Advocating Free Wireless Internet Service - What Was I Thinking?

I received several e-mails last week from clients and friends who are concerned about the FCC’s proposal to license 25 MHz of spectrum called Advanced Wireless Services 3 (AWS-3). Under this proposal, the spectrum will be a national license. The licensee will be required to provide a basic speed internet connection to the public for “free” (it would be funded by ad revenues). The licensee will also have to build out spectrum to serve 95% of the population – guess who serves the 5% where the build-out won’t occur?

I support the plan. I support it because it can be implemented in a way that stands to help every rural telephone company to participate in broadband wireless services. The plan will help the vast majority of small rural telephone companies that have no spectrum and no prospect to win at auctions. The plan will help the relatively few rural telephone companies that have cellular or PCS systems. And, the plan will help those relatively few rural telephone companies that have obtained spectrum for broadband services through the auction process.

The large national and wireless carriers don’t want this plan to succeed. They don’t want another competitor. But, what about the proposed FCC plan is bad for rural companies? The FCC proposal will mandate a national carrier that works with rurals. And, what have the existing national carriers done for you lately? The large national carriers have shown no willingness or interest to partner with rural companies to bring broadband services to rural areas. Even in those few instances where national carriers have partnering agreements with rural companies for wireless voice services, there is little interest in working with rural carriers on a broadband wireless data roaming mandate and revenue sharing on the media applications that require the broadband pipe.

No wonder the large wireless carriers want to block this plan – if it’s adopted, they would not only have a new national competitor, but the new national licensee would be required to work with rural telephone companies under the rules I and others have advocated.

The rules I have advocated at the FCC for this spectrum would require the licensee to provide a meaningful wholesale arrangement to rural telephone companies. The rules would encourage the licensee to partition spectrum to rural telephone and rural wireless carriers. And, the rules would mandate that rural companies be permitted to partition spectrum from the licensee if, after the prescribed build-out period, the spectrum was not used in an area served by the rural carrier.That concept isn’t new – it was ignored and the incumbent wireless industry doesn’t like to talk about it! It was developed during the days when rural cellular partnerships were put together. Working with rural companies on these partnerships, we wanted to provide for the opportunity for a rural company to serve in its own area. The concept was later incorporated into the FCC’s cellular rules and is known as the “fill-in” rules.

When the FCC established rules for PCS auctions, Congress mandated the FCC Congress to disseminate spectrum to rural telephone companies. The original idea was that rural companies should have spectrum available to use in conjunction with their wireline services in order to bring spectrum services to rural America. The idea hasn’t worked – it hasn’t been implemented – in fact, no one has really tried.

Well that’s not exactly right – some of us tried, but we got slammed. And, guess who slammed us? No – not the large wireless carriers. They didn’t need to. They got the small wireless carriers to do it for them. Several rural advocates tried to promote the inclusion of this “fill-in” concept in all spectrum licensing rules. The large carriers shot the proposal down, but they were careful not to hold the “gun” themselves.

They whispered to the small rural wireless carriers, “This fill-in idea is bad for both of us. We can’t let anyone take our spectrum just because the build-out period is over and we haven’t developed it. We met our minimum build-out requirements, and no one should be allowed to use the spectrum but us.” The large carriers made sure that they could warehouse their spectrum and they convinced small wireless carriers that they had the same interest.

I heard loud and clear from small wireless carriers: “Don’t pursue this.”

I always thought it odd that the small wireless carriers carried the water for the large wireless carriers. The fill-in plan would have helped rural wireless carriers. If a rural telephone company that obtained spectrum had not developed spectrum in part of its rural license area, what did they have to be afraid of? Who would come in to build a system where the rural carrier didn’t think it was worthwhile to build? But, the rural carriers could have used the fill-in right to “edge out” and fill-in unserved nearby rural areas where a large carrier had only put cell sites up to cover the roads. The result is the reality we see today: many rural communities remain without reliable wireless service and many rural telephone companies remain without an opportunity to participate in the provision of wireless.

I saw opposition to the FCC’s proposed AWS-3 rules last week filed by RTG and OPASTCO, and the opposition reminded me of the calls I got years ago from the few incumbent rural wireless carriers who said “Don’t pursue this” when I tried to obtain for each rural telephone company an opportunity to utilize spectrum in its service areas. I don’t doubt that the hearts of those involved in filing the oppositions are in the right place. They must really believe that if this spectrum is auctioned as small license areas instead of an auction for one national license, a large number of rural companies will succeed at the auction.

Unfortunately, that hope is in conflict with past results. Most recently, the FCC auctioned a block of 700 MHz spectrum as small cellular-like license areas and most of the spectrum was won by AT&T. If anyone thinks we have a chance of obtaining auction rules that only permit rural telephone companies to participate (or even help with the rules in terms of preferences), I’d like to know where they found their new political help to obtain this result!

Again, I don’t doubt that the rural opponents to the proposed AWS-3 rules have their hearts in the right place. I do wonder if they are aware of the efforts to incorporate into the rules the benefits for rural carriers I have described: 1) wholesale arrangements for all broadband services; 2) encouragement of voluntary partitioning to rural companies; and 3) mandatory partitioning to serve unserved areas.

I have worked on behalf of a small consortium of rural carriers over the past year to obtain meaningful partnering arrangements with national broadband carriers. The consortium members include rural companies with no spectrum, a few that have wireless systems and a few that have obtained AWS or 700 MHz spectrum. All of them are united by the common understanding that rural carriers will need meaningful partnering arrangements with national carriers.

Even if you have a wireless voice system, you will need access to more spectrum to provide broadband services, and history shows that it is unlikely that the auction route will be a successful path to more spectrum. And even if you obtain more spectrum, where do you think future revenues will come from? A rural industry that has learned the harsh realities of the cost of programming content in their cable endeavors should now understand the need to seek partnering arrangements with national providers who have the mass to negotiate media content revenue sharing arrangements for the content and media applications consumers will obtain through the broadband pipes.

On behalf of the Broadband Wireless Partners consortium, my colleague Gary Sugarman and I have persevered in our efforts on behalf of the consortium with the national carriers over the past year to work to forge partnering arrangements – most of the national carriers have no interest. The FCC’s AWS-3 proposal gives us the opportunity to implement rules that will help all rural carriers by mandating wholesale arrangements, partitioning and fill-in rights. I can see how the large wireless carriers benefit from stopping the FCC proposal. I can not see what the benefit of opposition is to the rural carriers. I can only see how all rural carriers, including rural telephone companies with spectrum, can gain. And, I hope that instead of simply joining the large wireless carriers in opposition those in the rural industry that voiced initial opposition will take a second look at the FCC’s AWS-3 proposal and work together to strengthen the aspects of the proposal intended to advance rural carrier interests.

BUT – as the e-mails I received last week asked - “How could you support a plan that will put us in competition with a free service!!!???”

Here’s how I responded:

"Your concerns are absolutely understandable - and, I think your concerns show the need for more time in this proceeding to be certain that all parties fully understand what is at stake. I have spent a lot of time working on trying to find wireless opportunities for rural companies, and that is a difficult task. The effort led me to the M2Z group and they have worked with me on crafting rules and commitments that I think will serve most, if not all, rural carriers - but, I don't think a good enough job has been done to get word out on this. In addition to the M2Z proposal, I continue actively in dialogue with other large carriers trying to forge partnering opportunities for rural carriers.

My goal has been multi-fold:

1. To find spectrum opportunities for those that do not have any spectrum.

2 To find additional spectrum opportunities for those that have PCS or Cellular, I think they will need more spectrum to provide broadband services that require more spectrum (the very reason ATT and Verizon have acquired so much spectrum).

3. To find national partnering opportunities for all. Even if a rural company has cellular, PCS, AWS and 700 MHz spectrum (as ATT and Verizon do), I still don't think they are safe. Revenues are moving away from voice and toward media and content applications. Even if we could get all the independents together, we don't have the mass to bargain for media and content applications. I think we need to be able to partner with national carriers in order to obtain revenues from media and content. For example. when Verizon provides a link to ESPN through a wireless device, they will obtain revenues - I think we need the same.

In order to achieve these three goals, I began approaching the national carriers - Verizon and ATT have no current interest or need to work with rurals. Sprint/Clearwire has indicated a potential future need. T-Mobile, I think, wants to work with some rurals that invest and build areas they are not interested in, but I don't think they will make commitments on the revenue sharing for media and content applications.

M2Z agreed to commit to wholesale arrangements for all. I think the FCC could give teeth to the commitment using the wholesale (avoided cost) standard from interconnection.

M2Z agreed that rules that encourage partitioning make sense.

And, M2Z agreed that restoring fill-in rights make sense where a rural carrier could take over in an area where they do not build out.

The license proposal I have backed is for the licensee to be required to build out to cover 95% of the population in 15 years. This point is often overlooked - the 5% they do not plan to cover is the same 5% where other large carriers have not been interested in investing - the very foundation and reason for the existence of the rural independent industry.

M2Z proposed a "free" basic service to be supported by ad revenues. M2Z views this as a good strategy and many others believe that competitive markets will migrate to an ad revenue-supported basic “free” internet service. Consistent with other comments I have heard, I also question whether this "free" service will work as a business plan. But, I don't think that is a question we need to answer. In your service area and the areas served by most rural companies, neither M2Z nor any other potential licensee will be providing this “free” service - not even in 15 years. The rural company areas are the areas with the 5% of the population they will not cover.

If a rural carrier is in a more competitive area where the AWs-3 licensee does provide this “free” service, you can be certain that other national carriers offering similar services competitively will be interested in marketing in the rural carrier’s area. This "free" concept is not new when you consider the convergence of telecom and media. Broadcast TV was offered as "free;" even where customers can pick up off the air signals, the customers migrate to cable - they pay for the "free" signals and are then upgraded to purchase more services.

My thinking is that the "free" part is not a worry for the mass of independents because the independents cover the areas of the 5% population where the licensee will not go. The M2Z negotiation, if adopted into the rules by the FCC, gives the rural answers to each of the three objectives I set out above.

The real opposition to the proposal is from the large national players who are very smart. They know that their complaining about a potential competitor will not get much attention or play politically. We have seen the same tactic in the telephone world where the large carriers often try to get the small carriers to carry their water. I may be wrong, but that is what I think may be happening. Rural wireless carriers are being told "Look out! Someone is trying to steal your business - unite and stop this!" But, no large carrier is offering rural carriers anything.

If this proposal is really bad for existing rural wireless carriers, I very much want to learn more about what makes it bad. For example, if you don't think that the areas covered by your company and other rural telephone companies are the areas included in the 5% of the population that the licensee would not build out to (and, therefore, not subjected to the "free" competition), I'd be interested in understanding what you and others think those areas would be.

In addition to the "free service" aspect, I'd be interested in any other concerns you have or that you have heard. In order to address concerns, I'd like to also look at constructive remedies that would not throw out the good that could be achieved for many rurals from a proposal that mandates wholesale arrangements (that we do not have with any other national carrier), encourages partitioning and mandates fill-in rights for rurals.

I am also concerned that this issue may quickly erupt and divide the rurals between the relatively few that have spectrum services and the many that are looking for spectrum possibilities. I am hopeful that some of these thoughts will be useful for those that do have spectrum to think through whether the proposal is really more of a threat or an opportunity, as evolution of spectrum needs and the need to participate in revenues from media and other applications grows. I fully understand the initial reaction that this is a threat, and I will be very respectful of those that conclude that they still think it is more of a threat regardless of the considerations I set out above.

Thanks for considering all of this.

Steve Kraskin"