A small wireless carrier in the Southeast is taking AT&T, Qualcomm, and Motorola to federal court claiming that they conspired to keep smaller competitors out of the wireless market.
Cellular South, otherwise known as C-Spire, and its affiliates, Corr Wireless Communications and Cellular South Licenses, have filed an antitrust lawsuit in a U.S. federal court in the Northern District of Mississippi. The lawsuit, which was launched in April, alleges that AT&T and its suppliers Qualcomm and Motorola worked together to push it and other small regional wireless operators out of business by manipulating the standards process that establishes specifications for mobile devices.
The lawsuit is yet another twist in what is turning out to be a complicated competitive wireless market. Over the past decade there has been a tremendous amount of consolidation among carriers, resulting in the two largest wireless operators in the U.S. -- AT&T and Verizon Wireless -- accounting for the majority of wireless subscribers. In some markets, smaller providers also compete. But these regional players say that the deck is stacked against them.
At the heart of their complaints are issues surrounding wireless spectrum. Some operators are spectrum-starved and can't grow without it. Others that participated in the Federal Communication Commission's last spectrum auction, meanwhile, say they have the spectrum and money to deploy next-generation wireless network technology, but their competitors are shutting them out.
"We've seen larger companies like AT&T and Verizon using innovative deployment schemes of technology and spectrum to eliminate competition," said Steven Berry, CEO for the RCA, the Competitive Carriers Association. "Companies like C-Spire have the money and spectrum to deploy a network, but they don't control the ecosystem and they don't have the ability to roam."
The complaintThis claim is the crux of Cellular South/C Spire's lawsuit. In its complaint, the company asserts that it has been unable to use 700MHz spectrum it bought in a 2008 FCC auction, because AT&T, through the 3GPP standards-setting process, created a separate "band class" for spectrum it bought during the same 700MHz auction, thus making it incompatible with spectrum that Cellular South planned to use.
As a result, Cellular South, which has roughly 900,000 customers, has been unable to obtain smartphones and other devices that will work on its spectrum for a new 4G LTE network it plans to build. Meanwhile, AT&T with 103 million customers, has deployed its LTE network in 39 markets so far.
Cellular South alleges that Qualcomm and Motorola helped AT&T push through its special spectrum "band plan" in the 3GPP standards working group. The company also said in its complaint that Qualcomm and Motorola representatives threatened the company when it decided to file a petition requiring interoperability between the various bands in 700MHZ with the FCC.
"C Spire Wireless filed a federal anti-trust lawsuit against AT&T and others who conspired to assist AT&T in creating and maintaining a private, discriminatory spectrum band for AT&T devices," said Eric Graham, C Spire Wireless' senior vice president for strategic relations. "This anti-competitive scheme has prevented C Spire Wireless from utilizing $192 Million worth of Lower 700MHz A block spectrum licenses acquired from the FCC at auction in 2008. We have asked the Court to stop this gross abuse of market power and to undo the harm AT&T and its co-conspirators have caused to consumers and businesses in our service areas. C Spire is also seeking damages for the harm suffered as a result of the defendants' conduct."
A representative from AT&T declined to comment on the litigation. And representatives from Qualcomm and Motorola were unable to be reached. But AT&T has maintained that it built the separate "Band Class 17" to protect its subscribers from interference from adjacent analog TV broadcast. Each of the companies named in the suit separately filed motions in federal court last week asking the court to dismiss the case.
AT&T said that Cellular South couldn't prove that it didn't have legitimate technical reasons for developing its own standard for its wireless spectrum.
"Plaintiffs' effort to mount an antitrust attack on [AT&T's] role in 3GPP standard-setting fails to state a claim because the complaint fails to allege any agreement among [AT&T] and the other defendants to convert the 3GPP process into an anti-competitive sham," AT&T said. "All that the complaint alleges is Cellular South's disagreement with the consensus judgment reached through the legitimate 3GPP process; Cellular South's remedy for that disagreement was through the 3GPP process itself."
But Cellular South claims it never stood a chance against AT&T, which is the second largest wireless carrier in the U.S. In its complaint, Cellular South says that a Qualcomm representative, named Michael Chard, told Cellular South that it would delay the roll-out of devices supporting Cellular South's spectrum as retribution for Cellular South and other carriers filing a petition with the FCC to require that would require all devices used on 700 MHz spectrum to be compatible.
The representative described the Interoperability Petition as "a 'conflict generator' that did not serve the best interests of Qualcomm's 'other carrier partners' -- one of whom was AT&T."
Qualcomm's representative went on to say that during the same conference call that neither Cellular South nor any other smaller regional carrier affected by this delay would be able to prove that the companies deliberately delayed the deployment of gear supporting their spectrum because these discussions "would not take place as part of the public meetings of 3GPP since as (Michael) Chard put it, 'most if not all of what happens in RAM 4 [discussions] happens before the meeting.'"
In other words, Cellular South alleges that these statements confirm that AT&T and its suppliers were working behind the scenes to delay the roll-out of handsets and equipment that resulted in delays to building these new 4G LTE networks.
"By abusing its position as the dominant buyer of Lower 700 MHz wireless devices, AT&T conspired with at least two companies in its supply chain to use the 3GPP standards setting process as a means to advance the anti-competitive goal of creating a private, discriminatory spectrum band (Band 17) that has orphaned the Lower A block," Graham said.
How did this happen?Cellular South claims that when it bought $192 million worth of wireless spectrum licenses in the FCC's 700MHz auction in 2008, it was under the impression that it would be able to participate in a healthy ecosystem for devices that could also be used on other big carrier networks, such as those operated by AT&T and Verizon Wireless.
It also believed that its customers would be able to roam onto bigger carrier's networks when they traveled outside the Cellular South/C Spire territory, just as they have been able to do with voice services on 2G and 3G networks. Because Cellular South, which operates only in Mississippi and parts of Tennessee, Alabama and Florida is considerably smaller than the nation's largest wireless carriers, it must rely on ecosystems controlled by bigger players to get affordable equipment and devices for its network. And it needs these larger roaming partners to provide nationwide access for customers.
Going into the auction, Cellular South and others knew that 700MHz spectrum band was somewhat tricky. Not only was there potential for interference in the lower portion of the spectrum due to adjacent broadcast TV signals, but the way in which the 700 MHz spectrum band had been cleared and subsequently auctioned by the FCC meant there was not a consistent "band plan" across all blocks of spectrum.This was in contrast to other spectrum that had been previously auctioned by the FCC, including the cellular, PCS and AWS bands.
This fact means that some carriers using 700MHz could build networks that were incompatible with other 700 MHz networks, even though the companies all planned to use the same 4G LTE network technology standards.
When the 700MHz spectrum was auctioned in 2008, there was an assumption that there would be two major band classes for commercial use. Companies buying spectrum in the lower A, B, and C blocks would use Band Class 12. Verizon Wireless, which bought most of the Upper C block, would use Band Class 13. The two band classes wouldn't be interoperable.
Because AT&T bought spectrum in the Lower B and C Blocks and because Verizon bought some Lower A and B Block licenses, smaller players were confident that a viable ecosystem would be built around Band Class 12, which included the A Block spectrum that many smaller carriers could afford and subsequently bought in the auction.
But after the spectrum was auctioned, AT&T, which only ended up with licenses in the Lower B and C blocks and none in the Lower A block, worked with the 3GPP standards body to develop Band Class 17. This new band class only includes support for Lower B and C block spectrum, and it excludes A block spectrum.
Meanwhile, Verizon has deployed its 4G LTE network exclusively using its nationwide Upper C Block 700 MHz spectrum. But it has never deployed its A and B Block 700 MHz spectrum and is now trying to sell that spectrum to other players in exchange for buying AWS spectrum from cable operators.
AT&T asserts that the reason it asked for a new band class for its Lower B and C block spectrum was because the lower A Block is right next to channel 51, which is still used for TV broadcast. The company claims that high-power transmission for broadcast TV at channel 51 interferes with its network equipment and 4G LTE devices operating in the Lower B and C blocks.
Cellular South/C-Spire and six other smaller regional wireless providers filed results from a recent test to the FCC that indicates there are no interference concerns for AT&T. While they admit there are interference issues for A Block spectrum holders with towers transmitting near Channel 51 TV transmitters, there is no interference for B and C Block license transmitters or devices, which means AT&T's 4G LTE subscribers would not be affected.
AT&T says the claims in the report are without merit. And it criticized the methodology used in the study.
"The filing is little more than a dressed-up version of a study previously filed and refuted," an AT&T spokesman said in an email. " In short, the study proves little more than 'garbage in' will produce 'garbage out.'"
The FCC is currently reviewing whether there are significant interference issues. And it will close the comment period on this issue on Friday.
What happens next?Cellular South is asking the federal court to expedite the litigation. If the case is not dismissed and the court agrees with Cellular South's argument for a speedier trial, the case could go to court as soon as September 2013. While this is still more than a year away, it's much sooner than the typical six years it often takes to send most antitrust cases to trial.
Until then, Cellular South through its commercial entity C-Spire, plans to begin selling 4G LTE service using existing PCS and AWS spectrum it also owns. This interim 4G strategy will help the company get to market faster and will also allow the company to leverage handsets first made for bigger competitors. But this is only a temporary solution. The company needs the 700 MHz spectrum it bought to expand network coverage and to add capacity, especially in areas where its existing 2G and 3G services are already exhausting spectrum capacity.
But even if Qualcomm, Motorola and other suppliers started offering devices for Cellular South's Band Class 12, it still needs interoperability with AT&T's network. Not only will this ensure that the smaller carrier can get cutting edge devices, but it will also ensure that Cellular South and other regional carriers, will have the option to extend their networks for roaming. Without these two things, it may only be a matter of time before Cellular South and other regional providers are run out of business.