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Mobile Voice: The FCC’s Investment Sleight of Hand

Earlier this week, we pointed out how the FCC’s use of the mobile voice “case study” for regulating wireless broadband incorrectly assumes that the investment undertaken by wireless carriers in their wireless voice services is evidence that heavy-handed Title II regulation will spark the same investment for mobile broadband. Let’s dig a little deeper into why this analogy is wrong.

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The FCC, in an attempt to show that an intrusive Title II regulatory approach will not harm investment, engages in revisionist history. Specifically, the Open Internet Order points to the modified Title II approach that Congress instructed the FCC to apply to mobile voice as purported evidence that the application of Title II to all forms of broadband “will not impede investmentPDF.”

This claim is simply not borne out of by the facts. The investment data – corroborated by any awareness of carriers’ marketing campaigns – show otherwise. The focus of wireless carriers’ investment and competition strategies has been on the heretofore unregulated market for mobile broadband networks, speed, and coverage, with less emphasis on the regulated voice market. It’s a fairly simple and intuitive construct: the deregulated market attracts more investment, the regulated market attracts less.

Thus, the light-touch Title II approach for mobile voice, which Congress authorized at the same time as a blanket deregulation of what became mobile broadband, cannot and should not be used to justify applying public utility-style regulations to mobile broadband. The deregulatory treatment afforded to mobile voice and data in 1993, and confirmed by the Telecommunications Act of 1996, showed Congress providing incentives for more investment by moving away from greater government control of wireless. The FCC’s Order reverses course, an abrupt and discouraging signal to investors.

The data show that mobile broadband drives investment in wireless networks. Claims that wireless carriers made huge investments in their networks under a Title II regulatory scheme over the past 15 years are simply false. An examination of the data surrounding mobile investment over the past fifteen years shows that carriers invested heavily in mobile broadband, and less so in mobile voice.

A brief look at the numbers:

  • From 1992 to 2002, when cellular licenses converted from analog voice to 2G digital technology, carriers invested $138.8 billion.
  • But from 2003 to 2013, carriers invested $284 billion with the introduction and rapid deployment of 3G and 4G mobile broadband networks.
  • As a comparison, using constant 2013 dollars, those figures are $193.3 billion and $314.5 billion respectively.
  • In the past decade, carriers invested $260 billion in their networks, and another $90 billion purchasing spectrum at auctions.

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Yet the Commission nevertheless points to the wireless industry’s $400 billion in investment in the past two decades as evidence that a “modernized Title II regulation can support investment and competitionPDF.” Left unsaid of course is that mobile broadband – unlike mobile voice – has never been regulated under Title II.

That distinction is critical because this massive investment in wireless networks was primarily made to handle mobile broadband traffic. As Commissioner O’RiellyPDF explained, any claim that mobile companies were investing “for the sake of voice service … is plainly not the case.” Similarly, Commissioner Pai pointed out that since the introduction of smartphones in 2007, “mobile broadband investment is what is driving tremendous benefits that wireless consumers have been seeing in recent years.”

The mobile broadband proof is in the advertising pudding. If more evidence is needed, just turn on a TV or open a newspaper. Chances are you’ll see ads from wireless carriers, for smartphones. You’ll see maps of 4G/LTE coverage. You’ll see innovative new features and services that benefit consumers. You’ll see words like “fastest,” “newest,” and “most reliable,” boasting about carriers’ wireless Internet services and urging consumers to switch providers.

These advertisements show wireless carriers competing not on voice but on their mobile broadband networks, offerings, and technologies. In fact, mobile telecom is only behind the massive retail and automotive sectors in its advertising spend, with a total of $9.4 billion in 2013.

The FCC’s inapt comparison of mobile broadband to static voice service misses the mark.  A mobile broadband network is always evolving, with revision upon revision in a given generation of technology, constant optimization, and never-ending upgrades. Those improvements require capital spending, and lots of it.

Yet with its “case study,” the FCC attempts to equate the experience of the regulatory structure created by Congress in 1993 for static mobile voice services with that of the dynamic – and lightly regulated – wireless Internet offerings of 2015. In doing so, the Commission chose to engage in obfuscation, rather any sustainable analytical study. That’s hardly the hallmark of a data-driven agency.

Unfortunately, consumers will pay the price in the end, as they have in Europe, which provides a more accurate case study for the impact that Title II will have on mobile broadband service and investment. For instance, in 2011-2012, U.S. carriers invested $55 billion while European operators invested only about half as much.

Of course, the wireless industry will continue to invest, but the uncertainty generated by the FCC’s action means there will be less investment. And that’s no illusion.

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