Telecom Act Faces Continuing Attack, Hesse Tells CCA

The Telecommunications Act of 1996 is “under attack,” Hesse said. “AT&T and Verizon have slowly chipped away at the provisions of the act which promote competition,” he said. “At the request of the large incumbent landline carriers dozens of state legislatures and state [public utility commissions] have passed legislation deregulating landline and taken action to remove protections for competition.”

The IP transition presents the latest challenge, Hesse said. “As they upgrade to the emerging IP technology the biggest wireline providers want to deny network access to competitors and ‘exile rural America and competitive carriers to a telecom wasteland’ as one report put it,” he said. “The requirement of telecom carriers to interconnect their networks does not change because the technology being used to interconnect changes. Access to the legacy monopoly networks is as important today as it was when the [Telecom] act was passed.”

Hesse said activities of CCA members and Sprint were critical in persuading the FCC to reject AT&T’s buy of T-Mobile in 2010. “Our stance was essentially crucial, not only to Sprint’s future but to the future of the entire wireless industry,” he said. “Although we've managed to preserve competition during a critical moment for our industry we need every competitive competitor … involved as we move forward.”

Special access rules are in need of “immediate reform,” Hesse said. “Sprint is pleased that the FCC recognized the need to address this broken system and took an important first step of suspending the ability of special access providers to raise their pricing with little notice or just cause. The FCC has continued moving forward on this issue and Sprint plans to continue engaging with the commission on this issue, but we need your help. Speak out to the FCC on the need for reform and appropriate pricing and submit your comments and make sure that your voice is heard."

Saying AT&T and Verizon control nearly 75 percent of low-band spectrum, Hesse urged the FCC to change its spectrum aggregation rules to prevent further concentration in the ownership of beachfront licenses. “Sprint believes that any action the FCC takes should promote access to spectrum by competitive carriers,” he said. “We've advocated an approach that appropriately weights spectrum in different bands to reflect the varying value and utility, which reflects the range of the spectrum band’s coverage, its capacity, its cost to build out and its economic value.” CCA members should reach out to their representatives in Congress to stress the need for revised rules before the incentive auction of broadcast TV spectrum, which he said “will be the next opportunity for competitive carriers to get a foothold in low-band spectrum.”

Hesse did not discuss Sprint’s planned merger with SoftBank or Dish Network’s competing offer, unveiled Monday (CD April 16 p1). But he said Sprint still plans to obtain the remaining parts of Clearwire it doesn’t own. With the integration of the Clearwire and other spectrum into Sprint’s network, “our nationwide network is perfectly suited to be the CCA roaming partner of choice,” he said.

"It never ceases to amaze me how some executives can go to Wall Street and brag about their unique and massive spectrum position, then come to Washington and claim the exact opposite,” said AT&T Senior Executive Vice President Jim Cicconi, in response to Hesse. “Then demand the government allocate spectrum to them rather than auction it in an open bidding process as Congress directed. Particularly when that company has failed to even bid in previous auctions of lower band spectrum. This is nonsense, and would simply lead to a failed auction as anyone with sense understands. Moreover, it’s not the government’s job to give to any company advantages it’s been unable to win from consumers in a free market.”

CCA also heard from four of the association’s member CEOs during a panel Thursday. Like Hesse, they stressed the competitive challenges they face versus Verizon and AT&T.

"The demand and the desire to be connected all the time is extremely important,” said Jim Hyde, CEO of nTelos. “One of the challenges we face is access to networks for data roaming at competitive prices. I think that’s key. Certainly we don’t enjoy the same economies of scale as some of the large competitors.” Subscribers won’t compromise on devices and network access, Hyde said. “We're perfectly fine and able to compete against our larger competitors and use our smaller size to our advantage,” he said. “We can be more nimble, we can offer a nice value proposition … but without access to devices, without access to spectrum that we can continue to roll out and expand and enhance our networks and without access to networks nationwide for our customers … it’s very, very difficult."

The incentive auction is critical for smaller carriers, said Ron Smith, CEO of Bluegrass Cellular. “The challenge that we have working toward the next auction is a recognition that there needs to be a healthy, balanced carrier community that includes tier ones, tier twos and tier threes,” Smith said. The 700 MHz rules didn’t include incentives for interoperability, he said. “There have to be those built into the auction rules. There have to be ways of making sure that as spectrum is allocated that proprietary band classes can’t be built up at the end of the day.” Also critical is that licenses in the incentive auction are offered at the smaller cellular market area level, not larger economic area level, Smith said. He said if EA licenses are sold, Bluegrass would have to buy the licenses for Louisville and Lexington in Kentucky, as well as Nashville, to serve the company’s rural footprint. “I don’t care about serving Louisville, Lexington and Nashville, but I would have to buy three EAs to offer 600 MHz services,” he said. “CMA-level bidding has to be incorporated into the mix."

Michael Prior, CEO of Atlantic Tele-Network, said a recent filing by the Department of Justice on spectrum aggregation (CD April 15 p7) shows that the government understands that spectrum licenses are “table stakes” to compete in a market. “The larger carriers also have continually added and needed spectrum,” he said. “They have more customers. They have a lot of machine-to-machine. It has value to them. … They have the wherewithal to buy it where they don’t have an immediate need.”

Prior said having Sprint and T-Mobile as members of CCA is helpful. “Washington is a numbers game,” he said. “As you add to the mass, as you're more present and there’s more behind you, it definitely packs a punch.” Prior said both SoftBank and Dish would bring something if either buys Sprint. “SoftBank brings experience coming in [as] a challenger,” he said. “Dish also has great success at being a challenger and going against accepted wisdom and succeeding.”

"We do think a stronger, more vibrant Sprint is good for us and good for the industry,” Hyde said.

Craven Shumaker, CEO of iWireless, said he was pleased Hesse said Sprint wants to be the roaming partner for CCA members. “Hopefully, he can help make sure that there’s interoperability in the handsets he gets developed over the next years because that’s critical to us,” he said. “You want your devices to be able to work everywhere you go."

CCA President Steve Berry opened the session stressing the importance to small carriers of device interoperability. “With the upcoming change in leadership at the FCC, there are a few things a new or interim chairman can do immediately to help restore competition to the wireless industry,” he said. “Competitive carriers need access to devices, and this challenge is directly tied to interoperability -- a major issue, especially for smaller carriers. … We are thrilled with Sprint’s pioneering work to support 4G LTE roaming over several spectrum bands, including the 700 MHz spectrum. But the FCC must act now to restore interoperability to unlock these job-creating, economy-stimulating business opportunities that could unleash 12 MHz of desperately-needed, low-band spectrum and more than $2 billion in 4G deployments, particularly in rural areas.”