Subject: [NEXTEL-1] Regulating Wireless: How Much and By Whom

From: [email-masked]
Date: Fri, 14 May 2004 13:51:30 -0400

Luncheon Remarks by
FCC Commissioner Kathleen Q. Abernathy

Regulating Wireless:  How Much and By Whom
AEI-Brookings Joint Center for Regulatory Studies
Washington, D.C.
May 13, 2004
(As prepared for delivery)

Thank you, Bob, for that kind introduction, and also thanks so much for
inviting me to speak with you today.   I am so happy to be here, because
I want to applaud the AEI-Brookings Joint Center for the very valuable
work you do in helping us all understand the impact that regulation has
on consumers.  The Joint Center’s primary purpose is “to hold lawmakers
and regulators accountable for their decisions.”  During my tenure as an
FCC Commissioner, I have become accustomed to having all sorts of people
looking over my shoulder (mother, brother, husband), and the thoughtful
analysis you bring to the work you do is welcome indeed!

Your conference today on the appropriate scope of wireless service
regulation is particularly timely.  Currently, the California PUC is
actively considering adopting a detailed set of new consumer protection
rules – a “Telecommunications Bill of Rights” – that would apply to all
telecommunications service providers in that state, including wireless
carriers.  And other states are waiting to see how things play out in
California.

Today’s topic also calls on us all to consider the broad implications of
regulation - when does it add value to the consumer experience or in
contrast, when does it simply add unnecessary costs?  Discussing this
topic today provides me with the opportunity to step back from the heat
of individual proceedings and think about core principles.  I will offer
you my personal views on the best ways to maximize consumer welfare in
the wireless marketplace of today, but first I think it’s important for
me to spend just a few minutes outlining the core beliefs that guide me
on issues that come before the Commission.

Guiding Principles

Having worked in prior lives both at the FCC and in the private sector
on telecom policy issues, I have had a lot of time to think about these
matters, and I have crafted a five-point regulatory philosophy.  In my
time as a Commissioner, I have found it extremely useful to remind
myself often of these basic principles.  Some of you may have heard this
before, so please bear with me through this brief summary because it
provides the backdrop for my wireless remarks today.

? First, since Congress sets out the core policy objectives in the
Communications Act, the FCC’s principal role is to implement the law,
rather than to pursue our own policy preferences.  We should adhere
closely to the statutory mandates, because when we don’t, the appellate
courts do not hesitate to reverse our decisions.  Such reversals cause
tremendous regulatory uncertainty, which can be devastating for any
business trying to navigate through turbulent economic waters.

? Second, my experiences in the public and private sectors have
convinced me that fully functioning markets do a better job of
maximizing consumer welfare than regulators can ever hope to do.
Marketplace forces prompt firms to innovate and to offer better services
at lower prices.  Therefore, unless structural factors prevent markets
from being competitive, or Congress has established non-market based
public policy priorities, I believe that the FCC should be reluctant to
intervene in the marketplace through prescriptive regulation.

? Third, when the FCC does promulgate rules, we should ensure that they
are clear and we should enforce them vigorously.  We should not adopt
rules that we are not prepared to enforce.  Efficient markets depend on
clear and predictable rules, and a failure to enforce rules undermines
the agency's credibility and effectiveness.

? Fourth, we should be humble enough to recognize that, no matter how
dedicated and knowledgeable our staff is (and I could not be more proud
of the skill and dedication of the FCC staff), we cannot possibly amass
the depth and breadth of knowledge that exists in the industries we
regulate. Therefore the FCC should constantly be reaching out to
consumer groups, to state regulators, to our regulated industries, and
to trade associations and other organizations so that we can maximize
the amount and quality of the information available to us in making
decisions.

? And finally, I believe that the FCC should always strive to act like
the service-based organization that it is.  This means that we should
act in a timely and fully responsive way, because there is nothing worse
for business than regulatory uncertainty.  As a government agency that
serves the public, the FCC should provide the same degree of
responsiveness and effectiveness that is expected of any organization in
the private sector.

In essence, I’ve concluded that the force of an efficient marketplace is
generally more effective than regulation in prompting firms to offer
better services at lower prices.  When dealing with a well-functioning
market, regulators can do the most good when they simply allow the
market to work to its best effect.  Under these circumstances,
maximizing consumer welfare demands that regulators resist adopting
prescriptive regulation, and act only where structural barriers to
competition exist, where legislation or overriding policy priorities
require it, or where market forces fail to protect the public interest.

The Wireless Experience

So let’s move on to the wireless work.  The wireless industry, and in
particular the mobile wireless sector, is a shining example of what a
well-functioning market can achieve when it is not hindered by
unnecessary regulation.  The FCC reaffirmed in its recent annual report
on the state of wireless competition that the industry has continued to
show significant growth despite a difficult economic environment.  More
specifically, we found that in 2002, the wireless industry continued to
innovate, offered a wider variety of service offerings, and increased
the availability of its services, all while reducing the prices charged
to consumers. The wireless industry by all accounts is a hotbed of
competition, demonstrating how market-based solutions can best served
customers.  Because of competition, per-minute prices for mobile calling
have dropped steadily for nearly a decade, declining 76% since 1994 –
30% in the past 3 years.  At the same time, carriers have invested over
$126 billion in their networks, thus improving service, creating jobs,
and spurring economic growth.

Perhaps most significant, there is no dominant provider in the wireless
sector.  Instead, with the FCC applying a light regulatory touch,
vigorous competition has produced a marketplace with six nationwide
operators and several major regional providers.  Wireless carriers have
nimbly responded to consumer preferences, and as a result, the public
has increased its use of and reliance on wireless networks for basic
voice communications, for news and information through Internet
services, and even for entertainment.

How Did We Get Here?

To what can we attribute the tremendous success of wireless growth?
Certainly, technological developments over the past decade have played a
major role, giving us digital communications, higher bandwidth, smaller
devices and longer battery life, and helping to spark increased demand.
But I also think that the decisions of a decade ago to refrain from
imposing burdensome regulations on this expanding industry contributed
to the explosive growth of wireless.

Now for a little bit of history.  In 1993, Congress amended the law
regarding commercial mobile services.  Up until then, cellular carriers
were subject to state certification and tariff requirements.  The new
law preempted the states from regulating in those areas, and teed up for
the Commission a key decision: whether to apply the heavy hand of strict
Title II common carrier regulation on the wireless industry.  Some
argued that price regulation, service quality controls, and mandated
technologies were necessary to protect consumers and promote
competition.  However, the Commission – correctly, in my view – judged
that the costs of traditional common carrier regulation would outweigh
any benefits, and chose not to burden the wireless industry with rules
on pricing and the terms and conditions of service.  The Commission
largely freed wireless services from regulation.

In two key areas, however, the Commission did decide that the
marketplace required regulatory intervention: First, in order to ensure
that new entrants using PCS spectrum would be able to take root, the
Commission imposed, at least initially, a spectrum cap; and second, it
adopted strict technical rules to prevent carriers from interfering with
each other.

The 1993 law gave states an opportunity to petition the FCC for
permission to continue to regulate rates charged by wireless carriers.
A number of states did so and the Commission was forced to grapple with
these petitions.  I was working in the wireless industry at the time,
and I can recall the economic studies that were conducted at that time
to assess the effects of state regulation on consumer costs.  These
studies found that state regulation of wireless services actually harmed
consumer welfare, impeded market forces and increased consumer prices
significantly.  The FCC – rightfully, in my view – ultimately concluded
that the statutory conditions for allowing state regulation were not
met, and denied all of the state petitions that were filed.

As a consequence of these decisions, the marketplace for wireless
services was allowed to develop freely, and wireless consumers now enjoy
unparalleled choice in calling plans, innovative services, and
dramatically lower prices.

A competitive marketplace, however, does not mean that our job as
regulators is complete.  In several instances, the Commission has
required wireless carriers to take up several public policy priorities
that markets typically would not address.

A good example is E-911.  Over 150,000 times a day, someone uses a
wireless phone to call 911 to save a life, to stop a crime, or to help
someone in need.  In the mid-1990s, the Commission adopted a two-tiered
approach to improve wireless E-911: first, it required wireless carriers
to provide dispatchers with a call-back number and the location of the
cell site receiving the 911 call; and then it required wireless carriers
to provide the precise location of the wireless 911 call.  The E-911
proceedings have been arduous and implementation has presented technical
challenges – but my colleagues and I are deeply committed to ensuring
access to emergency services and the wireless industry has responded to
this challenge.

Another example involves our decision to ensure that digital wireless
phones are available for all Americans, including the hearing disabled
community.  In this situation, we were driven by congressional mandate,
not market forces.  The Hearing Aid Compatibility Act set forth the goal
of ensuring access to telecommunications services for individuals with
hearing disabilities.  In our recent action, we concluded that
technology had developed to the point that it was appropriate to require
wireless phone manufacturers and service providers to modify handsets so
that individuals with hearing disabilities could access digital wireless
phones.  So this is the wireless world of today.  The question for
ongoing debate is whether more regulation is necessary.

Is More Regulation Necessary?

Before jumping to any conclusions, we must first take into account the
current state of the market itself, then identify any problems that
exist, and only then can we determine whether a better outcome will
result from regulation, or from letting the existing market forces work
their will.  The real question, therefore, is whether current
marketplace failures compel us to adopt additional regulation.

Unlike the duopoly cellular market of 10 years ago, today’s wireless
industry is intensely competitive.  Carriers compete on price, on
service, on handset choice and on applications.  It seems that new
applications and services are being introduced constantly, and all the
while rates for wireless services have been falling sharply.

And wireless services are more pervasive than ever.  According to the
Commission’s recent annual report on competition in the commercial
wireless industry, over 140 million Americans now subscribe to mobile
wireless services, up over 60% in just 3 years.  Consumers are relying
more and more on their wireless services, with the average monthly
minutes of use up from 185 to 427 over the last 3 years – an increase of
230%.  Consumers are increasingly using wireless networks not just to
make voice calls, but to send messages, to surf the Internet, and to
take and transmit pictures.

With this explosion of wireless services, consumer expectations are
higher than ever.  As consumers, we expect service to be available when
we want it, we expect our phones to work even when dropped on the ground
repeatedly, and we expect our calls to be completed and not dropped.  We
also expect to be treated fairly and to know what we are buying.  Let me
first address the issue of service quality and then turn to the customer
rights issue.

Surveys have shown that concerns about service quality and coverage top
the list of consumer complaints.  As a wireless consumer, I know how
frustrating a dropped call or dead spot can be.  As a regulator,
however, I recognize the physical realities of providing a service that
relies on the use of radio frequencies.  It is self-evident yet
occasionally forgotten that radio signals can be blocked by hilly
terrain, excessive foliage, and tall buildings, or zoning prohibitions
and that propagation distances are finite.  That is why for most
consumers today wireless is a supplement to their wireline service, not
a substitute.

As a regulator, I also recognize that in an industry as competitive as
the wireless sector, market forces have driven greater value to
consumers than regulatory fixes.  The competitiveness of the market
forces service providers to respond to their customers’ expectations.
Specifically, carriers race to build out more robust networks and
compete on the basis of service quality. We’ve all heard Verizon’s “Can
you hear me now Campaign.”   This is a classic example of how providers
will strive to improve their services to differentiate themselves from
competitors’ offerings. In light of such competition, I believe that
imposing regulation of service quality in the commercial mobile service
sector not only is unnecessary, but would risk freezing technology at a
specific point in time and diminish the benefits of head-to-head
competition.

In addition, we must recognize that regulation by its nature imposes
costs, creates unintended consequences, and restricts competitors’
abilities to respond quickly to consumer demand.  Regulations take a
long time to enact, and it takes even longer to change them.  And I have
never believed that regulators are in a very good position to predict
the twists and turns of the marketplace.  Even market experts sometime
find their crystal balls a little cloudy.

In contrast, markets are set up specifically to react to current
conditions.  When consumers are unhappy with their service – and with
140 million subscribers, there are certain to be valid complaints – they
can and should complain.  In a competitive market, and especially one in
which firms incur steep acquisition costs for each new subscriber,
carriers have every incentive to keep their subscribers happy by
providing high-quality service and top-notch customer care.

Ultimately, of course, customers can and do vote with their feet by
changing carriers – The industry’s 30% annual churn rates indicate the
degree to which consumers walk away dissatisfied.  We know based on data
released today that the introduction of wireless number portability has
increased customer choice and created even  greater flexibility for
consumers.

So when I ask myself what characteristics define today’s wireless market
I’m left with:  Intense competition, no dominant player, multiple
service and pricing options, and a customer base willing to walk.
Fundamentally this is the stuff of a well-functioning market.

We are fortunate that the current wireless marketplace offers a classic
example of carriers’ self-interest coinciding with the public interest.
I believe that, when these stars align, we in government should be very
reluctant to add more layers of regulation, particularly when wireless
carriers are continuing to invest billions of dollars every year to
increase network coverage and expand their capacity and service
offerings.  This is good for consumers and good for our economy.  Rather
than imposing unnecessary compliance costs, we should be doing what we
can to encourage this on-going investment.

Some would respond to this position by saying “What are you going to do
about consumer rights?”  Well, I believe that, in a competitive market,
regulators can best foster consumer welfare by focusing their efforts on
education and enforcement. Only educated consumers can reap the benefits
of a highly competitive marketplace. We need only look at what the
marketplace has achieved on its own to know the power of an informed
consumer.  For example, as nationwide wireless carriers extended their
footprints into rural areas and began to advertise their services
nationwide, rural residents became better informed about the available
choices and began to demand better prices and greater choice.  As a
result, rural markets have quickly become associated with the nationwide
market for wireless services, and consumers in rural markets now have
access to the same services at the same prices as consumers throughout
the rest of the country.

To be sure, wireless service choices can be complex, and consumers often
can be overwhelmed and under informed.  That is why both the industry
and government have a responsibility to help ensure that consumers have
access to the information they need to make intelligent purchasing
decisions.  This is no different than ensuring consumers are properly
educated when making other major purchasing decisions, such as a car or
a dishwasher.  So I am very pleased that the wireless industry has
established a voluntary Code of Conduct, and that all of the major
carriers have committed to following it.  I also expect many of the
smaller carriers will follow their lead. Ultimately the Code will
educate consumers about wireless service offerings.  And, the better
educated the consumer, the more they will be able to get better value
and service.   At the end of the day, the industry’s willingness to
implement a voluntary code of conduct reaffirms the decision by the FCC
ten years ago to avoid costly regulatory oversight. This Code exists
because competition is driving wireless carriers to better serve
consumers and increase customer loyalty.

The Commission also is doing its part to provide information to wireless
consumers.  Our Consumer and Governmental Affairs Bureau has published a
handbook – which is available on the FCC website (www.fcc.gov) – to help
consumers understand wireless service and how to assess competing
service offerings.  Along the same lines, a section of my office webpage
titled “Focus on Consumer Concerns” is devoted to offering helpful and
up-to-date information to consumers about issues that directly impact
them, such as E911, hearing aid compatibility, phone bill charges, and
telemarketing practices.  Because of my strong belief that the FCC is
and should be a service organization, I regard providing useful
information to the public as one of my basic responsibilities as an FCC
Commissioner.

The States’ Role

Now, as to the role that state regulators should play in protecting
wireless consumers, once again I fall back on my general regulatory
philosophy and find it equally applicable.  Unless there is some
overriding public policy priority that is not market driven, such as
E911, state regulators should trust competitive market forces to deliver
value and choice to consumers. Therefore, regulatory efforts should
focus on facilitating consumer education without imposing prescriptive
regulations. That is why I have serious reservations about at least one
version of the California consumer rights regulations under
consideration today.  Regulation such as this invariably imposes costs,
some of which cannot be predicted.  And it is reasonable to assume that
costs imposed on an entire industry will be passed on to consumers
without delivering any increased value.

It’s also important to recognize that the market for mobile wireless
services has become increasingly a national market.  To efficiently
provide a nationwide service, carriers create billing and customer care
systems that cross state lines.  And it is efficiencies such as these
that have enabled wireless carriers to reduce rates year after year.

Especially in wireless markets that cross state lines, I have to
question the wisdom of enacting disparate regulatory regimes to govern
the relationship between wireless carriers and their customers.
Congress has expressed an intent on numerous occasions to achieve
substantial national uniformity over the operation and regulation of
wireless telecommunications services.

The FCC’s light regulatory touch in the early 1990s, coupled with the
1993 budget act’s preemption of state regulation of wireless rates and
entry, ushered in a period of huge investment in wireless
infrastructure, adding jobs and increasing productivity across the
economy.  And today, the wireless industry is poised to unleash a new
generation of services that promise additional consumer benefits.

Before launching a new round of regulation – with the potential for 51
distinct sets of regulatory obligations – I believe we should first ask
ourselves, what problems are we trying to fix and are we adding any
value?  Enacting a patchwork quilt of state wireless consumer rights
regulations may very well result in greater consumer confusion and
frustration.  Although it is tempting to believe that additional
government intervention can only improve the landscape, I believe
sometimes less is more.  So I offer an alternative course of action; one
where government regulators continue to inform and educate consumers;
one where health and public safety mandates continue to be driven by the
government; and one where competitors battle fiercely for each and every
customer through innovative and creative service prices, bundles and
packages.

So, I thank you for the opportunity to speak with you today, and if we
have time, I’d be happy to take a few questions.  Thank you very much.

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-247211A1.doc

--
    "NEXTEL-1 IT'S NOT JUST NEXTEL"
  Note The New address
Subscribe to Nextel-1: http://www.groups.yahoo.com/subscribe/NEXTEL-1

  "NEXTEL2 FOR iDEN SOFTWARE DEVELOPERS"
Subscribe to Nextel2: http://www.groups.yahoo.com/subscribe/NEXTEL2

  "WIRELESS FORUM HOMELAND SECURITY GROUP"
     The Complete Resource for Wireless Homeland Security.
Subscribe to WFHSG:  http://www.groups.yahoo.com/subscribe/WFHSG

------------------------ Yahoo! Groups Sponsor ---------------------~-->
Make a clean sweep of pop-up ads. Yahoo! Companion Toolbar.
Now with Pop-Up Blocker. Get it for free!
http://us.click.yahoo.com/L5YrjA/eSIIAA/yQLSAA/61FxlB/TM
---------------------------------------------------------------------~->

-- 
    "NEXTEL-1 IT'S NOT JUST NEXTEL"
  Note The New address 
Subscribe to Nextel-1: http://www.groups.yahoo.com/subscribe/NEXTEL-1

  "NEXTEL2 FOR iDEN SOFTWARE DEVELOPERS"
Subscribe to Nextel2: http://www.groups.yahoo.com/subscribe/NEXTEL2

  "WIRELESS FORUM HOMELAND SECURITY GROUP"
     The Complete Resource for Wireless Homeland Security.
Subscribe to WFHSG:  http://www.groups.yahoo.com/subscribe/WFHSG

Yahoo! Groups Links

<*> To visit your group on the web, go to:
     http://groups.yahoo.com/group/NEXTEL-1/

<*> To unsubscribe from this group, send an email to:
     [email-masked]

<*> Your use of Yahoo! Groups is subject to:
     http://docs.yahoo.com/info/terms/