FCC Chairman Urges Wireless Industry to Innovate

Published November 23, 2009

Federal Communications Commission Chairman Julius Genachowski is urging the wireless industry to continue driving economic growth and job creation–while at the same time he’s advancing regulations many in the industry say work against that goal.

Genachowski celebrated the wireless sector’s 16 percent average annual growth at a speech October 7 at the CTIA Wireless IT & Entertainment International 2009 expo in San Diego, California.

“In my time as an investor and executive, I saw mobile go from a futurist fantasy to a nice-to-have part of a company’s game plan, to a must-have strategic priority,” Genachowski said. “Today every company in America–entertainment, commerce, news, you name it–knows it needs to have a mobile strategy.”

Despite that record of success, Genachowski said the FCC can “assist” in efforts to drive more growth by providing more spectrum for the wireless industry; removing regulatory obstacles to mobile 4G networks, which are now under construction; and supporting a transparent and competitive marketplace.

Concerns about Net Neutrality

Genachowski insists on more regulation of the wireless industry, and to that end he started the FCC down the path of making net neutrality a binding rule later that same month. Critics say imposing net neutrality chokes innovation, especially in wireless, which is still in the relatively early stages of its technological development.

“The smell of high-tech regulation is increasingly in the air these days, and many lawmakers and some activist groups now have the mobile marketplace in their regulatory crosshairs,” said Adam Thierer, president of the Progress and Freedom Foundation in Washington, DC.

“Critics make a variety of claims about the wireless market supposedly lacking competition, choice, innovation, or reasonable pricing,” Thierer said. “They want to wrap America’s wireless sector in a sea of red tape.”

Studies Debunk Chairman’s Claims

New studies show wireless innovation is progressing well without government-imposed net neutrality.

“Software applications for wireless phones have gone from essentially zero a few years ago to tens of thousands of applications today,” wrote Gerald R. Faulhaber and David J. Farber in their study, “Innovation in the Wireless Ecosystem: A Customer-Centric Framework.” Faulhaber is professor emeritus of business and public policy at the University of Pennsylvania’s Wharton School of Business, and Farber is a distinguished professor of computer science and public policy at Carnegie Mellon University.

“Software vendors, device vendors and carriers offer apps stores, each offering hundreds or thousands of applications for download, some free, some for a fee,” Faulhaber and Farber wrote.

The scholars point out Apple has sold more than 30 million iPhones since their introduction and customers have downloaded more than 2 billion apps, from an inventory of 85,000. That’s an average of 66 apps per iPhone.

Market Is Driving Innovation

Faulhaber and Farber also note “there are at least 33 device manufacturers selling over 630 different handsets in the U.S.” In addition, they note, there have been several notable market-driven innovations in the core network, which increases efficiency in use of the spectrum.

This all happened without government intervention, the authors observed.

“The [FCC] has a long tradition of keeping hands off wireless (and the Internet) while ensuring it remains competitive,” Faulhaber and Farber wrote. “The results of this policy are evident: the most innovative industry in the U.S. and the world, with lower prices, more usage, and more innovation.”

In another recent policy study, “The Impact of Regulation on Innovation and Choice in Wireless Communications,” Everett Ehrlich, Jeffrey A. Eisenach, and Wayne A. Leighton write there are three basic problems with the FCC “assisting” the wireless industry:

  • The proposed regulations are overbroad. On their face, the existing proposals would presumptively prohibit a wide range of business practices.
  • No market failure has been shown in the markets at issue.
  • The behaviors at issue are all easily explained on the basis of economic efficiency.

Hands-Off Policy Advocated

CTIA–The Wireless Association, the leading mobile handset industry group, agrees with a hands-off policy. In a filing with the FCC, the association said U.S. wireless providers are constantly innovating to meet evolving customer demands.

“One theme in the wireless carrier-customer relationship has been constant evolution to meet consumer concerns. Rather than statically waiting for costly and time-consuming governmental intervention, wireless service providers have dynamically met the challenges that have arisen with technological developments, understanding and catering to the needs of their valued customers in the process,” said the group in its FCC filing.

Arguing Against More Regs

“The FCC builds in conflicts, then tries to settle them,” said Len Bosack, CEO of XKL, a Redmond, Washington provider of fiber systems. “The marketplace has to be the primary mechanism.”

“It sounds like the Obama administration is going back to a tighter control, which may not be the right answer,” said Jeff Kagan, an Atlanta, Georgia-based telecom and wireless analyst. “Some of the greatest innovations [in wireless] have occurred in the last few years–such as Apple’s iPhone, Google’s Android, and assorted others. Would they have come about with a government trying to steer such a huge and fast-changing ship?”

Phil Britt ( [email protected]) writes from South Holland, Illinois.

For more information …

“Innovation in the Wireless Ecosystem: A Customer-Centric Framework,” by Gerald R. Faulhaber and David J. Farber, October 2009: http://www.heartland.org/policybot/results/26390/

“The Impact of Regulation on Innovation and Choice in Wireless Communications,” Everett Ehrlich, Jeffrey A. Eisenach, Wayne A. Leighton, September 2009: http://www.heartland.org/policybot/results/26391/