hayek's insights about local knowledgeto copyright and patent issues. And he's done some great work onInternet governance, censorship,and other subjects. His latest proposal, though, to impose newregulations on the wireless industry, leaves a lot to bedesired.

When the digital television transition wraps up in February2009, television stations will be required to give back thespectrum that is currently being used for analog televisionbroadcasts. That spectrum will be awarded to the winners of anauction to be held next year. In a Forbes article published last month, Wuproposed that the FCC impose a "simple requirement" on the auctionwinners: "give consumers the right to attach any safe device(meaning it does no harm) to the wireless network that uses thatspectrum."

Without that rule, Wu argues, wireless network carriers will usetheir control over the platform to stifle competition andinnovation in both the handset market and the market for wirelessapplications. Wu notes that some wireless carriers have crippledthe phones they sell to prevent cannibalization of the carriers'existing products and that the process for getting carriers'approval for a new wireless application is too expensive andcumbersome for the small start-ups that often produce the mostinnovative products.

Wu's solution might sound simple, but as with any regulatoryproposal, the devil is in the details. From Wu's brief article,it's not clear exactly what shape his proposed rules would take,but some hints can be found in a paper he published in February with the New AmericaFoundation.

In that paper, Wu concedes that two of the current incumbentwireless carriers-AT&T and T-Mobile-already allow customers toattach any phone to their network that complies with the GSMstandard. Those carriers do not provide subsidies or tech supportfor unapproved devices, but they don't ban them from their networkseither. If it's already being done, there isn't much sense inrequiring it. Wu's proposal must be more than a simple requirementthat networks not actively block unapproved phones. What he appearsto be proposing is more ambitious. In his paper, he describes it asa "cellular Carterfone" rule, after a famous 1968 FCC decision that opened up the monopolyAT&T telephone network to devices provided by third parties.His rule would "define a basic interface to which any equipmentmanufacturer could build a mobile device and sell toconsumers."

Getting federal regulators to settle on the design of aninterface for wireless devices would be quite a complex challenge,of course, carrying with it no guarantee of success. In Wu's40-page February paper, he conceded, "This report, obviously,cannot address the full set of technical issues involved,"continuing:

[T]here are reasons to think that impossibility is anover-statement. The wireless world already has standardizedinterfaces-for example, the GSM standard contains the standardizedSIM card (though its function is usually crippled by U.S.carriers). A standardized interface would work like any other inthe phone or electric industry.

True, a government-designed standard is not impossible, but "notimpossible" is a long way from a good idea. Indeed, Wu seems to beimplicitly conceding that it is far from the "simple requirement"he touts in his Forbes article. He seems to be proposingthat the FCC dictate to wireless carriers what network servicesthey must offer, who may access them, on what terms, and at whatprice.

History suggests that such efforts often end badly. Even when agovernment-created monopoly situation makes public utilityregulation unavoidable, as in the Carterfone case, it can take adecade or longer for the dust to settle. The Clinton-era FCCattempted to create competition in the telephone and DSL markets byrequiring Baby Bells to "unbundled" their local phone lines andlease them at FCC-determined prices to competitors. The Bellsultimately killed the plan using a combination of lobbying,litigation, and foot-dragging. But for the nine years between thepassage of the Telecom Act in 1996 and the Supreme Court's Brand X decision in 2005, telecommunicationsfirms spent tens of millions of dollars on lawyers and lobbyists toseek advantage in the regulatory arena.

An even better example is the seemingly interminable battle overthe CableCARD, a credit-card-sized device that allowstelevisions to decode cable signals without a set-top box. It, too,was prompted by the 1996 Telecom Act, which instructed the FCC tocreate regulations opening the market for cable set-top boxes. TheCableCARD fight is closely analogous to Wu's proposal because theFCC ordered the cable industry to develop a standard interface thatcould be used to build third-party set-top boxes. Like the Bells,the cable industry has done everything in its power to slow theprogress of the CableCARD effort because it prefers to continueusing proprietary set-top boxes. As a result, after more than adecade of bickering, the CableCARD continues to be a nicheproduct.

Even the Carterfone decision itself shows that forcing owners toopen their networks is not a simple process. Wu is right thatCarterfone was a landmark decision exposing a government-backedmonopolist to much-needed competition in the market for telephoneequipment. But it took a long time to come about, much less have animpact. Thomas Carter began selling the Carterfone in 1959. Soonafter, he sued AT&T on antitrust grounds. He got a favorablecourt ruling in 1966, and the FCC released the Carterfone decisionin 1968. But the FCC didn't formally codify the principles behindthat decision until 1975.

To sum up, the battle over telephone "unbundling" took a totalof nine years and ended in failure. The regulatory battle over theCableCARD standard has already taken 11 years, and it's still notclear if it will be successful. And it took 16 years from therelease of the first Carterfone for the FCC to formally enshrine anattachment right in its rules. These examples suggest that if theFCC were to begin working on cellular Carterfone regulations today,we might not see the legal issues resolved until well into the2020s.

In contrast, the current generation of "3G" cellulartechnologies has been on the market for barely three years, and themarket continues to evolve rapidly. Some of the problems Wuidentifies in his paper may be mere growing pains. Until recently,the carriers' attention has been focused on just getting the 3Gnetworks up and running. If Wu is right that an open wirelessnetwork would be more congenial to innovation-and he most likelyis-then it is in the self-interest of each carrier to open its datanetwork. A bit of consumer pressure might be all it takes topersuade one or more carriers to change their ways.

Given how slowly the regulatory process moves-and the goal ofunregulated, unsubsidized competition-it would be premature andcounterproductive for the FCC to step in now. Any rules the FCCpromulgates are likely to be rendered irrelevant by relentlesstechnological progress. And there's a real danger that the wirelessindustry will be slowed down, forced to wait for the FCC tocomplete its glacial decisionmaking process before rolling out newproducts and services and deciding whether to invest in furtherimprovements to its networks.