The issue is part of a biennial review the FCC is conducting, a proceeding required by the Telecom Act of 1996. In its last review, the agency kept the cap, but the large wireless providers and their association lobbyists have pressed hard for it to be removed this time.
One argument in favor of its removal is that a considerable amount of airspace, or spectrum, will be needed for wireless providers to provide high-speed Internet access and other next-generation services. With major carriers such as AT&T Wireless, Sprint PCS and Verizon Communications at or near the cap in many markets, next-generation, or 3G, services would have to be offered by a separate wireless provider that might not have the resources to offer such a service.
A bipartisan coalition in Congress has called for the cap's removal, including the co-chairs of the House Internet Caucus, Reps. Robert Goodlatte, R-Va., and Rick Boucher, D-Va.
"The caps, frankly, don't make sense," Boucher said.
The caps prevent companies with the ability to provide 3G service from actually implementing it, leaving what spectrum is available to other companies lacking the technological skill or financial backing, he said. Boucher dismissed the fact that companies can apply for waivers in certain markets, noting the process is arbitrary.
FCC staff insist the review is on course for a vote by the five commissioners before the end of the year, as has long been promised and is required by statute. However, those commissioners also are reviewing the AOL-Time Warner merger, and with the holidays approaching it's possible the vote could slip into the new year. One official, however, said the latest a vote would likely occur would be Jan. 11 at the monthly FCC meeting.
Keeping the cap "is no longer appropriate given a wireless market in which 70 percent of Americans have a choice of at least five competing mobile phone providers, and at least 11 million people can choose from among seven different providers," Cellular Telecommunications & Internet Association (CTIA) general counsel Michael Altschul and vice president for regulatory policy and law Randall Coleman wrote the FCC in October.
Vote irrelevant in light of Bush?
In its biennial review in 1998, the FCC said the cap was necessary not only to prevent anticompetitive behavior as originally intended but also to promote competition.
Boucher predicted that if the FCC did not lift the spectrum cap, the cap would surely be taken up in Congress next year.
The cap has played a role in the ongoing wireless PCS auction being held by the FCC. Because so many major carriers were at or near the cap in so many markets, the FCC broke up some of the licenses into smaller segments so carriers could more easily make purchases. It also has been generous in permitting carriers such as Cingular Wireless to partner with smaller carriers that can bid on all licenses.
Adjusting or lifting the cap "could be potentially a big boost" to the depressed stock prices of the major carriers, said Elliott Hamilton, executive vice president of The Strategis Group. "It would definitely have an impact on the wireless landscape."
With a cap lifted, "it would be difficult to think of the major carriers not merging," Hamilton said. "We could see some action there."
The FCC will soon shift to Republican control when President-elect George W. Bush assumes office, and some suspect any vote taken by the FCC now may not be all that relevant.
A Bush FCC would likely be busy "freeing up 3G spectrum" both by opening new airwaves to the private sector and through "deregulation of advanced services" such as lifting the spectrum cap, said Gartner analyst David Rendall.
Others question the economic viability of 3G. Consultant Rich Nespola, president of the Management Consulting Group, says he is "ho-hum" about 3G and the current auction because "the economic models haven't developed enough to show there's enough support for 3G."
Meanwhile, Steve Roberts, chairman of WatchMark, a wireless software provider, said 3G can't succeed unless wireless carriers address their spotty phone service quality.
CTIA's fight to remove the cap is not a new one. The group previously filed a motion with the FCC to keep the agency from enforcing the rule, only to have the motion struck down. The FCC said in response that the cap protects consumers and ensures competition.