2008 Regulatory Review: The Year of the Quiet Dog
This year, with virtually every sector of the U.S. economy in an uproar, the telecom industry has remained conspicuously quiet. Of course, the industry was not impervious to the economic downturn, but, surely by comparison to what happened to the telecom and dot.com sectors in 2000 and 2001, the industry fared remarkably well under the circumstances. Unlike the year 2000, there have been no special Congressional investigations or FCC requests for financial support or bail-outs for the telecom sector; instead, the sector quietly chugged along throughout 2008.
That is not to say that the year was without significant regulatory action. To the contrary, it was a very busy year on the regulatory front; indeed, several historic projects were finally launched this past year.
700 MHz Auctions
The year started out with the long-awaited auction of the 700 MHz spectrum, Auction 73, the so-called "digital" or "3G" auction. The amount of spectrum up for grabs, along with the desirable qualities of the band, presented an exciting opportunity for existing wireless carriers and large technology companies, such as Google, that had not previously been involved in telecommunications. The C Block was subject to FCC-imposed "open access" requirements. Seeing the strong push for such requirements during the course of the proceeding to adopt licensing rules for this spectrum, several carriers announced they would voluntarily open their networks to conforming handsets and applications. Auction 73 brought in winning bids on most of the 1,099 licenses available, totaling more than $19.5 billion, which was roughly double what many experts had predicted.
Public Safety Network
One aspect of the 700 MHz auction did not go as the FCC had planned - the nationwide D Block, which was intended to be constructed and operated as part of a public/private partnership with the 700 MHz public safety block, went unsold. The D Block licensee would have been obligated to build out a nationwide, interoperable public safety network, governed by a network services agreement (NSA) to be approved by the FCC. A $1.33 billion "reserve price" was established for the D Block, but the license drew only the minimum opening bid. Rather than immediately put the D Block out for new bids, as the FCC had indicated it might do, the agency decided to start over.
The FCC's first order of business was to direct its Inspector General to investigate whether the discussions between the consultant to the public safety sector and prospective bidders, as to the NSA terms that would be expected of the D Block winner (in particular, payment requirements), had influenced bidding; it was ultimately decided that the discussions were only one of several factors that discouraged interest in the D Block.
Throughout the course of 2008, the FCC issued rulemaking notices inviting comment on all aspects of D Block licensing, including whether or not to retain the public/private partnership scheme. In the most recent of these notices, released in September 2008, the Commission tentatively concluded that it should go forward with a public/private partnership while considering various changes to the rules for such a relationship, such as waiving default penalties if the D Block licensee is unable to reach the required NSA with the public safety licensee and eliminating the reserve price.
Noting that several states have already forged ahead with their own advanced public safety networks, the FCC requested information regarding the lessons learned from deploying those networks. Although there has been some indication that new D Block rules might be considered at the FCC's December meeting, that timetable gives the FCC little more than 30 days from the end of the last reply comment period to prepare that order. Even if new D Block rules are adopted at that meeting, it's obvious that this public safety network idea will have to be sorted out by the next FCC Chairman in 2009.
"White Space" Spectrum
While the FCC moved ahead with crafting new 700 MHz licensing rules, the deployment of advanced services on an unlicensed basis also gained traction in 2008. On November 4, 2008, the FCC adopted rules to permit the use of new wireless devices in broadcast television spectrum on a "secondary" basis at locations where that spectrum is not in use by broadcasters, the so-called "white space."
Throughout the year, interested parties, including Microsoft, Motorola and Philips Electronics, submitted prototype devices to the FCC's Office of Engineering and Technology (OET) for testing to determine whether they could operate in the "white space" without causing harmful interference to broadcast TV, and unlicensed wireless devices, such as wireless microphones. OET released its report for Phase II testing, along with a peer review report of white space devices, in October 2008; the FCC voted on new rules shortly after the release of the peer review report. Wireless usage of TV white space had been energetically opposed by the National Association of Broadcasters; Google and other prominent high-tech companies pushed hard for the ability to deploy unlicensed devices in this spectrum, their views carried the day.
As of this writing, the order adopting the new rules had not been released, although the FCC indicated that both fixed and portable licenses would be permitted. Devices operating in the white spaces will generally be required to have geolocation abilities and spectrum-sensing technology in order to protect licensed operators. Processes to access, via the Internet, a database of operators entitled to protection will also be required.
Google itself was a significant wireless regulatory story in 2008. This past year, Google emerged as a major participant in the wireless sector and in FCC regulatory matters. In 2008, it launched its Android mobile operating system; T-Mobile recently unveiled a smart phone using Android. Google aggressively lobbied the FCC in 2008 for "open access" conditions in the 700 MHz auction, with some success. Google was also instrumental in opening broadcast TV white spaces for wireless use, over considerable opposition. Look for the Internet giant to continue to play an active role in the telecom sector in 2009.
The rush to deploy wireless broadband has even resurrected a proposal for a nationwide, free wireless broadband network. A proposal for "free wireless broadband" services in the 2,155 to 2,180 MHz band an application for which had previously been denied by the FCC received Chairman Martin's support in late 2008. Tests on operations in the band, dubbed AWS-3, were conducted in September; OET's test report followed in October. Rules to implement the proposal may well be on the agenda for the Commission's December open meeting.
Incumbent AWS-1 licensees, such as T Mobile, and the wireless industry's leading trade association opposed the plan, but, it had backing on Capitol Hill and among various consumer and educational groups Perhaps more important, at this time, the President-Elect favors the availability of low or no cost nationwide broadband.
Meanwhile, Sprint-Nextel and Clearwire rolled out their WiMax product on a beta basis and, in November, received FCC approval for the transfer of their 2.5 GHz licenses to a new joint venture. Nationwide carriers began deploying 3G data networks, and began making plans for 4G. Spurred by the success of the iPhone, a variety of new data-oriented, feature-rich handsets were deployed in 2008. That trend should continue in the coming year. For example, LG recently announced that it would work more closely with Microsoft on smartphones and other devices. The industry should expect an aggressive stance from the new Administration on technology issues generally, including initiatives for both wireline and wireless broadband. With dwindling reserves of spectrum, the FCC will need to be creative to meet potential demand.
The long-heralded promises of advanced networks started becoming reality in 2008: wireless devices were everywhere, including purses and pockets, automobiles, homes and offices. They're smarter, more functional and provide many more services than was the case just a year or two ago. But success came with a price: 2008 witnessed increasing concern at the FCC and in Congress that the information available from these devices could be improperly used, not just in conspicuous problems, such as national surveillance, but in more subtle ways, such as tracking customer habits and location.
Last year, the FCC tightened its rules regarding the use and disclosure of customer proprietary network information (CPNI) and adopted new rules to verify customer identity before disclosing call detail information. The FCC also required carriers to notify law enforcement in the event of security breaches that involve CPNI and to file annual certifications as to their compliance with the CPNI rules. In 2008, the FCC took enforcement of these rules very seriously; numerous entities received inquiries from the Enforcement Bureau about their certification filings. Recent news reports say that experimental, server-based technology that acts as a "cookie" for wireless services is being launched, and that it and the Wi-Fi Protected Access (WPA) standard, which has been cracked, are likely to lead to increased concerns about privacy and security of customer data on wireless networks.
Concern over these issues may lead to regulation in unexpected ways. For example, a current FCC proceeding questions whether text messaging, including by use of short codes, should be subject to common carrier regulation under Title II of the Communications Act. Although the proceeding was motivated by concerns over non-discriminatory access rather than privacy, a ruling that these services are "telecommunications" rather than "information services" may have implications for privacy and consumer protection issues as well. One example is with regard to the treatment of marketing communications using texting under the Telephone Consumer Protection Act.
A Senate bill introduced this past spring sought to give the Federal Trade Commission greater authority over telecom carriers, including wireless providers. Although the bill did not make it out of committee, the FTC has long sought elimination of the "common carrier exemption" to its jurisdiction; it is unlikely to take a less regulatory stance under the new Administration.
Wireless industry players should anticipate that 2009 will bring continued growth in demand for advanced data and content services. At the same time, those opportunities may come with new legislation or regulations dealing with data mining, behavioral monitoring, communications privacy and consumer protection in general. The sound you hear off in the distance may be the barking of regulatory watchdogs.