«Chairman Pryor, Ranking Member Wicker and members of the subcommittee, I am Ted Carlson, Chairman of United States Cellular Corporation. Thank you ...»
In addition to increasing their negotiating leverage and economies of scale, volume purchases afford the larger carriers with considerable market power vis-à-vis Id. at 83.
handset manufacturers, which can be used to demand particular customer features, compel prioritization of proprietary specifications, and achieve exclusive or extended first-to-market positions. As a result, even if additional Band 12 devices become available, they likely will be delayed for months or years after the introduction and refinement of multiple Band 1315 and Band 17 devices. Lower A Block licensees therefore will not have available to them all of the “cutting edge” phones, further entrenching the largest carriers’ dominant market positions. In sum, Lower A Block licensees, like all carriers, require a sufficient quantity and variety of handsets to meet consumer demand.16 However, the lack of interoperability has produced a device ecosystem in which widely available, economically reasonable handsets cannot function on the Lower A Block spectrum. The resulting higher device costs and the associated lack of a device ecosystem for Band 12 devices slows deployment by Lower A Block licensees and puts these carriers at an even greater competitive disadvantage.17 Moreover, even if most Lower A Block licensees managed to obtain a sufficient quantity and quality of handsets and could find a way to cost-justify deploying their networks, they would find themselves at a serious competitive disadvantage because large carriers already will have established a substantial customer base that, absent interoperability, will not be able to take their phones and switch to competitors, no matter how much better or less expensive the competing service may be. Thus, in addition to conflicting with consumers’ expectations, the inability of a subscriber to Band 13 supports the Upper 700 MHz C Block, the vast majority of which is licensed to Verizon Wireless.
See id. at 220 (“In addition to competing on price and network quality, mobile wireless providers continue to compete by offering consumers a variety of different mobile wireless devices with innovative features.”).
See id. at 184 (“When competing mobile wireless service providers deploy compatible network technologies, greater economies of scale in the production of both end-user devices and network infrastructure equipment can result, lowering the unit cost of handsets, chipsets, and other network equipment. This, in turn, may promote more rapid adoption of mobile wireless services, a greater variety of handsets, and more price competition.”).
seamlessly switch to another carrier further exacerbates the “head-start advantage” large carriers already enjoy because consumers will be less willing or likely to seek service from Lower A Block licensees for a considerable period of time. As a result, unless the FCC promptly adopts an interoperability requirement, the harms to both Lower A Block licensees and, more importantly, the consumers they serve, will be baked into the competitive landscape and will continue indefinitely.
The current, and potentially future, dearth of rural LTE networks will be problematic not only for potential customers and for commercial licensees in rural markets, but also for public safety users who may desire to roam on commercial systems in those areas. This is significant because FirstNet, the First Responder Network, is required to enter into roaming agreements with commercial providers to ensure nationwide coverage, and the nature of any interoperability requirement for commercial users will have a profound impact on the ability of FirstNet and the FCC to meet these roaming obligations. Moreover, because Lower A Block licensees include many rural carriers, the areas they serve are exactly the places where public safety may most need to roam onto commercial networks. A lack of interoperability therefore could impede first responders’ ability to respond to emergencies.
Likewise, absent an interoperability requirement, roaming options for Lower A Block licensees will remain severely limited because they still would be prevented from roaming on AT&T’s network. And, because AT&T is the only carrier that can be expected to operate a nationwide LTE network using Lower 700 MHz spectrum, the result will be that Lower A Block licensees will have no potential nationwide roaming partner. In other words, the existence of Band 17 has the effect of denying any carrier using Band 12 access to nationwide roaming on the Lower 700 MHz spectrum.18 As the FCC recently acknowledged, “roaming remains particularly important for small and regional providers with limited network population coverage to remain competitive by meeting their customers’ needs for nationwide service.” 19Thus, the absence of nationwide roaming likely will cause many consumers to avoid regional A Block licensees in favor of the national networks of AT&T or Verizon.
Although the FCC would prefer an industry solution to the current lack of interoperability in the Lower 700 MHz band,20 no industry solution has been forthcoming since this issue was identified over three and a half years ago. And there is no reason to believe that the industry will change its course absent a regulatory requirement. In a highly concentrated market, large carriers gain little, and could potentially lose much, by voluntarily agreeing to interoperability. Large carriers derive little or no benefit from affording their customers the ability to roam on rival networks because these carriers own geographically extensive networks, making the potential incremental coverage available to them (and to their customers) via roaming quite small. Moreover, interoperability would enhance the competitiveness of rival carriers by affording them the ability to offer their customers a variety of cutting edge devices and comparable geographic coverage.
Ensuring that the core principles and rules that support interoperability are maintained also would reduce customer switching costs, and thus enhance the potential for increased churn by making it easier for customers to migrate to rival providers. In See id.at 208 (“Many of these non-nationwide providers are able to offer voice coverage and service plans that are national in scope through roaming agreements with other mobile wireless providers.”).
SeeInteroperability NPRM, 27 FCC Rcd at 3543.
sum, the current competitive state of the wireless industry, as well as ongoing resistance to interoperability in the Lower 700 MHz band by the largest carriers, demonstrates that the possibility of a voluntary industry solution is highly unlikely. As a consequence, Commission action is necessary.
In terms of a regulatory solution, U.S. Cellular has offered a measured and incremental proposal to the FCC in order to restore interoperability across the Lower 700 MHz band while minimizing the impact on existing network deployments by AT&T.
Specifically, the FCC should require that, within six months of the FCC’s adoption of an order in its interoperability proceeding, all Lower 700 MHz licensees provide only devices that are capable of operating on all paired Lower 700 MHz bands. The only hardware design change required by this approach is replacing, on newly ordered devices, the Band 17 duplexer and RX filter with Band 12 components as well as a simple software update that would be required to support both Band 12 and Band 17.
These new devices deployed going forward would be able to operate on Band 12 or Band 17 networks. In other words, network upgrades would not be required. Such a regulatory requirement would be consistent with the Commission’s “longstanding interest in promoting the interoperability of mobile user equipment in a variety of contexts as a means to promote the widest possible deployment of mobile services, ensure the most efficient use of spectrum, and protect and promote competition.” 21 In the early 1980’s the FCC wisely perceived the potential risks to competition if the wireline incumbents were permitted to build an exclusive ecosystem that lacked interoperability with their “non-wireline” competitors. As competition blossomed in the Id. at 3523, n. 5.
wireless industry, the market ensured continued interoperability as, by necessity, the industry worked together to foster a vibrant ecosystem. As the wireless industry has again reached high levels of concentration, preserving the viability of strong, ruralfocused competitors demands that we restore interoperability.
600 MHz In addition to restoring broad interoperability of networks and user devices, the government must ensure that the primary “raw material” of the wireless industry, licensed spectrum, is made available to a broad range of wireless carriers, including smaller carriers focused on rural America. Without sufficient spectrum, consumers' insatiable demand for high speed broadband will go unmet. US Cellular wholeheartedly congratulates this Committee for its efforts and success in the 2012 Middle Class Tax Relief and Jobs Creation Act (“Spectrum Act”)22 to identify and free up additional commercial spectrum.
The FCC must auction spectrum using geographic area sizes that allow smaller, non-national carriers to compete. There are a number of benefits enabled by this. First, smaller geographic areas will increase the number of bidders, which has been proven to generate more revenue. Second, smaller license areas ensure that rural markets that are won at auction will see faster build out than if those areas are the merely the most sparsely populated zones within larger regions. A build out requirement, applied to each license, will result in the urban areas being built long before the more rural areas see any attention.
See Pub. L. No 112-96, 125 Stat 156 (2012) For the same reason, package bidding must be rejected by the FCC. Smaller carriers whose aspirations are rural should not be handicapped in the bidding process simply because they don’t have business plans that allow them to bid on a large aggregation of licenses.
A third core principle is that the government should endeavor to maximize the amount of spectrum auctioned not only in order to meet consumer demand and foster competition, but also to raise revenues and provide funding for FirstNet, which is a national priority.
While these efforts will help address the increasing demand for spectrum, we also know that even more spectrum will need to be repurposed to keep up with consumer demands. Therefore, further work needs to be done to identify additional spectrum, some of which is currently used by federal agencies including the Department of Defense.
So how should the government approach this situation? We believe the 600 MHz incentive auction provides a unique opportunity to address our nation’s skyrocketing spectrum demands, and meeting those spectrum needs “is essential to continuing U.S. leadership in technological innovation, growing our economy, and maintaining our global competitiveness.”23Led by the efforts of CTIA, CCA, and others, many in the wireless industry are devoting significant efforts towards making this auction a success. In response to the FCC’s Incentive Auction NPRM, U.S. Cellular focused on several issues critical to ensuring that the substantial public interest benefits made possible by the Spectrum Act’s grant of incentive auction authority are fully Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions, Notice of Proposed Rulemaking, 27 FCC Rcd 12357, 12358 (2012) (“Incentive Auction NPRM”).
realized. For instance, U.S. Cellular urged the FCC to maximize the amount of paired spectrum made available in the forward auction for wireless broadband services, which will greatly promote the availability of wireless broadband services in rural locations.
The excellent propagation characteristics of the 600 MHz band make this spectrum particularly well-suited for the rapid and efficient deployment of mobile and other advanced services in high-cost rural areas. This is true because sub-1 GHz frequencies travel farther at a given power level, which enables a larger area to be served from a single cell site. In other words, the superior propagation performance of this spectrum means that fewer towers will be needed to serve a given area, and thus networks can be deployed at lower cost. Accordingly, the 600 MHz band provides a particularly valuable opportunity for licensees to provide cost-effective services in rural and underserved areas.
But identifying, repurposing, and auctioning the spectrum is only part of the story.
It is also critically important that, the FCC adopt interoperability requirements for the 600 MHz band. Otherwise, it would risk a situation like that in the Lower 700 MHz band, which has stranded investment in spectrum licenses and drastically delayed the deployment of advanced services to many rural and underserved areas. As detailed in this testimony, an interoperability requirement would expand roaming opportunities, enhance economies of scale, promote network deployment, and increase competition in the wireless industry, which would spur investment and innovation and lower costs for consumers. Also as noted, absent an interoperability requirement, the financial incentives of the largest carriers, which drive device development, would drastically reduce the likelihood of an interoperable 600 MHz band. For that reason, interoperability in the 600 MHz band, and the substantial benefits it would create, will only become a reality through an express requirement. Adopting an interoperability rule at this stage also is necessary so that potential bidders that are not large enough to drive device development will know in advance that the 600 MHz band will conform to the FCC’s traditional model of full interoperability. In other words, if the FCC declines to adopt an interoperability requirement, this failure would deter auction participation by all but the largest carriers, and thus harm the competitiveness of the forward auction.
Several licensing and auction rules also are critical to ensure adequate opportunities for small and regional carriers to purchase 600 MHz licenses and thereafter deploy rural networks. Providing such opportunities to these carriers is critical in light of the current state of sub-1 GHz spectrum holdings. Specifically, when measured on a licensed MHz-POP basis, Verizon Wireless holds approximately 45 percent of the currently licensed sub-1 GHz spectrum, while AT&T holds approximately 39 percent.24