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Sprint CEO: Without Net neutrality rules, we're toast

Chief executive Marcelo Claure defends the company's stance as the only major wireless operator to support the FCC's new Net neutrality regulation.

ATLANTA -- Sprint CEO Marcelo Claure praised the Federal Communications Commission's decision to implement rules governing the open Internet -- which includes wireless data -- arguing that his company couldn't survive without them.

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Sprint CEO Marcelo Claure says that the FCC's new Net neutrality rules are necessary to keep AT&T and Verizon in check. Marguerite Reardon/CNET

"Unless there is light-touch regulation that oversees AT&T and Verizon, they are going to drive us out of business," he said in a panel discussion at the Competitive Carrier Association's trade show here Thursday.

Claure's statement comes a month after the FCC decided, in a 3-2 vote, to pass regulation that ensures all Internet traffic is treated equally, a concept commonly referred to as Net neutrality. The new rules have been controversial because they reclassify broadband service under Title II of the Communications Act, treating these networks like a public utility. This change in classification has been opposed by big broadband and wireless service providers such as AT&T and Verizon. Sprint, however, came out in favor of the move in January, before the rules were adopted.

Sprint has been struggling to compete with its two largest competitors, AT&T and Verizon, for years. But it has also recently faced more aggressive challenges from T-Mobile, which is on the brink of overtaking Sprint as the third largest wireless operator in the US. Claure, who has been on the job only seven months, has inherited a bevy of issues and is trying to get the company back on its feet. He said that the main priority right now is to get the company's 4G LTE network up to snuff, while at the same time reframing the company as a value service provider.

Claure acknowledged in today's discussion that the company's stance on Net neutrality may not make him popular among other wireless providers, including some of the smaller rural operators with whom he shared a stage at the conference. But he said that without the regulation, Sprint and any other company trying to compete with AT&T and Verizon are dead in the water.

"I'd rather there be light-touch regulation than a complete free-for-all," he said in an interview on the sidelines of the conference.

His comments on a light regulatory touch refer to the FCC's move to strip out the more onerous regulations set up for old-fashioned telephone service, including the commission's power to set rates and force providers like AT&T to open up access to their lines by competitors. Broadband providers fear the Title II designation would give future FCC commissioners the power to exploit those rules.

Claure said in the panel discussion that Sprint is dependent on AT&T and Verizon for roaming arrangements to help fill in coverage gaps where the company has not built out its wireless service. And he said this is hurting the bottom line.

"I can't disclose how much I pay for roaming," he said. "But it's insane."

He suggested that a combination of having the new Net neutrality rules in place to keep AT&T and Verizon in check, plus new business agreements that Sprint announced last year with rural wireless carriers throughout the country could help the company fill out its coverage in order to compete with the two largest national carriers.

"I don't like writing checks for hundreds of millions of dollars to my two biggest competitors," he said. "I'd rather write those checks to rural carriers."

Not winning any friends

Claure's support of the FCC's Net neutrality regulation, specifically its support of broadband reclassification, doesn't sit well with other competitive carriers. Ron Smith, president and CEO of Bluegrass Wireless, a regional carrier in Kentucky, said in the discussion that the new Net neutrality regulations will lay a "cooling hand on the wireless industry."

He said that regulating broadband as a telecommunications service means that the FCC will have the ability to interpret what it considers as fair practices on the Internet, which creates great uncertainty in the market. He claimed this may result in wireless companies slowing the introduction of new services.

Under the new rules, he said, "every new service you offer could be reviewed by the commission. Anyone could say that they are being discriminated against on the network."

Smith added, "This may not be rate regulation, but it's service regulation. And I will have a difficult time making sure I don't cross any of those lines."

Claure acknowledged that more clarity on the rules may be necessary, but he dismissed as empty threats claims by AT&T and Verizon that they will stop investing in their networks because of the new regulation.

"They run two of the most profitable businesses," he said. "That ain't going to happen with the return on investment they have."

Without Net neutrality rules, AT&T and Verizon will control too much of the content on the Internet, he said. "We need the Internet completely open so that nobody can determine what content goes to what customer."

The next spectrum auction

Claure also hinted that Sprint may not participate in the FCC's upcoming 600MHz spectrum auction, set to begin early next year. This FCC auction will take airwaves from TV broadcasters and resell it to wireless providers. The rules for the new auction are being discussed and written now, with a final draft of the rules expected from the FCC within months. The auction could be the last opportunity for companies, such as Sprint, to buy large swaths of low-band spectrum, which is used to offer better coverage in rural regions and within buildings.

But Claure noted that the record-setting prices paid for spectrum in the FCC's last auction, which ended in January, could make it too expensive for Sprint to participate. The so-called AWS-3 auction, which sold higher-frequency airwaves that are used to add more capacity in urban areas, raised more than $41 billion for the government, making it the most lucrative wireless spectrum auction in the FCC's history.

Sprint did not participate in the previous auction, but rivals AT&T, Verizon and T-Mobile did. AT&T and Verizon walked away as two of the top three winners of spectrum in the auction. T-Mobile took a more restrained approach to bidding.

Claure admitted that owning more low-band spectrum would be nice. But he said that depending on how the auction is structured, the company could be priced out of the auction.

"Everyone wants and needs low-band spectrum," Claure said in an interview. "But our participation depends on the price of the spectrum, and how that will affect our return on investment."

As a result, during the discussion he said that Sprint's participation in the auction was "to be determined."

"We have to look at the rules," he said. "We have a lot of spectrum, so we need to figure out how best to use it."