WIRELESS CARRIERS CITE COMPETITION AS REASON FOR RELAXING CAPS

WorldCom warned FCC that lifting spectrum caps would put wireless resale market “at great risk.” (WorldCom is largest U.S. wireless reseller, with more than 2 million resale customers.) Resale obligations of wireless carriers will be phased out in Nov. 2002 -- sunset date based on projection that 5 years from 1997 there would be 6 facilities-based broadband PCS carriers and one or more digital specialized mobile radio providers in competition with 2 cellular operators in each market, WorldCom said. “Given the flurry of merger activity and consolidation in the wireless sector over the past 2 years and the imminent sunset of the wireless resale obligation, retention of the spectrum cap is even more essential to ensure that there are a sufficient number of facilities-based competitors to maintain a vibrant resale market,” WorldCom said. Company cited recent comments by executives of Nextel and Sprint PCS that carriers currently had enough spectrum to deploy high-speed data service. “WorldCom believes that today there are still few, if any, markets where CMRS carriers face spectrum exhaustion or are constrained from introducing advanced services because of the spectrum caps,” company said, and as result, waivers of cap should be handled on market-by-market basis. WorldCom proposed that any additional spectrum agency made available should be subject to “proportional aggregation limit.” Now 180 MHz of spectrum for CMRS is subject to cap, meaning only 25% of spectrum is accessible to any carrier in nonrural service area, it said. Company recommended FCC not allow any carrier to hold more than 25% of total available CMRS spectrum in given market, including any new spectrum freed for auction. Point is to ensure that as new spectrum is opened to carriers and cap is adjusted, “incumbents do not simply buy other incumbents,” WorldCom said.

To bolster arguments for altering cap, Verizon Wireless commissioned report from 2 economists that concluded ownership restrictions weren’t needed to maintain competitive market. “No rational business entity would believe it could foreclose competition by aggregating spectrum because the economic cost of doing so would be prohibitive,” Verizon said. “And if any entity attempted to foreclose CMRS competition, government and private remedies under the antitrust laws would be available to squelch those attempts.” Verizon also contended that cellular cross- interest rule should be mothballed, saying rule dated back to time when only 2 cellular providers offered service in given market. Throughout its comments, carrier argued that burden of proof for why cap should be relaxed lay not with those who backed abolishing it; rather, it said, FCC must show why spectrum cap and cross- interest rules still were needed to achieve goals of Telecom Act. Verizon commissioned study by U. of Chicago Graduate School of Business Economics Prof. Robert Gertner and Allan Shampine, economist with consulting firm Lexecon. Their study concluded that lifting cap would reduce competition because: (1) Most spectrum subject to cap already had been auctioned so that “concerns about entrants’ being unable to obtain spectrum in auctions are now moot.” (2) Presence of 6 national carriers made it “highly unlikely” that any would be willing to sell “enough of their spectrum in an area as to be unable to offer voice services.” (3) Rise in wireless subscribers increased ability of carriers to cover fixed costs and decreased chances they would go out of business. (4) Antitrust authorities had signaled willingness to review spectrum issues. (5) Higher prices through carriers coordinating with each other were unlikely because of large field of competitors and complexities of rate plans.

Large carriers agreed cap should be altered, but didn’t necessarily agree how. Sprint PCS urged FCC to adjust cap but not lift it immediately. “Sprint PCS is concerned that if the cap is removed, the Commission may be less inclined to use its forbearance authority in the future,” carrier said. Sprint contended cap facilitated regulatory forbearance because it provided FCC assurance that wireless market would stay competitive. “Thus the question of removing the spectrum cap should not be addressed in isolation, because the cap is a fundamental component of the Commission’s deregulatory approach to the CMRS industry,” Sprint PCS said. For now, carrier said, FCC should: (1) Adjust cap to provide for AMPS (advanced mobile phone systems or analog) credit. That would allow cellular carrier that agreed to maintain AMPS service for particular period to gain exception from cap depending on amount of capacity it devoted to analog. (2) Increase cap as part of 3G spectrum allocation. Sprint said it couldn’t make more detailed recommendations until 3G decisions were made, although it said FCC should ensure one or 2 companies didn’t monopolize additional capacity for advanced services. (3) Remove cap when 3G licenses were issued and then rely on case-by-case review of transactions. (4) Examine spectrum cap waiver requests in meantime under Sec. 310(d) review process to streamline procedure. Sprint also included research by Charles River Assoc. economist John Hayes, who examined customer share data for top 25 markets for July 1999, Jan. 2000, July 2000 and Jan. 2001. CMRS market is “becoming increasingly competitive,” Hayes wrote. But he said that in largest markets, concentration among carriers remained higher than Dept. of Justice merger threshold guidelines.

Meanwhile, U.S. Small Business Administration’s Advocacy Office chastised FCC for providing “inadequate” regulatory flexibility analysis. “The Commission fails to clearly state its regulatory objectives, fails to describe the impact on small businesses and fails to propose alternatives designed to minimize this impact,” SBA said. In particular, agency told FCC it didn’t indicate that it believed cap and cross-ownership limits no longer served public interest and did “not clearly explain why it believes a revision of these policies might be necessary.” SBA argued that FCC hadn’t expressed its regulatory goals in proceeding, in part because Commission didn’t offer specific plan of action. “It strikes Advocacy [Office] that if the marketplace is experiencing increased consolidation, then rules and policies that encourage entry by small businesses are more important than ever,” SBA said. “It also appears there may be conflicting goals: promoting nationwide services versus encouraging competition and small business participation in the marketplace.”

CTIA, which has given high priority to repeal of spectrum cap, warned that restriction “is not only unnecessary, it actually threatens to be a net drain on the development of competition in the CMRS business.” Like other supporters of rolling back cap, CTIA noted, in part, that antitrust scrutiny will help provide same consolidation safeguards that caps served in past before wireless industry reached current level of competition. In creating spectrum cap, FCC has undertaken “virtually impossible task” of trying to pinpoint for all CMRS markets “where efficiency stops and where market power begins,” CTIA said. “The Commission should rescind from any attempt to draw one line for all markets and all circumstances.” Concerns about potential reconsolidation of wireless industry are unfounded, CTIA told FCC. In part, association cited U.S. Court of Appeals, D.C., decision last month on ownership rules for cable industry, which reversed Commission’s 30% limit on number of customers that MSO can serve. “Like the spectrum cap, the Commission had tried to justify its cable ownership rule based on a stated concern for the risk of collusion in concentrated cable markets.” CTIA stressed that existing ownership limitations for wireless carriers bars affiliations among service providers across markets that would otherwise provide efficiencies. In addition, CTIA said that antitrust analysis used by Dept. of Justice when assessing wireless transactions addresses same competition concerns as FCC does in spectrum cap.