FCC takes aim at the wireless industry

The Federal Communications Commission, which has been taking a beating on proposed Net neutrality regulations, is lacing up the gloves again, this time to do battle with wireless carriers.

While more than a few of the wireless carriers are the same companies going toe-to-toe with FCC Chairman Julius Genachowski over Net neutrality, the latest scrap is over a very different issue: billing. More specifically, those shocking bills consumers say they get from time to time from their wireless providers.

The FCC has been looking into the wireless industry's billing practices and pressuring carriers over their early termination fees for some time. But it seems that Genachowski, who took the reigns at the FCC less than a year ago, has intensified the scrutiny.

Starting last August, the FCC launched a proceeding to examine how consumers could be empowered to make informed decisions about their communications services. In January, the FCC also sent letters to the nation's four largest cell phone providers and Google, asking them to explain how they implemented early termination fees. And in early May, the agency released a public notice asking the industry and the public to comment on ways to reduce bill shock.

Then came the agency's contentious reports. Over the past couple of weeks, the FCC has released two different reports that have taken aim at the wireless industry.

On Wednesday, the agency published results from a recent survey stating that consumers have been "shocked" by extra fees on their cell phone bills. And last week, the FCC reversed years of findings that said the wireless market was competitive and instead published results that called the wireless industry " concentrated."

While the agency has not yet made specific recommendations for new regulation, the tone the agency has taken toward the wireless industry has been viewed as somewhat threatening.

"I am very troubled with the current direction the FCC is taking with respect to the wireless industry--from the messaging sent last week in the Mobile Competition Report to today's survey release," Steve Largent, CEO and president of the CTIA Wireless Association, said in a statement. "It seems the Commission is going to attempt to micromanage what is an incredible array of choices for consumers."

Wireless is the future
The FCC's focus on the wireless industry reflects the changing communications landscape. Over the last several quarters, wireless has driven sales and profits within the nation's largest phone companies. More than 90 percent of the U.S. population now subscribes to a cell phone service, according to the CTIA. And roughly 25 percent of the U.S. population today uses wireless phones at home exclusively instead of also having a landline phone.

Advancements in 3G and 4G wireless technologies have made wireless a viable replacement for wired broadband. Companies, such as Clearwire, which has backing from Sprint Nextel, cable companies Comcast and Time Warner Cable, as well as from Intel and Google, is already in 32 markets with its 4G wireless service. Verizon Wireless is about to launch its 4G wireless service later this year. And AT&T and T-Mobile USA are busy upgrading their 3G networks with faster and faster technology, all in the name of increasing speeds to accommodate a more rapid expansion of wireless data services.

The FCC has recognized this tectonic shift in the market. Wireless communications are not only more convenient for consumers, they are often cheaper to deliver since building a wireless network costs far less than digging up streets to put in fiber or cabling for traditional landline services. This is why the FCC has made wireless a big focus in its National Broadband Plan.

One of the biggest issues the FCC is championing in its 10-year plan is the need for more wireless spectrum. Chairman Genachowski has called this the agency's No. 1 priority. In the National Broadband Plan, which was presented to Congress earlier this year, the agency suggests that 500MHz of wireless spectrum be made available for wireless broadband services by 2020. The plan outlines suggestions for freeing 300MHz of that spectrum within five years. Some of this spectrum is expected to come from government agencies that are not using allocated spectrum. But about 120MHz is expected to be reclaimed from TV broadcasters.

The FCC has also taken other measures to speed up the deployment of building new cell sites so that wireless companies can increase the capacity of their services. But even though the FCC has taken on key causes for the wireless industry, it has also signaled that it plans to keep a close eye on business practices to ensure that consumers are protected.

"The wireless industry has achieved remarkable innovation--and mobile is increasingly essential to the daily lives of Americans," Genachowski said in a statement regarding the consumer survey. "But there is still more that can be done to help customers navigate what is sometimes a confusing marketplace."

Digging into the reports
Even though it acknowledges the many advances and benefits of the wireless market, the FCC is still concerned with how consumers are treated by their wireless providers. Specifically, the agency believes that more transparency is needed in terms of informing consumers about early termination fees and warning them when they are about to exceed their plans' voice minutes, data, or text message limits.

The FCC surveyed about 3,000 Americans about these billing issues. What it discovered is that one in six mobile users say they have experienced a sudden increase in their monthly bill that is not caused by a change in service plan. The survey indicated that 84 percent of respondents said their mobile carrier did not contact them when they were about to exceed their allowed minutes, text messages, or data downloads. And about 88 percent said their carrier did not contact them after their bill suddenly increased.

The survey indicates that the amount of bill shock varies widely. While huge bills from overages have been touted in the media, the FCC said that the actual amounts of monthly overages are much less, though still significant to some subscribers. For instance, more than a third of people who experienced bill shock said their bills jumped by at least $50. Roughly 23 percent said the increase was $100 or more.

Beyond the billing issues, the FCC has also expressed concern over the state of competition in the market. In its annual competition report released last week, the FCC said that since 2003, market concentration in wireless has increased 32 percent. The report indicates that 60 percent of the nation's subscribers and revenue come from the country's two largest wireless providers: AT&T and Verizon Wireless. The FCC noted that these companies are continuing to gain customers as other national operators, Sprint Nextel and T-Mobile USA, have been losing subscribers.

The wireless industry argues that the data the FCC is using to draw its conclusions is incomplete. In a blog post last week, CTIA's Steve Largent outlined a slew of data points indicating that competition and innovation in the wireless market is robust.

For example, Largent pointed out that 65 percent of Americans have a choice of five or more wireless operators, not including resellers. In the largest U.S. cities, there are more than 14 facilities-based and non-facilities-based wireless providers. In the smallest U.S. cities, 8 out of 10 have more than 14 facilities-based and non-facilities-based providers. This is much higher than any other country in the world, Largent said.

While the FCC's assertion that the market is becoming more concentrated may be true, the CTIA's data indicates that consumers do have choices. These results could mean that consumers still choose the same two carriers even though they are given multiple choices.

Wireless companies are worried that the FCC will use these results to over-regulate the market. In a statement issued after the competition report was released, Robert Quinn, AT&T senior vice president of regulatory affairs, expressed concern.

"Because the FCC's decision is a dramatic break from years of solid precedent, we can't help but worry that this seems intended to justify more regulation in a market where it is clear beyond doubt that regulation is simply unwarranted," he said.

But the FCC claims it is not necessarily looking to impose new regulations on wireless.

"We really can't say at this point whether this all will result in a rulemaking or voluntary standards," Joel Gurin, chief of the FCC Consumer and Governmental Affairs Bureau, said on a conference call with reporters Wednesday. "The takeaway from this report is that people still don't know what they should know to manage these fees and billing issues."

Gurin said he wanted to have a dialog with the industry to help set best practices.

While the industry may view the FCC's intentions skeptically, there is strong evidence to suggest that the Commission is looking only to exert pressure in order to get the industry to regulate itself. This is exactly what the agency has done to get more reasonable and fair early termination fees. Several lawsuits were filed over early termination fees in multiple states. The former FCC Chairman Kevin Martin questioned the practices, and Congressional leaders held hearings on early termination fees. At that point, the industry started to readjust its fees. Within a matter of months, all four major U.S. wireless operators began prorating their early termination fees.

In a recent interview with CNET, CTIA's Largent agreed that the FCC's maneuvers helped spur change in early termination fees.

"There was some public pressure applied from consumer groups," he said. "And the industry responded. But there never had to be any new regulation implemented."

Exactly where the FCC will take its fight next is anyone's guess. But analysts say the industry's best bet is to continue talking to the FCC about these issues.

"Regulation inevitably increases cost," said Roger Entner, senior vice president and head of research and insights for the Telecom Practice of Nielsen. "So the industry should take these inquiries very seriously. What they need to do is educate consumers and the regulators better. They need to convince them that the American consumer has by far the best deal in wireless compared to the rest of the world."