The privatization of the certification process for telecom equipment used in homes and businesses (such as phones, fax machines and modems) is one of two significant changes expected to be enacted at Thursday's Federal Communications Commission (FCC) meeting. At that meeting, the FCC also is expected to relax its rules on how wireless license holders can control the airwaves they operate in, allowing companies to lease unused space to others on a short-term or long-term basis.
The privatization of on-site equipment certification should have been done long ago. The telecommunications industry has matured enough for vendors to realize that compatibility matters, and they can basically regulate themselves. The effect of abolishing the previous equipment certification rules will simply be to eliminate a requirement for device manufacturers to file technical information with the FCC.
The more interesting move is the FCC's plan to permit companies holding unused wireless spectrum to lease it to other companies that can use it. This change in regulation was written in conjunction with the large carriers and provides them with a way around the cap on spectrum that they can own, opening a door to enable them to expand both their coverage areas and the number of services they can provide.
However, the effect of this may be to encourage small, local operators by offering them a way around another regulation. This regulation says that successful bidders in the spectrum auctions must use the spectrum they buy within a year or lose it back to the government without compensation.
The downside of this change is that it may encourage speculators, with no real plans for using the spectrum themselves, to enter the spectrum auctions, drive up the price, and then lease the spectrum they buy to whoever offers the best deal. The problem is that this would drive up the already high cost of building wireless infrastructure, delaying the introduction of advanced wireless services even more than they are delayed today.
Another concern is that spectrum resale may encourage the breakdown of spectrum into very granular pieces. Next-generation wireless technologies (such as 2.5G or 3G) are focused on relatively large, contiguous swaths of spectrum (for example, 200 KHz). Therefore, this move potentially slows next-generation deployments.
Overall, however, Meta Group believes that this change by the FCC will encourage local providers, which can now invest in spectrum with a greater assurance of return. The big question facing the regulators is whether the country is better off with an oligopoly of national wireless carriers or a complex marketplace containing many small competitors. With this regulatory reform, if small spectrum holders cannot go ahead with their own plans quickly, or if they eventually cannot survive in the market, they can at least lease that valuable spectrum to competitors that are successful and want to expand.
We believe a wireless oligopoly of large carriers will inevitably emerge to provide national wireless service. The question is how that happens--according to which companies have the capital to buy large amounts of spectrum at the beginning, or by facilitating competition and letting those with the best answers grow.
The FCC still has an important place in regulating communications in at least two areas. First, it needs to stand guard against the eventual evolution of another monopoly situation like the one that dominated telephony for much of the 20th century. Second, it needs to assure that at least basic services are available to everyone.
There is a genuine "great divide" between people in very rural areas and in the center cities, on the one hand, and the rest of the nation. The FCC needs to make sure that a reasonable subset of these services are available everywhere--that a farmer in rural North Dakota or an inner-city resident can get advanced telecommunications services.
The wireless market has been fairly quiet recently. With this change in regulations, it may get more active again for a while. Companies should continue to plan for the appearance of new telecommunications services from different vendors. They should avoid long-term contracts and be ready to evaluate new service offerings.
Meta Group analysts Val Sribar, Dale Kutnick, Jack Gold and William Zachmann contributed to this article.
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