Available via license: CC BY-NC-ND 4.0
Content may be subject to copyright.
* Pioneers Chair and Professor of Telecommunications and Law, Penn State University; email:
rmf5@psu.edu.
1. Use of the Carterfone Device in Message Toll Tel. Serv., 13 F.C.C.2d 420, *4 (1968) (West
pagination), recon. denied, 14 F.C.C.2d 571 (1968).
675
ARTICLES
HOLD THE PHONE: ASSESSING THE RIGHTS OF WIRELESS
HANDSET OWNERS AND CARRIERS
Rob Frieden*
A BSTRACT
Most subscribers in the United States acquire a subsidized handset when
they activate or renew wireless telephone service. In exchange for purchasing
a handset below cost, these customers must commit to a two-year service term
with substantial financial penalties for early termination, and they must accept
carrier-imposed limitations on the use of their handsets. Wireless carriers
typically lock subscriber access to one carrier and lock out or thwart
unaffiliated providers from providing content, software, and applications to
these handsets.
Limitations on the use of wireless handsets juxtaposes with the
Carterfone policy established by the Federal Communications Commission
(FCC) forty years ago, which requires all telephone companies to allow
subscribers to attach any technically compatible device. Consumers take for
granted the right to attach any device to a network that is “privately beneficial
without being publicly detrimental.” Only recently have some wireless
1
subscribers come to understand the costs of not having complete freedom to
use their handsets. Technically sophisticated users have resorted to “self-
help” strategies to override carrier locks at the risk of permanently disabling
(“bricking”) the handset.
676 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
As wireless networking increasingly serves as a key medium for accessing
a broad array of information, communications, and entertainment services, the
consequences of locked and restricted access become more significant.
Despite offering common carrier regulated voice telecommunications,
wireless carriers emphasize “next generation” information services, including
internet access. They also seek to operate free of any significant FCC
oversight, including the duty to comply with the Carterfone policy and to
provide a neutral conduit for accessing content.
This Article examines whether wireless carriers have a legal obligation
to comply with the Carterfone policy and, more broadly, what costs and
benefits result from government-imposed rules requiring wireless carriers to
operate neutral networks. This Article demonstrates that the FCC has applied
the Carterfone device freedom and network access policies in a number of
instances where the Commission identified the need to prevent network
operators from requiring equipment upgrades or replacements that subscribers
do not need because less expensive options exist. The Article concludes that
the rising importance of wireless networking and growing consumer
disenchantment with carrier-imposed restrictions on handset versatility and
wireless network access will trigger closer regulatory scrutiny of the public
interest benefits accruing from the implementation of a wireless Carterfone
policy.
2008] HOLD THE PHONE 677
Table of Contents
I. Introduction............................................ 679
II. Wireless Carterfone and Network Neutrality Initiatives .. . . . . . . . 684
III. Why Do Wireless Carriers Oppose Subscriber Handset
Attachment and Network Neutrality Rights?. . . . . . . . . . . . . . . . . . 689
A. Wireless Carriers Operate as Common Carriers When
Providing Telephone Services.. . . . . . . . . . . . . . . . . . . . . . . . . 690
B. Wireless Carriers Financially Benefit from Bundling
Handset Sales and Telephone Service.. . . . . . . . . . . . . . . . . . . 692
C. Wireless Carriers Financially Benefit By Locking
Handsets and Locking Out Potential Competitors. . . . . . . . . . 693
IV. FCC Initiatives to Protect Consumers from Mandatory Bundling
Arrangements.......................................... 695
A. On the Supply Side .................................. 695
1. Local Number Portability.. . . . . . . . . . . . . . . . . . . . . . . . . 696
2. Promoting Competition in Video Program
Distribution. ................................... 697
3. Public Interest Obligations Imposed on Voice
over the Internet Protocol (VoIP) Providers. . . . . . . . . . . 702
B. On the Demand Side: Preventing Purchases of Unwanted
Content and Compulsory Equipment Leases. . . . . . . . . . . . . . 704
1. Prohibiting Mandatory Cable Tier “Buy-
Throughs”...................................... 705
2. Mandating an Alternative to Set-Top Box Leasing. . . . . . 706
3. Avoiding “Flash Cut” Equipment Obsolescence.. . . . . . . 710
a. Analog Cellphones........................... 710
b. Easing the Financial Consequences from the
Complete Conversion to Digital Broadcast
Television.................................. 711
i. Informing the Public. ..................... 712
ii. Must Carry Conversion of Digital
Signals to Analog......................... 713
V. Does the FCC Have Jurisdiction to Impose Wireless Carterfone
and Net Neutrality Rules?................................. 715
A. Broad Title I Ancillary Jurisdiction. . . . . . . . . . . . . . . . . . . . . 717
VI. Framing the Debate in Terms of Broad “Network Access” Versus
Carterfone’s Narrow Issue of Consumers’ “Right to Attach”. . . . . 719
A. The FCC Has Applied the Carterfone Right to Attach
Outside Telephony Markets Well After 1968.. . . . . . . . . . . . . 720
678 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
B. Open Platform Access in a Portion of the 700 MHz
Frequency Band..................................... 722
VII. Assessing the Costs and Benefits of Wireless Carterfone
and Network Neutrality............................... 722
VIII. Conclusion......................................... 724
2008] HOLD THE PHONE 679
2. “Developments in broadband and mobile technologies are resolving several issues related to the
natural monopoly characteristics of traditional PSTNs [public switched telephone networks] . Economically
viable alternatives in the form of mobile networks and end-to-end fibre-based networks are dissipating the
PSTN’s last mile network access bottleneck.” ANDY BANERJEE ET AL., INT’L TELECOMM. UNION,
REGULATORY TRENDS: NEW ENABLING ENVIRONMENT 23 (2007), available at http://www.itu.int/osg/spu/
ni/voice/papers/FoV-Madden-Banerjee-Tan-Draft.pdf.
3. The Communications Act of 1934, as amended, defines telecommunications as “the
transmission, between or among points specified by the user, of information of the user’s choosing, without
change in the form or content of the information as sent and received.” 47 U.S.C. § 153(43) (2000).
Telecommunications service means “the offering of telecommunications for a fee directly to the public, or
to such classes of users as to be effectively available directly to the public, regardless of the facilities used.”
Id. § 153(46). The Communications Act defines telecommunications carrier as
any provider of telecommunications services, except that such term does not include
aggregators of telecommunications services [as defined in 47 U.S.C. § 226]. A
telecommunications carrier shall be treated as a common carrier under this chapter only to the
extent that it is engaged in providing telecommunications services, except th at the Commission
shall determine whether the provision of fixed and mobile satellite service shall be treated as
common carriage.
Id. § 153(44).
4. Information service is defined as “the offering of a capability for generating, acquirin g, storing,
transforming, processing, retrieving, utilizing, or making available information via telecommunications,
and includes electronic publishing, but does not include any use of any such capability for the management,
control, or operation of a telecommunications system or the management of a telecommunications service.”
Id. § 153(20).
5 . See International Telecommunication Union, ITU New Initiatives Programme: The Regulatory
Environment for Future Mobile Multimedia Services, http://www.itu.int/osg/spu/ni/multimobile/index.html
(last visited Aug. 23, 2008).
6. Omnib us Budget Recon ciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312 (19 93) (codified
at 47 U.S.C. § 332(c ) (2000)) creates a hybrid, streamlined regulatory classificat ion for Commercial Mobile
Radio Service Providers, commonly known as cellular telephone carriers. The term “commercial mobile
service” is defined as “any mobile service . . . that is provided for profit and makes interconnected service
available (A) to the public or (B) to such classes of eligible users as to be effectively available to a
substantial portion of the public, as specified by the Commission.” 47 U.S.C. § 332(d)(1). “Mobile
service” is defined at 47 U.S.C. § 153(27). The term “commercial mobile service” came to be known as
the “commercial mobile radio service.” 47 C.F.R. § 20.3 (2007).
7. The FCC interprets the Telecommunications Act of 1996 to create mutual exclusivity between
telecommunications services (subject to Title II common carrier regulation) and information services
I. INTRODUCTION
Wireless operators in most nations qualify for streamlined regulation2
when providing telecommunications services and qualify for even less
3
government oversight when providing a blend of information services,4
entertainment, and electronic publishing. In the United States, congressional
5
legislation, real or perceived competition, and a dichotomy between regulated
6
telecommunications services and mostly unregulated information services7
680 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
(subject to limited regulation available under Title I). “Congress intended the categories of
‘telecommunications service’ and ‘information service’ to be mutually exclusive.” Fed.-State Joint Bd. on
Universal Serv., 13 F.C .C.R. 11501, 11508 (1 998). “Bas ed on our analysis of th e statutory definit ions, we
conclude that an approach in which ‘telecommunications’ a nd ‘information service’ are mutually exclusive
categories is most faithful to both the 1996 Act and the policy goals of competition, deregulation, and
universal service.” Id. at 11530.
In contrast with the Communications Act, CALEA [the Communications Assistance for Law
Enforcement Act] does not define or utilize the term “telecommunications service,” it does not
adopt the Communications Act’s narrow definition of “telecommunications,” and it does not
construct a definitional framework in which the regulatory treatment of an integrated service
depends on its classification into one of two mutually exclusive categories, i.e.,
telecommunications service or information service. As a result, structural and definitional
features of the Communications Act that play a critical role in drawing the Act’s regulatory
dividing line between telecommunications service an d information service, and that undergird
the Commission’s resulting classification of integrated broadband Internet access service as
solely an information service for purposes of the Communications Act, are absent from
CALEA.
Commc’ns Assistance of Law Enforcement Act & Broadband Access & Servs., 20 F.C.C.R. 14989, 14998
(2005). The lack of an absolute telecommunications-service versus information-service dichotomy
provided the basis for the FCC to interpret CALEA as requiring even information service providers to
cooperate in wiretapping operations. See also Rob Frieden, Neither Fish Nor Fowl: New Strategies for
Selective Regulation of Information Services, 6 J. TELECOMM. & HIGH TECH. L. 373 (2008); Rob Frieden,
What Do Pizza Delivery and Information Services Have in Common? Lessons From Recent Judicial and
Regulatory Struggles with Convergence, 32 RUTGERS COMPUTER & TECH. L.J. 247 (2006).
8. The top four cellular carriers in the United States have a combined market share of 88.1%.
Leslie Cauley, iWeapon: AT&T Plans to Use its Exclusive iPhone Rights to Gain the Upper Hand in the
Battle for Wireless Supremacy, USA TODAY, May 21, 2007, at B1, available at 2007 WLNR 9574768.
9. “Convergence in telecommunications gives many consumers access to multiple technologies or
platforms that can be used to send and receive voice communications. Consumers are no longer limited to
wireline platforms: they can choose from a range of platforms, including wireless and broadband. As
wireless and broadband technologies have become more widely available to and used by consumers, they
have increasingly become part of the competitive continuum. As more consumers view and use wireless
and broadband services as substitutes for wireline services, the extent to which wireline and broadband
services are competitive with wireline services will increase.” ED ROSENBERG, NAT’L REGULATORY
RESEARCH INST., ASSES SING WIRELESS AND BROADBAND SUBSTITUTION IN LOCAL TELEPHONE MARKETS
31 (2007), available at http://nrri.org/pubs/telecommunications/07-06.pdf.
contribute to the view that the Federal Communications Commission (FCC)
has no significant regulatory mandate to safeguard the public interest. Such
a hands-off approach made sense when cellular telephone carriers primarily
supplemented wireline services and offered voice and text messaging services
in a marketplace with six or more facilities-based competitors in most
metropolitan areas.
The wireless industry, however, has become significantly more
concentrated, even as wireless networking becomes a viable alternative to
8
wireline services and serves as a key medium for accessing a broad array of
information, communications, and entertainment (ICE) services. As wireless
9
2008] HOLD THE PHONE 681
10. See International Telecommunication Union, What Rules for IP-enabled NGNs?, ITU Workshop,
http://www.itu.int/osg/spu/ ngn/event-march-2006.phtml (last visit ed Aug. 23, 2008); see also International
Telecommunication Union, Background Sources on Delivery of Digital Content, http://www.itu.int/
osg/spu/stn/digitalcontent/resources_topics.html (last visited Aug. 23, 2008); Organisation for Economic
Co-Operation and Development, Directorate for Science Technology and Industry, “Next Generation
Networks: Evolution and Policy Considerations” OECD Foresight Forum, http://www.oecd.org/
document/12/0,3343,en_2649_34225_37392780_1_1_1_1,00.html (last visited Aug. 23, 2008).
11. Title II of the Communications Act of 1934 requires providers of basic telecommunications
services to operate on a nondiscriminatory basis, to provide services at just and reasonable charges and also
holds providers subject to numerous entry regulations, tariffing, interconnection, and operating
requirements. 47 U.S.C. §§ 201-202 (2000).
12. Network neutrality refers to the view that the internet and other telecommunications and
information processing networks should remain open, nondiscriminatory, and largely managed by users,
rather than carriers. The principle supports end-to-end connectivity and the kind of access equality
provided by “best efforts” network routing of traffic. Opponents of the concept claim it would impose
common carrier nondiscrimination responsibilities on information service providers, create disincentives
for investment in NGN infrastructure, and generate regulatory uncertainty. See Appropriate Framework
for Broadband Access to the Internet over Wireline Facilities, 20 F.C.C.R. 14986 (2005) (articulating
network neutrality policy objectives); Barbara A. Cherry, Misusing Network Neutrality to Eliminate
Common Carriage Threatens Free Speech and the Postal System, 33 N. KY. L. REV. 483 (2006); Rob
Frieden, Network Neutrality or Bias?—Handicapping the Odds for a Tiered and Branded Internet, 29
HASTINGS COMM. & ENT. L.J. 171 (2007) [hereinafter Frieden, Network Neutrality]; Rob Frieden, Internet
3.0: Identifying Problems and Solutions to the Network Neutrality Debate, 1 INT’L J. COMM. 461 (2007)
[hereinafter Frieden, Internet 3.0], available at http://ijoc.org/ojs/index.php/ijoc/article/view/160/86; Brett
Frischmann & Barbara van Schewick, Network Neutrality and the Economics of an Information
Superhighway: A Reply to Professor Yoo, 47 JURIMETRICS J. 383 (2007); Bill D. Herman, Opening
Bottlenecks: On Behalf Of Mandated Network Neutrality, 59 FED. COMM. L.J. 103 (2 006); Mark A. Lemley
& Lawrence Lessig, The End of End-to-End: Preserving the Architecture of the Internet in the Broadband
Era, 48 UCLA L. REV. 925 (2001); J. Gregory Sidak, A Consumer-Welfare Approach to Network
Neutrality Regulation of the Internet, 2 J. COMPETITION L. & ECON. 349 (2006); Adam Thierer, Are “Dumb
Pipe” Mandates Smart Public Policy? Vertical Integration, Net Neutrality, and the Network Layers
Model, 3 J. TELECOMM. & HIGH TECH. L. 275 (2005); Barbara van Schewick, Towards an Economic
Framework for Network Neutrality Regulation, 5 J. TELECOMM. & HI GH TECH. L. 329 (2007); Tim Wu,
Network Neutrality, Broadband Discrimination, 2 J. TELECOMM. & HIGH TECH L. 1 41 (2005); Ch ristopher
S. Yoo, Network Neutrality and the Economics of Congestion, 94 GEO. L.J. 1847 (2006); Christopher S.
Yoo, Beyond Network Neutrality, 19 HARV. J.L. & TECH. 1 (2005); Christopher S. Yoo, Would Mandating
ventures plan and install next generation networks (NGNs), these carriers
10
expect to offer a diverse array of ICE services, including broadband internet
access, free from common carrier regulatory responsibilities that still apply to
wireless telecommunications services. Wireless carrier managers reject any
11
attempt by government to implement consumer safeguards, including policies
that would require wireless carriers to decouple their sale of handsets to
subscribers with their delivery of services.
Wireless carriers and some researchers offer more caustic opposition to
initiatives that would require nondiscriminatory access, commonly termed
wireless network neutrality. The carriers claim that wireless network
12
682 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
Broadband Network Neutrality Help or Hurt Competition? A Comment on the End-to-End Debate, 3 J.
TELECOMM. & HI GH TECH. L. 23 (2004); Craig McTaggart, Was The Internet Ever Neutral? (Sept. 30,
2006) (unpublis hed manuscript), http://web.si.umic h.edu/tprc/papers/2006/593 /mctaggart-tprc06rev.pdf.
13. Mebane Home Tel. Co., 53 F.C.C.2d 473 (1975), aff’d sub nom. Mebane Home Tel. Co. v.
F.C.C., 535 F.2d 1324 (D.C. Cir. 1976); Telerent Leasing Corp., 45 F.C.C.2d 204 (1974), aff’d sub nom.
N.C. Utils. Comm’n v. F.C.C., 537 F.2d 787 (4th Cir. 1976); Use of the Carterfone Device in Message Toll
Tel. Serv., 13 F.C.C.2d 420 (1968); see also Pub. Util. Comm’n of Tex. v. F.C.C., 886 F.2d 1325 (D.C.
Cir. 1989) (noting long established F.C.C. policy that carriers and non-carriers alike have a federal right
to interconnect to the public telephone network in ways that are privately beneficial if they are not pub licly
detrimental).
Previous F.C.C. opposition to this principle failed to pass muster with a reviewing court that
interpreted the Communications Act of 1934 as mandating the right of consumers to attach equipment to
the network i n ways that were privately ben eficial but not p ublicly harmful. Hush-A-Phone Corp. v. United
States, 238 F.2d 266 (D.C. Cir. 1956). “The intervenors’ tariffs [prohibiting the use of plastic device to
enhance privacy and low volume conversations], under the Commission’s decision, are in unwarranted
interference with the telephone subscriber’s right reasonably to use his telephone in ways which are
privately beneficial without being publicly detrimental.” Id. at 269.
14. Detariffing the Installation & Maint. of Inside Wiring, 51 Fed. Reg. 8498 (F.C.C. Mar. 12,
1986), recon., 1 F.C.C.R. 1190 (1986), further recon., 3 F.C.C.R. 1719 (1988), partially remanded sub
nom. Nat’l Ass’n of Regulatory Util. Comm’rs v. F.C.C., 880 F.2d 422 (D.C. Cir. 1989), remanded to 5
F.C.C.R. 3407 (1990), partially modified by 7 F.C.C.R. 1334 (1992).
neutrality responsibilities have no place in the currently competitive and
innovative wireless marketplace, would create disincentives for NGN
investment, and would generate regulatory uncertainty.
This Article examines the costs and benefits of government-imposed rules
that would mandate the right of subscribers to attach any technically
compatible handset to wireless networks, as well as broader wireless network
neutrality rules. The Article also examines whether and how liberalized
wireless handset attachment rules jibe with policies announced decades ago
by the FCC in its Carterfone decision and related orders that mandated the
13
decoupling of wireline handset rentals, inside wiring installation and
maintenance, and telephone service. Additionally, this Article considers the
14
broader wireless network neutrality debate with an eye toward identifying
differences in the factors and issues raised by an earlier debate about neutral
internet access via wired networks.
For example, most wireless subscribers currently appear to welcome the
opportunity to use increasingly sophisticated handsets at subsidized sale prices
to access a blend of ICE services, while before the FCC implemented its
Carterfone policy wireline subscribers objected to limited choices and having
to pay a monthly package rate that obscured the fact that they
overcompensated carriers for handset rentals. But for other services, such as
video programming, the FCC, largely on its own accord, has pursued
regulatory safeguards that provide consumers the opportunity to access only
2008] HOLD THE PHONE 683
15. See Carl Howe, Time For Wireless Carriers to ‘Unlock’ Customer Handsets, SEEKING ALPHA,
Dec. 7, 2006, http://seekingalpha.com/article/21976-time-for-wireless-carriers-to-unlock-customer-handsets
(last visited Aug. 23, 2008):
Increasingly, phone handsets are as much a window into online lives as our computers are,
storing text, email messages, music, and even video for us. With phones becoming more
complex and expensive, the concept that consumers have to throw those experiences away if
they want to change their carrier is as absurd as forcing them to throw away their computer if
they change Internet provider. And consumers are smart enough to know this.
16. See, e.g., Olga Kharif, Cell-Phone Contract Disputes Heat Up, BUS. WK., Aug. 20, 2007,
available at http://www.businessweek.com/technology/content/aug2007/tc20070820_113598.htm?
chan=search; Elena Malykhina, California Court Lets Class-Action Suit Against T-Mobile Go Forward,
INFO. WK., Oct. 15, 2007, available at http://www.informationweek.com/show
Article.jhtml?articleID=202402978.
17. See, e.g., Cell Phone Consumer Empowerment Act of 2007, S. 2033, 110th Cong. (2007), 2007
CONG US S 2033 (Westlaw).
18. See, e.g., Elena Malykhina, AT&T To Drop Early Termination Fees, INFO. WK., Oct. 16, 2007,
available at http://www.informationweek.com/news/showArticle.jhtml?articleID=202403410 (announcing
that some future contracts will prorate early termination fees over a two-year period).
19. See, e.g., Press Release, Verizon Wireless, Verizon Wireless To Introduce “Any Apps, Any
Device” Option For Customers in 2008 (Nov. 27, 2007), http://news.vzw.com/news/2007/11/pr2007-11-
27.html.
20. Bruce Meyerson, Not On Our Network, You Don’t, BUS. WK., Dec. 24, 2007, at 34 (“Even as
the wireless industry spreads a new gospel about opening mobile-phone networks to outside devices and
desired content using the least cost equipment options, including an exemption
from having to rent operator-supplied set-top converter boxes.
This Article also examines why wireless carriers could avoid becoming
involved in a debate over consumer handset attachment rights and network
neutrality for several years, despite the fact that their common carrier status,
vis-à-vis voice services, provides a clear basis for imposing nondiscrimination
responsibilities that do not apply to internet access provided by wireline
telephone companies and cable television operators. This Article concludes
that the rising importance of wireless networking for most ICE services and
growing consumer disenchantment with carrier-imposed restrictions on
handset versatility will trigger civil litigation on antitrust and consumer
15
protection grounds, as well as congressional and FCC consideration of the
16 17
public interest b enefits accruing from applying Carterfone policies to wireless
handset sales and possibly selective application of wireless net neutrality
principles.
Consumers can expect wireless carriers to loosen some restrictions and
financial penalties to avoid laws and regulations requiring more. While
18
some wireless carriers now appear to embrace some aspects of a wireless
Carterfone policy, their lack of specificity, the absence of enforceable
19
commitments, reports of ongoing blocking, and newfound enthusiasm
20 21
684 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
applications, some of the biggest U.S. carriers are blocking new services that would compete with their
own.”).
21. The Year of the Cell Phone, Pogue’s Posts: The Latest in Technology from David Pogue,
http://pogue.blogs.nytimes.com/2007/12/13/the-year-of-the-cellphone/ (Dec. 13, 2007 12:19 EST)
(“Cellphones and cellphone services made news with amazing frequency, making it clear that this service-
we-love-to-hate is still in its crude Neanderthal age. . . . No matter how depressed you get about the state
of the world, you have to have faith in one thing: when things swing out of control, the public has a way
of setting things straight. . . . [T]he latest public pushback concerns evil cellphone-carrier greediness.”).
22. See Cellco P’ship d/b/a Verizon Wireless v. F.C.C., No. 07-1359 (D.C. Cir. Sept. 10, 2007)
(petition for review), available at http://www.freepress.net/docs/vzw_appeal_700_petition.pdf (filing,
although ultimately withdrawing, a petition to vacate the FCC’s decision and to enjoin the Commission
from pursuing an open access initiative); 700 MHz Statement, http://policyblog.verizon.com/
PolicyBlog/Blogs/policyblog/DavidFish9/337/700MHz-statement.aspx (July 26, 2007, 8:59 EST)
(“Verizon’s position is that the Federal Communications Commission should not impose ‘open access’
conditions on the 70 0 MHz spectrum. The record compiled at the FCC does not justify these conditions.”);
see also The Hype in the Skype Petition, http://policyblog.verizon.com/PolicyBlog/Blogs/
policyblog/LinkHoewing9/294/The-Hype-in-the-Skype-Petition.aspx (May 9, 2007, 9:47 EST). Cf.
Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 F.C.C.R. 14986
(2005) (incorporating Carterfone device as an essential internet freedom) [hereinafter 2005 Internet Policy
Statement].
23. See, e.g., F.C.C., ANNUAL REPORT & ANALYSIS OF COMPETITIVE MARKET CONDITIONS WITH
RESPECT TO COMMERCIAL MOBILE SERVICES, ELEVENTH REPORT, 21 F.C.C.R. 10947 (2006).
24. CTIA Petiti on for Expedited Declara tory Ruling on Early Termina tion Fees, F.C.C. WT Docket
No. 05-194 (2006), available at http://files.ctia.org/pdf/PositionPaper_Furchgott_Roth_ETF.pdf
(explaining the rationale for imposing early termination fees).
despite previously fierce opposition may not obviate the need for official
action by the FCC. Similarly, the FCC may refrain from aggressive efforts
22
to promote wireless access freedom in light of the Commission’s perceptions
about the competitiveness of the wireless marketplace and an apparent
23
inability to manage a dual regulatory regime for ventures that provide both
regulated telecommunications services and lightly regulated information
services.
II. WIRELESS CARTERFONE AND NETWORK NEUTRALITY INITIATIVES
For several years the debate about telephone subscribers’ handset
freedoms and network neutrality did not include wireless carriers, despite the
fact that these operators constitute common carriers when providing
telecommunications services. The lack of interest may have resulted from the
fact that most wireless subscribers currently use their handsets for voice
telephony and text messaging, and the view that regular opportunities to buy
handsets at subsidized rates make palatable a two-year lock-in with high early
termination fees and carrier control over the features and functions available
24
2008] HOLD THE PHONE 685
25. See, e.g., Free My Phone, http://mossblog.allthingsd.com/20071021/free-my-phone/ (Oct. 21,
2007, 21:10 EST):
A shortsighted and often just plain stupid federal government has allowed itself to be bullied
and fooled by a handful of big wireless phone operators for decades now. And the result has
been a mobile phone system that is the direct opposite of the PC model. It severely limits
consumer choice, stifles innovation, crushes entrepreneurship, and has made the U.S. the
laughingstock of the mobile-technology world, just as the cell[]phone is morphing into a
powerful hand-held computer. . . . That’s why I refer to the big cell[]phone carriers as the
“Soviet ministries.” Like the old bureaucracies of communism, they sit athwart the market,
breaking the link between the producers of goods and services and the people who use them.
26. Skype Commc’ns S.A.R.L., Petition to Confirm a Consumer’s Right to Use Internet Commc’ns
Software & Attach Devices to Wireless Networks (Feb. 20, 2007), available at http://download.skype.com/
share/skype_fcc_200702.pdf [hereinafter Skype Petition].
27. Voice over the Internet Protocol (VoIP) offers voice communications capabilities, much like
ordinary telephone service, using the packet switched internet, for all or part of the link between call
originator and call recipient. VoIP calls originating or terminating over a standard, dial-up telephone
network require conversion from or to the standard telephone network’s architecture, which creates a
dedicated “circuit-switched” link as opposed to the ad hoc, “best efforts” packet switching used in the
internet. See Robert Cannon, State Regulatory Approaches to VoIP: Policy, Implementation, and
Outcome, 57 FED. COMM. L.J. 479 (2005); Mark C. Del Bianco, Voices Past: The Present and Future of
VoIP Regulation, 14 COMMLAW CONSPECTUS 365 (2006); Robert M. Frieden, Dialing for Dollars: Should
the FCC Regulate Internet Telephony?, 23 RUTGERS COMPUTER & TECH. L.J. 47 (1997); Cherie R. Kiser
& Angela F. Collins, Regulations on the Horizon: Are Regulators Poised to Address the Status of IP
Telephony?, 11 COMMLAW CONSPECTUS 19 (2003); Sunny Lu, Note, Cellco Partnership v. FCC & Vonage
Holdings Corp. v. Min nesota Public Utilities Commission: VoIP’s Shifting Legal and Political Landscape,
20 BERKELEY TECH. L.J. 859 (2005).
For technical background on how VoIP works, see Dialogic, White Paper, Telephony Fundamentals:
An Introduction to Basic Telephony Concepts (2007), available at http://www.dialogic.com/
products/docs/whitepapers/3146_Intro_Basic_Tel_Concepts_wp.pdf; Susan Spradley & Alan Stoddard,
FCC Office of Engineering and Technology, Tutorial on Technical Challenges Associated with the
Evolution to VoIP, Power Point Presentation, http://www.fcc.gov/oet/tutorial/9-22-03_voip-final_slides_
only.ppt (last visited Aug. 23, 2008). See also Stephen E. Blythe, The Regulation of Voice-Over-Internet-
Protocol in the United States, the European Union, and the United Kingdom, 5 J. HIGH TECH. L. 161
(2005); Del Bianco, supra note 27; R. Alex DuFour, Voice over Internet Protocol: Ending Uncertainty and
Promoting Innovation Through a Regulatory Framework, 13 COMMLAW CONSPECTUS 471 (2005); Jerry
Ellig & Alastair Walling, Regulatory Status of VoIP in the Post-Brand X World, 23 SANTA CLARA
COMPUTER & HIGH TECH. L.J. 89 (2006); Amy L. Leisinger, Note, If It Looks Like a Duck: The Need for
Regulatory Parity in VoIP Telephony, 45 WASHBURN L.J. 585 (2006).
from the subsidized handset. Consumers increasingly have grown displeased
with limitations on handsets as these devices become an essential interface for
access to many diverse wireless NGN services. In advance of such demand
25
side advocacy, a petition filed by Skype, a major Voice over the Internet
26
Protocol (VoIP) provider owned by eBay, widespread advocacy for network
27
686 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
28. See Google Public Policy Blog, Network Neutrality, http://googlepublicpolicy.blogspot.com/
search/lab el/Net%20Neutrali ty (explaining that Google’s interest in wireless net neutrality ap pears to stem
from its possible interest in using wireless spectrum and offering a wireless handset to promote greater
access to its internet services).
29. Tim Wu, Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile
Broadband (New America Foundati on, Working Paper No . 17, 2007), available at http://www.newamerica
.net/files/WorkingPaper17_WirelessNetNeutrality_Wu.pdf.
30. Skype Petition, supra note 26, at 6:
Skype respectfully requests that the Commission declare that Carterfone applies fully to
wireless networks, to initiate a rulemaking proceeding to evaluate wireless carrier practices in
light of Carterfone and to enforce Carterfone, and to create an industry-led mechanism to
ensure the openness of wireless networks. Doing so will ensure both that consumers retain a
right to run the applications of their choosing and a right to attach all non-harmful devices to
the wireless network. These essential rights will prevent carriers from using illegitimate
network management practices as an excuse for otherwise anti-consumer behavior.
31. See supra note 13.
32. As the FCC said in MTS & WATS Market Structure:
The benefits of competition have been observed in a great variety of markets through centuries
of experience. We ourselves have observed such tangible benefits in telecommunications
equipment markets after our Carterfone decision effectively opened such markets to
competition. In Docket No. 20003—a broad fact-finding inquiry into the economic
implications and relationships arising from regulatory policies and pricing practices for
telecommunications services and facilities subject to competition—we concluded that
“consumer inter-connection has benefited the general public by speeding innovation and
meeting needs that were unmet prior to the introduction of customer provided equipment.”
81 F.C.C.2d 177, 202 (1980) (quoting Econ. Implications and Interrelationships Arising from Policies and
neutrality by Google, and a paper written by Columbia law professor Tim
28
Wu heretofore have stimulated a largely political and academic debate.
29
Skype sought confirmation by the FCC that consumers have a legal and
enforceable right to attach devices to wireless networks and to access any
software, application, or content of their choosing. Long ago the FCC
30
determined that wireline carrier subscribers have such rights, provided their
access causes no technical harm to carrier networks. As a result of the FCC’s
Carterfone decision and subsequent orders, telecommunications services
31
have no direct coupling or linkage with subscribers’ acquisition of telephone
handsets and other devices, such as facsimile machines, modems, and personal
computers. Telephone companies used to bundle telephone handset rentals,
customer-premises inside wiring installation and maintenance, and telephone
service. Consumers had no way of knowing the actual cost of each category,
nor could they opt out and procure and use their own telephones and premise
wiring. When the FCC ordered the unbundling of telephone service from
wiring and accessing devices, a competitive market evolved for both the
installation of premises wiring and for devices that attach to
telecommunications networks. Consumers now take for granted the legal
32
2008] HOLD THE PHONE 687
Practices Relating to Customer Interconnection, Jurisd ictional Separations and Rate Structu res, 75 F.C.C.2d
506, 562 (1980)).
33. See A. GREENGART & B. AKYUZ, CONSUMER HANDSETS 2-3 (2006), available at
http://www.currentanalysis.com/k/files/CurrentAnalysis-MA569.pdf (“The carrier retail channel still
accounts for the large majority of wireless sales; however, the distribution support provided by indirect
channel partners keeps getting stronger. . . . Verizon Wireless has been shifting its own retail outlets that
account for 65% of new sales.”).
34. “Of the 1.4 million iPhones sold so far (of which 1,119,000 were sold in the quarter ending
Sept. 30), [Apple Chief Operating Office Timothy] Cook estimated that 250,000 were sold to people who
wanted to unlock them from the AT&T network and use them with another carrier.” Saul Hansell to Bits,
http://bits.blogs.nytimes.com/tag/iphone/ (Oct. 22, 2007, 19:26 EST).
You bought the iPhone, you paid for it, but now Apple is telling you how you have to use it, and
if you don’t do things the way they say, they’re going to lock it. Turn it into a useless “brick.”
Is this any way to treat a cu stomer? Apparently, it’s the Steve Jobs way. But some iPhone users
are mad as heck, and they’re not going to take it anymore.
“right” to possess and connect their own telephone to wired
telecommunications networks.
The FCC has never stated that its Carterfone decision and its
conceptualization of network neutrality apply equally to wireless carriers
when providing telecommunications services. Absent such an affirmative
declaration by the FCC, wireless carriers and “big box” store agents sell most
wireless radiotelephones at the same time as consumers acquire or renew
cellular telephone service. Wireless carriers currently offer no discount
33
service plans for subscribers who continue using an existing handset, or
activate a new or used handset that does not trigger any carrier financial
subsidy. Without such a discount on service, consumers have no incentive to
make do with a used handset in exchange for cheaper telecommunications
services rates. Accordingly, consumers regularly renew service at the same
time they replace their handsets, and the contract for such bundled service
includes language permitting the carrier to disable equipment features and
limit the manner in which subscribers access third-party content, services, and
applications.
When most subscribers anticipate using their cellphones for voice and
text messaging, carriers offer a compelling value proposition of “free” or low-
priced handsets in exchange for a two-year service commitment. Only
recently have cellphone subscribers begun to identify the foregone or limited
options resulting from this decision, including early purchasers of Apple’s
iPhone, who received little or no direct subsidy and who acquired a phone
usable on only one carrier’s network and unable to provide access to, and use
of, software, applications, and content otherwise accessible via wired and
some other wireless networks.34
688 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
Apple Users Talking Class-Action Lawsuit Over iPhone Locking, http://www.informationweek.com/
blog/main/archives/2007/09/iphone_users_ta.html (Sept. 30, 2007, 9:02 EST).
35. See Skype Petition, supra note 26, at 6:
In the wireless arena . . . carriers are using their considerable influence over handset design and
usage to maintain an inextricable tying of applications to their transmission networks and are
limiting subscribers’ rights to run applications of their choosing. Carriers are doing so,
moreover, in violation of the Commission’s Carterfone principle and the strictures of the
Commission ’s original order permi tting bundling of consu mer equipment and wireles s service.
36. Tim Wu, Wireless Carterfone, 1 INT’L J. COMM. 389 (2007), available at http://ijoc.org/ojs/
index.php/ijoc/article/view/152/96.
37. See id. at 389-90:
By controlling entry, carriers are in a position to exercise strong control over the design of
mobile equipment. They have used that power to force equipment developers to omit or cripple
many consumer-friendly features. Carriers have also forced manufacturers to include
technologies, like “walled garden” Internet access, that neither equipment developers nor
consumers want. Finally, through under-disclosed “phone-locking,” the U.S. carriers disable
the ability of phones to work on more than one network.
The Skype petition invited the FCC to state explicitly that consumers
have an unfettered right to use any technically compatible handset to access
any wireless carrier’s network and to use that handset to access any available
service, including ones the telecommunications provider would prefer
subscribers not access, or acquire only on terms and conditions set by the
carrier. In other words, the Skype petition seeks an FCC declaration that
35
absent a compelling technical justification, wireless carriers cannot sell locked
handsets that only access the network and services of the wireless carrier and
cannot access services, software, and content of other wireless carriers and
third parties.
Columbia law professor Tim Wu energized pro-wireless net neutrality
advocates with a paper identifying instances where applying Carterfone
principles would serve the public interest and prevent or limit harmful carrier
discrimination. Professor Wu provided several examples of carrier tactics
36
designed to prevent subscribers from easily migrating to competing carriers
and from having greater flexibility in accessing third-party content and
applications. Professor Wu identified the following as examples of net
37
neutrality violations having little, if any, public safety and welfare
justifications:
• Locking handsets so that subscribers cannot access competitor networks (by
frequency, transmission format, firmware, or software); in the U.S. carriers even
lock handsets designed to allow multiple carrier access by changing an easily
inserted Subscriber Identity Module (“SIM”);
• Using firmware “upgrades” to “brick,” i.e., render inoperative, the handset or
alternatively disable third party firmware and software;
2008] HOLD THE PHONE 689
38. Id. at 390, 401-08.
39. Robert W. Hahn et al., The Economics of “Wireless Net Neutrality,” 3 J. COMPETITION L. &
ECON. 399, 426-31 (2007).
40. Id. at 407.
41. Id. at 421-26.
42. Id. at 407-11.
• Disabling handset functions, e.g., bluetooth, Wi-Fi access, internet browsers,
GPS services, and email clients;
• Specifying formats for accessing memory, e.g., music, ringtones, and photos;
• Creating “walled garden” access to favored video content of affiliates and
partners; and
• Using proprietary, non-standard interfaces making it difficult for third parties to
develop compatible applications and content.38
Opponents to wireless net neutrality have aggressively responded to
Professor Wu. Robert Hahn, Robert Litan, and Hal Singer claim that
Carterfone policy made economic sense only in a vertically integrated,
uncompetitive wireline marketplace, and that it would be ill-advised if not
illegal for government to receive revenues from wireless service spectrum
auction and impose burdensome regulatory conditions. Additionally, they
39
note that cellphone rates have dropped significantly, and they consider
40
network restrictions as necessary safeguards for subscriber privacy, protecting
the network from technical harm, and managing limited bandwidth. The
41
authors suggest that wireless net neutrality advocates should bear the burden
of proving market failure in the wireless marketplace and demonstrating how
government intervention would accrue greater benefits than costs.42
III. WHY DO WIRELESS CARRIERS OPPOSE SUBSCRIBER HANDSET
ATTACHMENT AND NETWORK NEUTRALITY RIGHTS?
Wireless carriers oppose the implementation of Carterfone and network
neutrality policies for three reasons:
(1) Increased wireless subscriber freedom to attach devices and to demand
network neutrality would reinforce the FCC’s ongoing statutory obligation to
enforce conventional telecommunications service rules on carriers that
successfully have avoided the rules;
(2) Wireless carriers have determined that the financial benefits of locking
subscribers into two-year service commitments exceed the cost of subsidizing
handset sales; and
(3) Locking and limiting subsidized handsets helps carriers foreclose subscriber
access to services, content, and applications available from third parties that
690 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
43. The Omnibus Budget Reconciliation Act of 1993 amended Section 332 of the Communications
Act of 1934 to create the CMRS carrier category. The law defines CMRS as “any mobile service . . . that
is provided for profit and makes interconnected service available (A) to the public or (B) to such classes
of eligible users as to be effectively available to a substantial portion of the public.” 47 U.S.C. § 332(d)(1)
(2000).
44. Id. §§ 201-276.
45. See, e.g., Implementation of Sections 3(N) and 332 of the Commc’ns Act Regulatory Treatment
of Mobile Servs., 9 F.C.C.R. 2035, ¶ 2(d) (1994).
46. Specifically,
(A) A person engaged in the provision of a service that is a commercial mobile service shall,
insofar as such person is so engaged, be treated as a common carrier for purposes of this
chapter, except for such provisions of subchapter II of this chapter as the Commission may
specify by regulation as inapplicable to that service or person. In prescribing or amending any
such regulation, the Commission may not specify any provision of section 201, 202, or 208 of
this title, and may specify any other provision only if the Commission determines that—
(i) enforcement of such provision is not necessary in order to ensure that the charges,
practices, classifications, or regulations for or in connection with that service are just and
reasonable and are not unjustly or unreasonably discriminatory;
(ii) enforcement of such provision is not necessary for the protection of consumers; and
(iii) specifying such provision is consistent with the public interest.
Id. § 332(c)(1)(A)(i)-(iii); see also id. § 160(a) (establishing similar forbearance criteria for other
telecommunications service providers).
make no financial contribution to the wireless carrier and possibly compete
with services offered by the carrier.
A. Wireless Carriers Operate as Common Carriers When Providing
Telephone Services
Wireless carriers would like consumers and the FCC to ignore the simple
fact that carriers providing Commercial Mobile Radio Service (CMRS), the
43
classification used by the FCC to identify cellular radiotelephone carriers’
telecommunications service, remain subject to regulation contained in Title
II of the Communications Act. CMRS operators do enjoy regulatory
44
forbearance of some specified regulations—e.g., the need to file tariffs that
establish the terms and conditions for service. However, for regulation not
45
explicitly removed, CMRS carriers must comply with Title II regulatory
requirements, and the FCC can forbear from applying any of the remaining
regulations, but only upon determining that consumers will remain protected
against unreasonable and discriminatory service and that the public interest
supports forbearance. Put another way, CMRS operators do not avoid most
46
basic common carrier responsibilities simply because they provide wireless
services, subject to partial regulatory forbearance, or because they also offer
information services.
2008] HOLD THE PHONE 691
47. See Appropriate Regulatory Treatment for Broadband Access to the Internet over Wireless
Networks, WT Docket No. 07-53, F.C.C. 07-30 (Mar. 22, 2007) (declaratory ruling), available at
http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-30A1.pdf.
48. See, e.g., Reexamination of Roaming Obligations of Commercial Mobile Radio Serv. Providers,
WT Docket No. 05-265, F.C.C. 07-143 (Aug. 7, 2007) (report and order and further notice of proposed
rulemaking), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-143A1.pdf.
49. See supra note 7.
50. A safe harbor constitutes “[a]n area or means of protection [or a] provision (as in a statute or
regulation) that affords protection from liability or penalty.” BLACK’S LAW DICTIONARY 1363 (8th ed.
2004).
51. Reexamination of Roaming Obligations of Commercial Mobile Radio Serv. Providers, 22
F.C.C.R. 15817 (Aug. 7, 2007) (report and order and further notice of proposed rulemaking), available at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-143A1.pdf.
When CMRS operators offer subscribers a combination of
telecommunications and lightly regulated information services, such as
broadband internet access, the latter group of services does not supersede
47
ongoing telecommunications service regulation. The combination of
regulatory classifications has the potential to cause uncertainty about how far
the common carrier designation extends, but it does not eliminate the lawful
application of such regulation.
Despite the clear applicability of Title II regulation and the occasional
acknowledgement by the FCC that such regulation still applies, regulatory
48
uncertainty supports carrier efforts to evade government oversight. The FCC
has contributed to the confusion by expressing a preference for making
“either/or” regulatory classifications of services that combine
telecommunications and information services. The Commission strongly
49
prefers to shoehorn any and all converged services into the lightly regulated
information services “safe harbor,” including wireless broadband internet
50
access. With rare exception, the FCC appears reluctant to hold CMRS
operators to the still applicable Title II requirements, despite not having
undertaken the examination necessary to forbear officially from regulating.
Notwithstanding significant regulatory forbearance, CMRS operators still
retain their common carrier status and core obligation to provide the public
with access to other carriers. This obligation includes the requirement that
carriers provide the public with wireless-to-wireline network access—i.e.,
access to the conventional wired public switched telephone network (PSTN)
as well as the duty to provide subscribers with “roaming” access to other
wireless carriers when a subscriber travels outside his or her home service
area.51
CMRS operators do not have unlimited and unconditional authority to
determine whether and how their subscribers can access other networks and
692 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
52. See id. at 15818:
We determine that when a reasonable request is made by a technologically compatible
CMRS carrier, a host CMRS carrier must provide automatic roaming to the requesting carrier
outside of the requesting carrier’s home market, consistent with the protections of Sections 201
and 202 of the Communications Act. We also find that the common carrier obligation to
provide roaming extends to services that are real-time, two-way switched voice or data service
that are interconnected with the public switched network and utilize an in-network switching
facility that enables the provider to reuse frequencies and accomplish seamless hand-offs of
subscriber calls.
53. Id. at 15819.
54. See Decision Time for Mobile Operators Faced with Declining Spend, Says Analysys, BUS.
WK., May 30, 2007:
Mobile operators may experience substantial decline in ARPU in developed countries, as voice
prices decrease, non-voice services fail to capture consumers’ interest, and mobile phones lose
their fashionable image, according to a forthcoming report, The Future of the Global Wireless
Industry: scenarios for 2007-12, to be published by Analysys, the global advisers on telecoms,
IT and media (http://research.analysys.com) (June 5, 2007).
end users. While the FCC has forborne from regulating the price of access
and some terms and conditions for service, the Commission cannot abandon
its regulatory responsibility to ensure that CMRS operators provide access and
interconnection on a fair and nondiscriminatory basis. For example, a CMRS
operator must provide its subscribers with access to the network services of
other carriers operating in locations where the CMRS operator does not. The
52
FCC recently reiterated that the common carrier responsibilities still borne by
CMRS operators include the unconditional duty to provide “roaming” access
to “the facilities of another CMRS provider with which the subscriber has no
direct pre-existing service or financial relationship to place an outgoing call,
to receive and incoming call, or to continue an in-progress call.”53
B. Wireless Carriers Financially Benefit from Bundling Handset Sales and
Telephone Service
It should come as no surprise that because wireless carriers do not operate
as charities they have calculated the costs and benefits of every marketing
strategy. Accordingly, the carriers have determined that subsidizing the cost
of handsets provides greater financial benefits than the cost of the subsidy.
Providing consumers with devices using cutting edge technologies enhances
the likelihood that subscribers will remain loyal to the carrier and will use the
new handset to access services that will increase the carrier’s revenues. In
light of declining Average Return Per User (ARPU) for basic services, a
54
wireless carrier has a keen interest in offering new services and thwarting
2008] HOLD THE PHONE 693
55. Hahn et al., supra note 39, at 426-31.
56. Id. at 408-11.
57. Id. at 405, 433, 444.
subscriber access to alternatives available from ventures that have no
obligation to share revenues with the carrier.
Bundling handset sales with two-year service commitments forecloses
development of a market for used handsets, or for handsets having
unconditional access to third-party sources of content and services.
Subscribers opting to continue using a previously purchased handset, or to
acquire one outside the carrier’s subsidized channel of distribution, accrue no
cost savings, despite reducing the carrier’s customer acquisition costs.
Wireless carriers do not offer a lower monthly service rate for existing or
prospective customers who trigger no handset subsidy burden. Whether by
explicit agreement or “consciously parallel” conduct , all wireless carriers have
agreed not to compete for the most price sensitive consumer, who would
gladly give up cutting edge technologies in exchange for lower monthly
service rates.
C. Wireless Carriers Financially Benefit By Locking Handsets and
Locking Out Potential Competitors
Opponents to a wireless Carterfone policy frame their reasons primarily
on technical and economic policy grounds without acknowledging the
financial upside accruing to carriers. For example, Robert Hahn, Robert
Litan, and Hal Singer claim that the Carterfone policy made economic sense
only in a vertically integrated, uncompetitive wireline marketplace. They
55
assert that proponents should bear the burden of proof that market failure
exists and that regulation will do more good than harm. These authors and
56
other opponents of wireless Carterfone and network neutrality seek to frame
the debate in macro-economic terms, such as the overall impact on carrier
incentives to invest in facility upgrades, the need to conserve spectrum, and
the greater complexity in wireless networking compared to the wireline
telephone infrastructure.57
Whether by design or coincidence, opponents to wireless Carterfone
ignore the consumer and public interest benefits that would accrue if the FCC
implemented a handset unbundling policy. CMRS operators can extract
greater profits by denying subscribers Carterfone device attachment freedom.
As currently constituted, the marketplace does not punish any single carrier
694 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
58. Thomas Hazlett, How the “Walled Garden” Promotes Innovation, FIN. TIMES, Sept. 25, 2007,
available at http://www.ft.com/cms/s/0/b459c6aa-6bc8-11dc-863b-0000779fd2ac.html.
59. “As a result of Carterfone and other Commission actions, ownership of telephones moved from
the network operator to the consumer. As a result, the choice of features and functions incorporated into
a telephone has increased substantially, while the cost of equipment has decreased.” Implementation of
Section 304 of the Telecomms. Act of 1996, Commercial Availability of Navigation Devices, 13 F.C.C.R.
14775, 14780 (1998) (report and order).
Over the last several decades, some of the most important i ssues raised before this Commission
have concerned the introduction of competition in the provision of telecommunications
equipment and services. In the customer premises equipment (CPE) market, competition was
fostered by a series of regulatory and judicial actions, beginning with the Hush-a-Phone and
Carterfone decisions, continuing with the equipment registration program, and culminating in
the Second Computer Inquiry decision. As a result of these decisions and the responses of
businesses and customers to the new opportunities for the provision of CPE, competition in the
CPE marketplace is now well established.
GTE Sprint Commc’ns Corp., US Telecom, Inc., Allnet Commc’ns Servs., Inc., & United States
Transmission Systems, Inc., Joint Petition for Expedited Rulemaking, F.C.C. 85-604, 1985 WL 260270,
at *1 (1985) (notice of proposed rulemaking).
60. Revisions to Price Cap Rules for AT&T, 8 F.C.C.R. 5205, *3 (1993) (notice of proposed
rulemaking) (Westlaw pagination).
61. 2005 Internet Policy Statement, 20 F.C.C.R. at 14988.
for engaging in such practices because even at the conclusion of a two-year
service contract, subscribers cannot yet migrate to a carrier with clearly more
liberal device attachment and network access policies, or a discounted service
for subscribers who activate or extend service without a handset subsidy.
The four major CMRS operators and the few remaining regional carriers
offer roughly the same service terms and conditions on a “take-it-or-leave-it”
basis and do not vary significantly on a continuum from most restrictive to
least restrictive in terms of device attachment freedom. Likewise, no carrier
offers a cheaper rate plan for subscribers extending service without purchasing
a subsidized handset. It comes across as an overstatement to suggest that the
current CMRS marketplace operates in a robustly “competitive process in
which independent developers, content owners, hardware vendors and
networks vie to discover preferred packages and pricing.”58
For its part, the FCC views Carterfone as a major catalyst for lower
consumer prices, greater competition, and enhanced service options.59
Carterfone makes it clear that “[c]ustomers have the right to use common
carrier telecommunications services in any way that is privately beneficial, so
long as it is not publicly harmful.” Even for non-common carrier access to
60
wireline information services, the FCC’s “Four Internet Freedoms” include the
right of consumers “to connect their choice of legal devices that do not harm
the network.”61
2008] HOLD THE PHONE 695
62. See Implementation of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993,
Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile
Services, Eleventh Report, 21 F.C.C.R. 10947, 11005 (2006):
Local number portability (LNP) refers to the ability of users of telecommunications services to
retain, at the same location, existing telecommunications numbers when switching from one
telecommunications carrier to another. Thus, subscribers can port [i.e., interconnect and hand
off traffic] numbers between two CMRS carriers (intramodal porting) or between a CMRS and
wireline carrier (intermodal porting).
63. See generally Implementation of the Cable Television Consumer Protection & Competition Act
of 1992, Dev. of Competition & Diversity in Video Programming Distrib.: Section 628(C)(5) of the
Commc’ns Ac t: Sunset of Exclusive Contract Proh ibition, Revi ew of the Comm’n’s Pro gram Access Rules
& Examination of Programming Tying Arrangements, 22 F.C.C.R. 17791 (2007) (report and order and
notice of proposed rulemaking).
IV. FCC INITIATIVES TO PROTECT CONSUMERS FROM MANDATORY
BUNDLI NG ARRANGEMENTS
While the FCC has no apparent plans to endorse wireless Carterfone or
to enforce wireless net neutrality, the Commission has established rules for
other media designed to protect consumers from incurring higher costs and
less flexibility when attaching equipment and when accessing ICE content and
services. On several occasions at both the supplier and end user level, the
FCC has implemented safeguards that restrict or eliminate requirements that
consumers have to pay for services, equipment, and content that they do not
want or need as a condition precedent for access to desired services and
content.
A. On the Supply Side
The FCC, on its own initiative and to implement a statute, has established
operating rules that limit how carriers package services. The Commission also
has imposed restrictions on what contractual service terms carriers can impose
that have the effect of locking in consumers and foreclosing their ability to
take service from a competitor. On the supply side, the FCC requires CMRS
providers to allow local number portability, which is the ability of subscribers
to retain the same telephone number when changing carrier services. Such
62
local number portability promotes competition by eliminating a disincentive
to shift carriers. Local number portability, as discussed below, requires
carriers to cooperate on the assignment and transfer of telephone numbers.
The FCC also promotes consumer access to diverse video content by
foreclosing ventures that provide both content and content delivery from
stifling competition through exclusive dealing arrangements. Additionally,
63
696 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
64. See, e.g., E911 Requirements for IP-Enabled Serv. Providers, 20 F.C.C.R. 10245, 10266 (2005)
(first report and order and notice of proposed rulemaking) (mandatory provision of enhanced 911
emergency access); Commc’ns Assistance for Law Enforcement Act & Broadband Access & Servs., 20
F.C.C.R. 14989, 15001 (2005) (first report and order and further notice of proposed rulemaking)
(mandatory wiretapping cooperation with law enforcement agencies), aff’d, Am. Council on Educ. v.
F.C.C., 451 F.3d 226 (D.C. Cir. 2006). See generally Vonage Holdings Corp. v. F.C.C., 489 F.3d 1232
(D.C. Cir. 2007) (VoIP operators with access to wired telephones must contribute to universal service
funding mechanism); Tel. No. Requirements for IP-Enabled Servs. Providers; Local No. Portability Porting
Interval & Validation Requirements, 22 F.C.C.R. 19531 (2007) (VoIP operators must make it possible for
former subscribers to keep the same telephone number when migrating to another carrier).
65. Tel. No. Portability, 11 F.C.C.R. 8352, 8368 (1996) (first report and order and further notice
of proposed rulemaking):
The ability of end users to retain their telephone numbers when changing service providers
gives custom ers flexibility in th e quality, price, and variety of telecom munication s services they
can choose to purchase. Number portability promotes competition between telecommunications
service providers by, among other things, allowing customers to respond to price and service
changes without changing their telephone numbers. The resulting competition will benefit all
users of telecommunications services. Indeed, competition should foster lower local telephone
prices and, consequently, stimulate demand for telecommunications services and increase
economic growth.
66. Secti on 251(2) of the Commun ications Act of 193 4 (codified at 47 U.S.C. § 251(b)(2 )) requires
each local exchange carrier to provide number portability, which is specified as “[t]he duty to provide, to
the extent technically feasible, number portability in accordance with requirements prescribed by the
Commission.”
67. The FCC required CMRS carriers operating in the largest 100 metropolitan statistical areas
(MSAs) to offer number portability upon request from a competing carrier by November 24, 2003, having
previously extended the deadline by several years. Tel. No. Portability, 11 F.C.C.R. 8352, 8368 (1996)
(first report and order and further notice of proposed rulemaking), recon., 12 F.C.C.R. 7236 (1997)
(memorandum opinion and order); Tel. No. Portability-Carrier Requests for Clarification of Wireless-
Wireless Porting Issues, 18 F.C.C.R. 20971 (2003) (memorandum opinion and order); Verizon Wireless
Petition for Partial Forbearance from the Commercial Mobile Radio Servs. No. Portability Obligation, 17
F.C.C.R. 14972 (2002) (memorandum opinion and order); Tel. No. Portability, Cellular Telecommc’ns &
Indus. Ass’ns Petition for Forbearance from Commercial Mobile Radio Servs. No. Portability Obligations,
14 F.C.C.R. 3092 (1999) (memorandum opinion and order); see also 47 C.F.R § 52.31(a) (2007).
the Commission has imposed a number of service obligations on VoIP
providers to ensure that these operators offer essential services.64
1. Local Number Portability
The FCC has recognized that if wireless consumers cannot retain a
previously assigned telephone number when shifting their business to another
carrier, many consumers might refrain from pursuing even a lower-cost or
better-suited service arrangement. The Commission requires both wireline
65 66
and wireless carriers to provide consumers with Local Number Portability
67
(LNP), to promote competition and to eliminate the potential for lock-in
2008] HOLD THE PHONE 697
68. See generally Tel. No. Requirements for IP-Enabled Servs. Providers; Local No. Portability
Porting Interval & Validation Requirements, 22 F.C.C.R. 19531 (2007).
69. Vertic al integration refers to the c ombination of s eparate market ac tivities by a single en terprise.
For example, the major cable television companies own ventures creating video programming as well as
the ventures that distribute such content to consumers. “Vertical relationships may have beneficial effects,
or they may deter competitive entry in the video marketplace and/or limit the diversity of programming.”
ANNUAL ASSESSMENT OF THE STATUS OF COMPETITION IN THE MARKET FOR THE DELIVERY OF VIDEO
PROGRAMMING, TWELFTH ANNUAL REPORT, 21 F.C.C.R. 2503, 2575 (2006). “Beneficial effects can
include efficiencies in the production, distribution, and marketing of video programming, and providing
incentives to expand channel capacity and create new programming by lowering the risks associated with
program production ventures.” Id. at 2575 n.565. “Possible detrimental effects can include unfair methods
of competition, discriminatory conduct, and exclusive contracts that are the result of coercive activity.”
Id. at 2575 n.566.
resulting from consumer reluctance to change carriers if the shift entails
assignment of a new telephone number.
Compulsory LNP requires carriers to coordinate the assignment of
telephone numbers and their association with a specific subscriber. While
carriers surely would prefer to punish customers who discontinue service by
reclaiming the assigned telephone number, the FCC requires carriers to
cooperate in ways that enable the migrating customer to retain and continue
to use the previously assigned telephone number. LNP demonstrates that
68
Congress and the FCC will not always allow carriers to unilaterally establish
the terms and conditions under which subscribers access service, particularly
since the carriers’ business strategies might motivate them to deem
unnecessary or infeasible network access arrangements that promote
competition and enhance consumer welfare.
2. Promoting Competition in Video Program Distribution
The FCC has articulated a longstanding concern about vertical
integration by video content creators and distributors in light of the
69
likelihood for harm to consumers. Because cable television companies
generate the vast majority of desired video content and control the major
medium for distributing the content, the FCC has expressed concern that the
cable companies can stifle competition, extract rates above competitive levels
from subscribers, favor affiliated content providers, and stifle the development
of new content sources. This concern for the consumer and the determination
of market failure juxtaposes with the Commission’s lack of concern with
similarly integrated providers of CMRS.
698 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
70. Implementation of the Cable Television Consumer Protection & Competition Act of 1992, Dev.
of Competition & Diversity in Video Programming Distrib.: Section 628(c)(5) of the Commc’ns Act:
Sunset of Exclusive Contract Prohibit ion, MB Docket No. 07-29 (F.C.C. Sept. 11, 2007) (report and ord er),
available at http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-169A1.doc.
71. Id. ¶ 1 (“[W]e find that the exclusive contract prohibition continues to be necessary to preserve
and protect competition and diversity in the distribution of video programming, and accordingly, retain it
again for five years, until October 5, 2012.”).
72. Id. ¶ 37 (footnotes omitted):
What is most significant to our analysis is not the percentage of total available programming
that is vertically integrated with cable operators, but rather the popularity of the programming
that is vertically integrated and how the inability of competitive MVPDs to access this
programming will affect the preservation and protection of competition i n the video distribution
marketplace. While there has been a decrease since 2002 in the percentage of the most popular
programming networks that are vertically integrated, we find that the four largest cable MSOs
(Comcast, Time Warner, Cox, and Cablevision) still have an interest in six of the Top 20
satellite-deli vered networks as ranked by sub scribership, seven of the Top 20 satellite-delivered
networks as ranked by prime time ratings, almost half of all RSNs, popular subscription
premium networks, such as HBO and Cinemax, and video-on-demand (“VOD”) networks, such
as iN DEMAND.
73. Id. ¶ 44:
An exclusive arrangement between a cable-affiliated programmer and its affiliated cable
operator will reduce the number of platforms distributing the cable-affiliated programming
network and thus the total number of subscribers to the network. This results in a reduction in
potential advertising or subscription revenues that would otherwise be available to the network.
In the long term, however, the cable-affiliated programmer would gain from an increased
number of subscribers as customers switch to the affiliated cable distribution service in order
to receive the exclusive programming. Thus, an exclusive contract is a kind of “investment,”
in which an initial loss of profits from programming is incurred in order to achieve higher
profits la ter from increased cable distribu tion. This type of a rrangement is most profitable when
the costs of the investment are low and its benefits are high.
74. Id. ¶ 41:
We find that access to vertically integrated programming is essential for new entrants in the
video marketplace to compete effectively. If the programming offered by a competitive MVPD
lacks “must have” programming that is offered by the incumbent cable operator, subscribers
will be less likely to switch to the competitive MVPD. We give little weight to the claims by
cable operators that recent entrants, such as telephone companies, have not experienced “any
trouble” to date in acquiring access to satellite-delivered vertically integrated programming.
75. Id. ¶ 29 (“[W]e conclude that there are no good substitu tes for some satellite-delivered vertically
integrated programming and that such programming therefore remains necessary for viable competition in
the video distribution market.”).
The FCC released a Report and Order that extends the ban of exclusive
70
contracts between vertically integrated programmers and cable operators to
October 5, 2012. The Commission determined that vertically integrated
71
programmers still have the ability and the incentive to favor operators with
72 73
whom they have a corporate affiliation over competitors. In light of the
74
FCC’s determination that vertically integrated ventures still control “must-
see” content, for which no viable substitute exists, the Commission retained
75
2008] HOLD THE PHONE 699
76. Id. ¶¶ 68-72:
The exclusive contract prohibition in Section 628(c)(2)(D) [of the Communications Act] and
the implementing rules pertain to all satellite-delivered programming networks that are
vertically integrated with a cable operator, regardless of their popularity. . . .
. . . .
. . . One of the key anticompetitive practices that the exclusive contract prohibition
addresses is the practice of leveraging cable’s market power collectively by withholding
affiliated programming from rival MVPDs while selling the affiliated programming to other
cable operators which do not compete with one another. A cable operator may gain by
weakening a current or potential rival (such as a DBS operator) even in markets that the cable
operator itself does not serve. Thus, proposals to narrow the exclusive contract prohibition by
allowing exclusive arrangements outside of the footprint of the affiliated cable operator or with
cable operators whose networks pass only a small number of households throughout the nation
will impede competition in the video distribution marketplace. We similarly find that allowing
exclusive arrangements for affiliated cable operators that face competition from both DBS and
telephone companies would harm competition in the video distribution marketplace. We
conclude herein that a cable operator will not lose the incentive and ability to enter into an
exclusive arrangement in a given geographic area simply because it faces competition from both
DBS operators and telephone companies in that area.
77. Id. ¶ 74 (“Section 628 makes no distinction among MVPDs of the kind suggested by these
commenters. Moreover, we find that adopting such restrictions on the entities that can benefit from the
prohibition will limit competition in the video distribution market and will result in no discernible public
interest benefits.”).
the prohibition against exclusive content distribution contracts from ventures
that vertically integrate content production and distribution to consumers.
The FCC declined to narrow its restriction based on programmer
suggestions that the Commission should apply the restriction based on the
popularity of the programming network and competitive circumstances
occurring in specific geographic areas served by a cable operator.76
Additionally, the Commission refused to limit the restriction to conventional
cable television operators, which would exclude other multi-channel video
programming distributors (MVPDs), or to limit the restriction to cable
operators that have been in the MVPD market for more than five years, have
extensive resources, or have entered into exclusive contracts for
programming.77
On the other hand, the FCC declined to expand the exclusive contract
prohibition to apply to non-cable-affiliated programming—e.g., content
created by vertically integrated Direct Broadcast Satellite (DBS) operators and
new MVPDs, such as AT&T and Verizon, that offer ICE content via wired
and wireless conduits. The Commission also concluded that terrestrially
delivered programming lies beyond the scope of the exclusive contract
prohibition in section 628(c)(2)(D) of the Communications Act of 1934, as
700 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
78. Id. ¶ 78 (“We decline to apply an exclusive contract prohibition to terrestrially delivered
programming at this time. . . . The exclusive contract prohibition in Section 628(c)(2)(D) pertains only to
vertically integrated ‘satellite cable programming’ and vertically integrated ‘satellite broadcast
programming.’”).
79. Id. ¶ 116:
As demonstrated by the examples of withholding of RSNs in San Diego and Philadelphia,
we believe that withholding of terrestrially delivered cable-affiliated programming is a
significant concern that can adversely impact competition in the video distrib ution market. To
address this concern, we seek comment on whether it would be appropriate to extend our
program access rules to all terrestrially delivered cable-affiliated programming pursuant to
Sections 4(i), 201(b), 303(r), 601(6), 612(g), 616(a), 628(b), or 706, or any other provision
under the Communications Act.
80. Dev. of Competition & Diversity in Video Programming Distrib.: Section 628(C)(5) of the
Commc’ns Ac t: Sunset of Exclusive Contract Proh ibition, Revi ew of the Comm’n’s Pro gram Access Rules
& Examination of Programming Tying Arrangements, 22 F.C.C.R. 17791, 17847-58 (2007) (report and
order and notice of proposed rulemaking).
amended, that applies specifically to content delivered via satellite.78
However, in light of finding that a vertically integrated cable television
operator had withheld terrestrially delivered regional sports network content
in San Diego and Philadelphia, the FCC sought comment on whether to extend
the program-access rules to all terrestrially delivered cable-affiliated
programming.79
Despite a clearly articulated preference for marketplace solutions to any
conflict, the FCC also proposed to amend its program-access complaint
procedures with an eye toward promoting efficient resolution of complaints
through negotiated dispute settlements. In a Notice of Proposed Rulemaking
(NPRM), the Commission sought comment on two revisions to the program
access complaint procedures. The NRPM sought comment on whether to
80
allow complainants to seek a temporary stay of any proposed changes to
existing contracts targeted by a program access complaint. The NPRM also
sought comment on creating an arbitration-type step in the complaint process
whereby the Commission may request, as part of its evaluation of the
appropriate remedy, that the parties submit their best and final proposals for
the rates, terms, or conditions under review.
The NPRM also expressed concern about programming tying
arrangements where MVPDs must purchase and carry undesired cable
network programming in return for the opportunity to carry desired networks.
The NPRM sought comment on whether the Commission should preclude
tying arrangements and require all programming services to be offered on a
stand-alone basis to all MVPDs.
2008] HOLD THE PHONE 701
81. Cauley, supra note 8 (displaying statistics compiled by Forrester Research). The top four
carriers control 88.1% of the wireless telecommunications market. Id.
82. Digital subscriber links provide internet access via the copper wires initially used solely to
provide narrowband telephone service. Telephone companies retrofit the wires to provide medium speed
broadband services by expanding the available bandwidth by about 1500 kiloHertz. The FCC provides the
following definition:
Digital Subscriber Line is a technology for bringing high-speed and high-bandwidth, which is
directly proportional to the amount of data transmitted or received per unit time, information
to homes and small businesses over ordinary copper telephone lines already installed in
hundreds of millions of homes and businesses worldwide. With DSL, consumers and
businesses take advantage of having a dedicated, always-on connection to the Internet.
Federal Communications Commission, F.C.C. Consumer Facts, Broadband Access for Consumers,
http://www.fcc.gov/cgb/consumerfacts/dsl2.html (last visited Aug. 23, 2008).
83. Exclusive Serv. Contracts for Provision of Video Servs. in Multiple Dwelling Units & Other
Real Estate Devs., 22 F.C.C.R. 5935, 5938 (2007) (notice of proposed rulemaking) (“[T]raditional phone
companies that are primed to offer a ‘triple play’ of voice, high-speed Internet access, and video services
over their respective networks.”).
84. AT&T Inc. & Bellsouth Corp., Application for Transfer of Control, 22 F.C.C.R. 5662, 5735
(2007) (memorandum opinion and order) (“The quadruple play refers to the combination of ‘video,
broadband Internet access, VoIP and wireless service . . . .’”).
85. Horizontal integration occurs when a single company develops, or acquires firms offering the
capability of providing, two or more services th at may compete in the same relevant market. For examp le,
a major newspaper chain may diversify by developing cable television programming or acquire companies
that produce such content. Horizontal integration also covers situations where a venture acquires an
existing or potential competitor. While such a combination might reduce existing or potential competition,
the FCC believes that the merger can diversify available content so that the acquiring firm can offer new,
niche programming. See Amendment of Section 73.658(G) of the Comm’n’s Rules—The Dual Network
Rule, 16 F.C.C.R. 11114, 11125 (2001):
The FCC recognizes that vertical integration in video content creation and
distribution requires regulatory intervention. CMRS operators operate in a
similarly integrated mode. The top two CMRS carriers, AT&T and Verizon,
control 53.4% of the wireless market and are owned by the ventures that
81
have substantial market share in broadband wireline access—e.g., Digital
Subscriber Line (DSL) and fiber optic cable links, and wireline telephone
82
service. In addition to the possible market power accruing from a
commanding share of the wireless industry, AT&T and Verizon vertically
integrate by securing exclusive content distribution rights for carriage via their
wireless networks. They horizontally integrate by bundling triple-play and
83
quadruple-play service packages, combining wireless service with wireline
84
telephony, internet access, and wireline video program access.
As the internet increasingly becomes the focal point and preferred
medium for all ICE services, ventures such as AT&T and Verizon have great
opportunities to leverage their size, vertical integration, and horizontal
integration to offer facilities-based, competitive alternatives to incumbent
85
702 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
With respect to horizontal integration of a major and emerging television network, the merger
should have little or no adverse effect on competition or pricing in the market for television
network advertising, since major and emerging networks compete in different strategic groups.
To the extent that the emerging network continues to offer programming following the merger
that targets niche or special interest audiences, then the welfare of viewers of both mass
audience and niche programming should not be adversely affected by the merger and may
indeed be advanced by the resulting efficiencies.
86. The FCC seeks to limit horizontal integration by cable television operators with a 30% cap on
national market penetration. See generally Comm’n’s Cable Horizontal & Vertical Ownership Limits 23
F.C.C.R. 2134 (2008) (fourth report and order and further notice of proposed rulemaking). The
Commission’s program access rules generally prohibit exclusive dealing by programming networks that are
vertically integrated with cable operators. See generally Dev. of Competition & Diversity in Video
Programming Distrib.: Section 628(C)(5) of the Commc’ns Act: Sunset of Exclusive Contract Prohibition,
Review of the Comm’n’s Program Access Rules and Examination of Programming Tying Arrangements,
22 F.C.C.R. 17791 (2007) (report and order and notice of proposed rulemaking).
87. See, e.g., Gary Kim, Consumer Revenue: Declining Importance for Incumbent Telcos,
http://internetcommunications.tmcnet.com/topics/broadband-mobile/articles/22287-consumer-revenue-
declining-importance-incumbent-telcos.htm (last visited Aug. 23, 2008):
One of the clear revenue trends in the incumbent local exchange carrier space is the decreasing
importance of consumer fixed voice, the growth in importance of business customer and other
new revenue sources, even for firms that have no IPTV or entertainment video operations. To
be sure, access line losses are not going to stop in the near term.
providers such as cable television operators. On the other hand, AT&T and
Verizon currently face none of the structural safeguards that the FCC has
appropriately placed on vertically integrated cable television ventures.86
Nothing prevents any CMRS operator, including AT&T and Verizon, from
engaging in the anticompetitive practices that the Commission seeks to
prevent in the cable television marketplace, a plausible outcome in light of
strong incentives for major telephone companies to find and dominate new
markets to compensate for declining revenues from core telephony markets.87
The FCC apparently assumes that having four CMRS operators in a market
would prevent any single carrier, or group of colluding carriers, from harming
consumers by favoring owned or affiliated content providers. Likewise, the
FCC appears unconcerned about the ability of companies having dominant
market share in CMRS, broadband internet access, and wireline telephony to
leverage bundled service packages into market dominance in most ICE
markets.
3. Public Interest Obligations Imposed on Voice over the Internet Protocol
(VoIP) Providers
Ostensibly to serve the public interest, the FCC has imposed a number of
service obligations on VoIP providers that use software to provide telephone
2008] HOLD THE PHONE 703
88. See Frieden, supra note 7, at 373.
89. Commc’ns Assistance for Law Enforcement Act and Broadband Access and Servs., 20 F.C.C.R.
14989, 15001 (2005) (notice of proposed further rulemaking) (citations omitted), aff’d sub nom. Am.
Council on Educ. v. F.C.C., 451 F.3d 226 (D.C. Cir. 2006).
90. IP-Enabled Servs., E911 Requirements for IP-Enabled Serv. Providers, 20 F.C.C.R. 10245
(2005) (notice of proposed further rulemaking), aff’d sub nom. Nuvio Corp. v. F.C.C., 473 F.3d 302 (D.C.
Cir. 2006).
91. IP-Enabled Servs.: Implementation of Sections 255 & 251(a)(2) of the Commc’ns Act of 1934,
as Enacted by the Telecomms Act of 1996, 22 F.C.C.R. 11275 (2007).
92. For example, the FCC classified wireless broadband internet access as a lightly regulated
information service:
[W]e find that classifying wireless broadband Internet access service as an information service
furthers the goals of sections 7 and 230(b)(2) of the Communications Act, and section 706 of
the Telecommunications Act of 1996. As noted above, wireless broadband Internet access
technologies continue to evolve at a rapid pace. Through this classification, we provide the
regulat ory certainty n eeded to help spur growth and deploymen t of these s ervices. Part icularly,
the regulatory certainty we provide through this classification will encourage broadband
deployment in rural and underserved areas, where wireless broadband may be the most efficient
broadband option. Additionally, we believe that wireless broadband Internet access service can
provide an important homeland security function by creating redundancy in our nation’s
communications infrastructure.
Appropriate Regulatory Treatment for Broadband Access to the Internet over Wireless Networks, 22
F.C.C.R. 5901, 5911 (2007) (footnote omitted). Section 706 of the Telecommunications Act of 1996
requires
[t]he Commission and each State commission with regulatory jurisdiction over
telecommunications services . . . [to] encourage the deployment on a reasonable and timely
basis of advanced telecommunications capability to all Americans (including, in particular,
elementary and secondary schools and classrooms) by utilizing in a manner consistent with the
public interest, convenience, and necessity, price cap regulation, regulatory forbearance,
measures that promote competition in the local telecommunications market, or other regulating
methods that remove barriers to infrastructure investment.
Telecommunications Act of 1996, Pub. L. No. 104-104, § 706, Feb. 8, 1996 U.S.C.C.A.N. (110 Stat.) 153,
amended by Pub. L. No. 107-110, § 1076(gg), 2001 U.S.C.C.A.N. (115 Stat.) 2093 (codified at 47 U.S.C.
§ 157), Section 706(c)(1) defines advanced telecommunications capability “without regard to any
transmission media or technology, as high-speed, switched, broadband telecommunications capability that
enables users to originate and receive high-quality voice, data, graphics, and video telecommunications
using any technology.” Id.; see also 47 U.S.C. §§ 157, 230(b)(2) (2000) (stating that it is the policy of the
services via wireline broadband information services. The Commission’s
regulatory burdens make VoIP service more like conventional telephony, at
the expense of reducing VoIP’s competitive cost advantage. VoIP service
88
providers, which offer subscribers telephone calling access to the conventional
wireline public switched telephone network (PSTN), must reconfigure their
service to provide wiretapping capabilities to law enforcement authorities,89
caller location identification and emergency 911 access, and service to
90
disabled users. Despite extensive rhetoric about refraining from imposing
91
regulation on both emerging technologies and competitive services,92
704 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
United States “to preserve the vibrant and competitive free market that presently exists for the Internet”).
93. VoIP providers of service capable of reaching subscribers of conventional wireline and wireless
services must contribute to universal service funding, incur the costs related to providing wiretap access
to law enforcement agencies, support local number portability, make it possible for users with disabilities
to access service, and provide enhanced 911 emergency access. See generally Vonage Holdings Corp. v.
F.C.C., 489 F.3d 1232 (D.C. Cir. 2007); Am. Council on Educ. v. F.C.C., 451 F.3d 226 (D.C. Cir. 2006);
Tel. No. Requirements for IP-Enabled Servs. Providers, Local No. Portability Porting Interval & Validation
Requirements, 22 F.C.C.R. 19531 (2007); IP-Enabled Servs., Implementation of Sections 255 & 251(a)(2)
of the Commc’ns Act of 1934, as Enacted by the Telecomms. Act of 1996, 20 F.C.C.R. 11275 (2007).
94. Implementation of Sections of the Cable Television Consumer Protection & Competition Act
the FCC chose to not allow the marketplace to determine whether
considerable service discounts available from VoIP service providers
outweigh the greater risk in an emergency and greater inconvenience for some
users.
The FCC has imposed costly, market countervailing, public interest
obligations on VoIP operators, because the Commission believes inadequate
public access issues warrant speedy administrative remedies. VoIP service
93
providers must reconfigure their networks to provide additional types of
services and access that they had not contemplated or wished to provide.
Regardless of whether VoIP operators consider their services the functional
alternative to existing wireline or wireless services, the FCC has imposed a
number of requirements that force closer equivalency. The Commission made
no assessment of the financial costs incurred by VoIP providers, or the
potential adverse impact on competition and service rates borne by the public.
It appears that the FCC elevated public interest concerns over its general
predisposition not to fetter with regulatory burdens on market entrants having
minor market share. Such intervention must have occurred because the
Commission identified several instances of market failure—i.e., the inability
of market forces to generate outcomes that the Commission considered
essential to serve the public interest.
B. On the Demand Side: Preventing Purchases of Unwanted Content and
Compulsory Equipment Leases
At the end-user level, the FCC has established several safeguards
designed to help consumers avoid having to pay for content that they do not
want, or equipment that they do not need. The safeguards include preventing
cable television operators from requiring consumers to subscribe to one or
more tiers of service before qualifying for the opportunity to access desired
content, such as a premium movie channel. The FCC also requires cable
94
2008] HOLD THE PHONE 705
of 1992, Rate Regulation Buy-Through Prohibition, 9 F.C.C.R. 4316, 4327 (1994).
95. See generally Implementation of Section 304 of the Telecomms. Act of 1996, Commercial
Availability of Navigation Devices, 20 F.C.C.R. 6794 (2005).
96. Third Periodic Review of the Comm’n’s Rules & Pol’ys Affecting the Conversion to Digital
Television, 2007 WL 4571081, ¶ 22 (F.C.C. Dec. 31, 2007) (retailers that continue to sell analog-only
television equipment must disclose at the point-of-sale that such devices will require a converter box to
receive over-the-air broadcast television after the February 17, 2009 transition date). See generally DTV
Consumer Educ. Initiative, 2008 WL 582525 (F.C.C. Mar. 3, 2008); Year 2000 Biennial Regulatory
Review—Amendment of Part 22 of the Comm’n Rules to Modify or Eliminate Outdated Rules Affecting
the Cellular Radiotel. Serv. & Other Commercial Mobile Radio Servs., 17 F.C.C.R. 18401 (2002), recon.,
19 F.C.C.R. 3239 (2004).
97. Pub. L. No. 102-385, § 3, 106 Stat. 1460, 1464-71 (1992) (codified as amended at 47 U.S.C.
§ 543 (2000)).
98. “The tier buy-through prohibition of the 1992 Cable Act prohibits cable operators from requiring
subscribers to purchase a particular service tier, other than the basic service tier, in order to obtain access
to video programming offered on a per-channel or per-program basis.” Implementation of Sections of the
Cable Television Consumer Prot. and Competition Act of 1992: Rate Regulation Buy-Through Prohibition,
9 F.C.C.R. 4316, 4327 (1994); see also F.C.C., Fact Sheet: Consumer Options for Selecting Cable Channels
& the Tier Buy-Through Prohibition (2003), available at http://fjallfoss.fcc.gov/edocs_public/
attachmatch/DOC-231469A1.pdf.
99. 47 U.S.C. § 543(b)(8)(A):
A cable operator may not require the subscription to any tier other than the basic service tier
required by paragraph (7) as a condition of access to video programming offered on a per
channel or per program basis. A cable operator may not discriminate between subscribers to
the basic service tier and other subscribers with regard to the rates charged for video
programming offered on a per channel or per program basis.
operators to provide service to subscribers who have television sets that can
perform content descrambling and other security functions via the insertion
of a computer chip card in lieu of using a leased set-top converter. The
95
Commission also works to ease technology transitions that require the
acquisition of new equipment—e.g., digital cellphones to replace analog
handsets—or the installation of a new converter—e.g., retrofitting analog
televisions so that they can display digital signals.96
1. Prohibiting Mandatory Cable Tier “Buy-Throughs”
Section 3 of the Cable Television Consumer Protection and Competition
Act of 1992 prohibits cable television operators, operating in a market
97
without effective competition, from requiring subscribers to “buy through”98
intermediate tiers of programming in order to have the opportunity to access
desired content positioned in a higher service tier. This means that
99
consumers do not have to subscribe to so-called “enhanced basic” services,
which bundle a variety of cable television programming, before securing the
706 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
100. F.C.C., FURTHER REPORT ON THE PACKAGING AND SALE OF VIDEO PROGRAMMING SERVICES
TO THE PUBLIC (2006), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-263740A1.pdf
[hereinafter F.C.C. REVISED À LA CARTE STUDY].
101. F.C.C., REPORT ON THE PACKAGING AND SALE OF VIDEO PROGRAMMING SERVICES TO THE
PUBLIC (2004), available at http://www.ncta.com/ContentView.aspx?hiddenavlink=true&type=
reltyp1&contentid=401; cf. F.C.C. REVISED À LA CARTE STUDY, supra note 100.
102. F.C.C. REVISED À LA CARTE STUDY, supra note 100, ¶ 14.
103. Id. ¶ 3.
104. Implementation of Section 304 of the Telecomms. Act of 1996, Commercial Availability of
Navigation Devices, 20 F.C.C.R. 6794 (2005). Section 629 of the Communications Act of 1934, as
amended, 47 U.S.C. § 549 (2000), directs the FCC to adopt regulations to assure the commercial
availability of navigation devices equipment used by consumers to access services from MVPDs. The FCC
must
adopt regulations to assure the commercial availability, to consumers of multichannel video
opportunity to view content offered on a per view or per channel basis, such
as individual premium channels like Home Box Office.
The Commission also has explored the prospect of allowing consumers
to select content on an à la carte, network-by-network basis in lieu of service
tiers that contain many channels of content, some of which individual
consumers may not want. In a stunning reversal of its previous research and
analysis, the FCC now asserts that à la carte access to cable television
networks could save many consumers money and would not result in a
reduction of television viewership. The Commission released the Further
Report on the Packaging and Sale of Video Programming Services to the
Public to reexamine the conclusions and underlying assumptions of the
100
earlier Media Bureau report on à la carte channel access submitted to
Congress in November 2004. The Commission reported that previous
101
calculations of per-channel cable television costs failed to net out the cost of
broadcast stations and accordingly overstated costs by as much as 50%.102
The FCC also abrogated its previous finding that à la carte would cause
consumers to watch nearly 25% less television, resulting in two fewer hours
of television consumption per day. The Further Report stated no reason to
believe that viewers would watch less video programming than they do today
simply because they could choose the channels they find most interesting.
The Further Report states that “many consumers could be better under an a la
carte model.”103
2. Mandating an Alternative to Set-Top Box Leasing
The FCC also has established rules designed to enable cable television
subscribers to access content via “cable ready” television sets without the
104
2008] HOLD THE PHONE 707
programming and other services offered over multichannel video programming systems, of
converter boxes, interactive communications equipment, and other equipment used by
consumers to access multichannel video programming and other services offered over
multichannel video programming systems, from manufacturers, retailers, and other vendors not
affiliated with any multichannel video programming distributor.
47 U.S.C. § 549(a).
105. Implementation of Section 304 of the Telecomms. Act of 1996, Commercial Availability of
Navigation Devices, 13 F.C.C.R. 14775, 14793-94 (1998) (footnote omitted):
[W]e find that it would be most consistent with our obligations under Section 629 to require
that, by July 1, 2000, a security element separated from navigation devices be available from
MVPDs so that equipment may be commercially available from unaffiliated manufacturers,
retailers, and other vendors. Our rule permits MVPDs to continue to provide equipment on an
integrated basis until January 1, 2005, so long as modular security components are also made
available. The record responding to the NPRM reflects strong advocacy that separating the
security function will enhance portability of equipment generally. This requirement will
facilitate the development and commercial availability of navigation devices by permitting a
larger measure of portability among them, increasing the market base and facilitating volume
production and hence lower costs. We think it significant that the separation of security
elements has been recognized, most prominently by cable operators, as empowering new
functionality and services.
106. Implementation of Section 304 of the Telecomms. Act of 1996, Commercial Availability of
Navigation Devices, 20 F.C.C.R. 6794, 6807-08 (2005) (footnote omitted):
At the heart of a robust retail market for navigation devices is the reliance of cable operators
on the same security technology and conditional access interface that consumer electronics
manufacturers must rely on in developing competitive navigation devices. We conclude that
a software-oriented conditional access solution may provide a “common reliance” standard
capable of both reducing the costs for set-top boxes and adding significantly to the options that
equipment manufacturers now have in using the CableCARD. In balancing our specific
statutory requirement to assure commercial availability of navigation devices and our general
obligation to facilitate and promote the DTV transition, we conclude that a further extension
of the effective date of the prohibition on integrated devices will permit the development of the
statutorily required competitive market for navigation devices, with the potential benefit of
reducing costs to consumers.
107. See Charter Commc’ns, Inc. v. F.C.C., 460 F.3d 31, 35 (D.C. Cir. 2006) (“[A] CableCARD . . .
plugs into a slot in a host navigation device, permitting the device to perform both the security and non-
security functions.”).
expense of having to lease a device, known as a set-top converter, to provide
necessary signal descrambling functions. The FCC generally prohibits cable
television companies from offering set-top converters that combine security
functions—e.g., descrambling and other features, such as channel selection,
and navigation, electronic program guides, and pay-per-view and on-demand
access to content. The prohibition prevents cable companies from requiring
105
all subscribers to lease set-top boxes. With the integration ban, cable
106
television companies can perform security and digital rights management via
a computer chip, known as a CableCARD that subscribers can insert into most
recent vintage television sets.107
708 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
108. Id.
109. See Gen. Instrument Corp. v. F.C.C., 213 F.3d 724 (D.C. Cir. 2000) (affirming the FCC’s
statutory authority to require separation of security and other set top converter functions); Implementation
of Section 304 of the Telecomms. Act of 1996, Commercial Availability of Navigation Devices, 13
F.C.C.R. 14775, 14806 (1998).
110. 47 U.S.C. § 549(a) (2000).
111. Charter Commc’ns, Inc., 460 F.3d at 37-38.
112. Id. at 38-39.
113. Id. at 41 (citing Implementation of Section 304 of the Telecomms. Act of 1996, Commercial
Availability of Navigation Devices, 20 F.C.C.R. 6794, 6809 (2005)).
Several cable operators challenged the FCC’s CableCARD policy, which
prohibited the use of one set-top converter that integrated both security and
non-security functions. As it had done previously, the D.C. Circuit Court
108 109
of Appeals affirmed the Commission on several grounds. The court first
refused to consider petitioners’ statutory claim that a difference exists between
set-top converter boxes and other equipment within the context of section
629(a) of the Communications Act, as amended, which states that the FCC
“shall not prohibit any [MVPD] from also offering converter boxes,
interactive communications equipment, and other equipment used by
consumers to access multichannel video programming.” The court
110
characterized the petitioners’ claim as arguing
that if integrated set-top boxes are not “converter boxes,” as we held in General
Instrument, then they must be “other equipment,” a possibility we did not address
there. And if integrated boxes are “other equipment,” then section 629(a)’s second
sentence prevents the FCC from barring cable operators from offering them.111
The court refused to consider this statutory claim on two procedural
grounds: (1) that section 629(a) established a sixty-day time period for any
petitions for review of applicable Commission orders; and (2) that the
petitioners never presented this issue for consideration by the FCC, and
therefore section 405 of the Communications Act precluded raising the issue
on appeal. The court also rejected petitioners’ arguments that changed
112
circumstances so warranted a different outcome that the FCC should have
abandoned the non-integration requirement. Given the fact that while
CableCARD-compatible television sets had become commonplace, few
consumers use CableCARDs, the court held “there was nothing unreasonable
about the FCC’s conclusion that ‘the competitive reasons that led the
Commission to impose the integration ban have not been eliminated by the
developments in the market.’”113
2008] HOLD THE PHONE 709
114. Id. at 42.
115. 47 C.F.R. § 76.1204(a)(2) (2007), quoted in Charter Commc’ns, Inc., 460 F.3d at 42.
116. Charter Commc’ns, Inc., 460 F.3d at 43.
117. Id. at 44.
118. See generally id. at 31; Implementation of Section 304 of the Telecomms. Act of 1996,
Commercial Availability of Navigation Devices, 20 F.C.C.R. 6794, 6802-03 (2005); Comcast Corp.
Request for Waiver of Section 76.1204(a)(1) of the Comm’n’s Rules, DA07-49, CSR-7012-Z, CS Docket
No. 97-80 (F.C.C. Jan. 10, 2007), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-07-
Additionally, the court rejected the claim that the FCC failed to consider
the additional costs cable companies would incur as a result of the ban:
The Commission also took steps to minimize industry costs, both by extending the
implementation deadline from 2006 to 2007, and by promising to reconsider
eliminating the ban altogether should the cable and consumer electronics industries
achieve a downloadable security solution capable of providing common reliance
without requiring the physical separation of security and non-security functions.114
The court also rejected the claim that the FCC arbitrarily exempted DBS
operators from the integration ban. The court upheld the exemption of DBS
operators from the ban based on the criteria established by the Commission:
when an MVPD “supports the active use by its subscribers of navigation
devices that: (i) operate throughout the continental United States, and (ii) are
available from retail outlets . . . throughout the United States that are not
affiliated with the . . . [MVPD].” The court noted that DBS operators have
115
met the requirements while “the vast majority of cable subscribers remain
dependent upon non-portable converter boxes available only from their cable
companies.” Lastly, the court rejected the cable operators’ claims that
116
increased facilities-based competition—e.g., video program delivery from
telephone companies—has created incentives for cable companies to offer
consumers every possible equipment alternative: “whatever the theoretical
incentives, the FCC found that the real-world result that section 629(a)
commanded it to assure—the commercial availability of navigation devices
from vendors unaffiliated with MVPDs—has not arrived.”117
Cable operators have largely thwarted the congressional mandate that
consumers have the option of using alternatives to the operator-leased devices.
While a competitive market for such devices has not evolved, and few
consumers even know about the CableCARD option, recent innovations in
digital video recorders may incorporate many of the features provided by the
cable operators. From recent decisions by the FCC, it appears that cable
operators will no longer succeed in stalling compliance with Section 629 of
the Communications Act.118
710 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
49A1.doc.
119. Year 2000 Biennial Regulatory Review—Amendment of Part 22 of the Comm’n Rules to
Modify or Eliminate Outdated Rules Affecting the Cellular Radiotel. Serv. & Other Commercial Mobile
Radio Servs., 17 F.C.C.R. 18401 (2002), recon., 19 F.C.C.R. 3239 (2004) (order) [hereinafter Analog
Sunset Order].
120. In similar fa shion, CMRS opera tors limit the type of han dsets they will allow subscrib ers to use.
While CMRS subscribers may acquire handsets from alternative outlets, any compatible device must have
the same access limitations as would exist in CMRS operator-sold handsets.
121. Analog Sunset Order, supra note 119, at 18406:
[E]liminating the [analog service] rule immediately without a reasonable transition period
would be extremely di sruptive to certain consumers, partic ularly those with hearing disa bilities
as well as emergency-only consumers, who currently continue to rely on the availability of
analog service and lack digital alternatives. Accordingly, we modify our rules requiring
application of the analog compatibility standard to include a sunset period of five years, during
which time we anticipate that problems regarding access will likely be resolved.
3. Avoiding “Flash Cut” Equipment Obsolescence
The FCC appreciates that the public does not want regulatory decisions
to render unusable already purchased and operating consumer electronics
equipment such as cellphones and televisions. Even at the cost of postponing
the onset of measurable benefits, such as more efficient use of spectrum, the
Commission avoids ordering the immediate, “flash cut” obsolescence of in-
service equipment. The Commission typically establishes a transition period,
spanning several years, before establishing a deadline for mandatory
equipment upgrades, replacements, or retrofits that would trigger expense for
consumers.
a. Analog Cellphones
The FCC has retained the requirement that CMRS operators continue to
provide analog radiotelephone service, based largely on the goal of not forcing
wireless subscribers to replace functional handsets that operate in the analog
mode, or depriving service to subscribers in remote areas where analog
transmissions offer better signal penetration. CMRS operators want to
119
operate entirely in digital modes that promote spectrum efficiency and the
ability to accommodate more subscribers. Notwithstanding compelling
business and operational justifications, including the fact that for several years
all new handsets offer subscribers the ability to access digital services, the
120
Commission established a five-year transition period leading to the
termination of the analog service requirement.121
2008] HOLD THE PHONE 711
122. The Digital Television Transition and Public Safety Act of 2005 (DTV Act) is Title III of the
Deficit Reduction Act of 2005. Section 3002(a) of the DTV Act amends § 309(j)(14) of the
Communications Act to establish February 17, 2009 as a new hard deadline for the end of analog
transmissions by full-power stations. Pub. L. No.109-171, § 3002(a), 120 Stat. 21 (2006). Section 3002(b)
of the DTV Act directs the Commission to
take such actions as are necessary (1) to terminate all licenses for full-power television stations
in the analog television service, and to require the cessation of broadcasting by full-power
stations in the analog television service, by February 18, 2009; and (2) to require by
February 18, 2009, . . . all broadcasting by full-power stations in the digital television service,
occur only on channels between channels 2 and 36, inclusive, or 38 and 51, inclusive (between
frequencies 54 and 698 megahertz, inclusive).
Section 3005(a) of the DTV Act also created a coupon program to subsidize the purchase of digital-to-
analog (“D-to-A”) converter boxes. See generally Third Periodic Review of the Comm’n’s Rules &
Policies Affecting the Conversion to Digital Television, F.C.C. 07-228, MB Docket No. 07-91 (F.C.C. Dec.
31, 2007), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-228A1.doc.
123. Third Periodic Review of the Comm’n’s Rules & Policies Affecting the Conversion to Digital
Television, F.C.C. 07-228, ¶ 23 (Dec. 31, 2007):
We also note that subsidized digital-to-analog (“D-to-A”) converter boxes will be available to
eligible consumers starting January 2008, further promoting access to digital reception
equipment. This subsidy program, which was created by the DTV Act, will allow consumers
with analog-only TV sets to receive over-the-air broadcast programming after the February 17,
2009 transition date, when analog broadcasting ends. Congress directed the National
Telecommunications and Information Administration (“NTIA”) of the U.S. Department of
Commerce to administer this subsidy program. In March 2007, NTIA issued final rules to
implement the program, which subsidizes the purchase of D-to-A converter boxes. The
Commission is working with NTIA to test the D-to-A converters for eligibility to be certified
for the coupon program.
See also Rules to Implement & Administer a Coupon Program for Digital-to-Analog Converter Boxes, 72
Fed. Reg. 12097-01, ¶ 8 (F.C.C. 2007) (codified at 47 C.F.R. § 301.1-301.6). Starting January 1, 2008,
all U.S. households will be eligible to request up to two $40 coupons to be used toward the purchase of up
to two D-to-A converter boxes while the initial $990 million allocated for the program is available. 47
b. Easing the Financial Consequences from the Complete Conversion
to Digital Broadcast Television
The FCC also has undertaken a number of initiatives to ensure that
owners of analog television sets can continue to view video content even after
all television broadcasters must migrate to digital service. First, Congress
directed the Commission to postpone the deadline for the conversion to digital
service as a result of slower than anticipated consumer migration to more
expensive digital television sets. Second, the Commission and the
122
Commerce Department developed a subsidy program whereby every
household in the United States can receive two $40 coupons for use in buying
a converter that will enable the use of analog television sets to display
broadcast digital content. Third, the FCC, on its own accord and through
123
712 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
C.F.R. § 301.3 to .4 (2007). If the initial funds are used up and the additional funds (up to $510 million)
are authorized, eligibility for the coupons will be limited to over-the-air-only television households. Rules
to Implement & Administer a Coupon Program for Digital-to-Analog Converter Boxes, 72 Fed. Reg.
12097-01, at ¶ 8. Eligible consumers will have until March 31, 2009 to make a request for these coupons.
DTV Act, Pub. L. No. 109-171, § 3005(c)(1)(A), 120 Stat. 21 (2005).
124. See generally DTV Consumer Educ. Initiative, F.C.C . 08-56, 2008 WL 5825 25 (Feb. 19, 2008).
125. See generally Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the
Comm’n’s Rules, 22 F.C.C.R. 21064 (2007).
126. See 47 U.S.C. § 309(j)(14) (2000) (“A full-power television broadcast license that authorizes
analog television service may not be renewed to authorize such service for a period that extends beyond
February 17, 2009.”); id. § 337(e); see also Third Periodic Review of the Comm’n’s Rules & Policies
Affecting the Conversion to Digital Television, F.C.C. 07-228, MB Docket 07-91 (F.C.C. Dec. 31, 2007),
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-228A1.doc.
127. Auction of 700 MHz Band Licenses Closes, 23 F.C.C.R. 4572 (2008).
128. See generally DTV Consumer Educ. Initiat ive, F.C.C. 08-56, 2008 WL 582525 (Feb. 19, 2008).
television set retailers, br oadcasters, and cable systems, undertoo k a campaign
to alert consumers to the future migration to digital broadcast television.124
Lastly, the Commission has proposed to require cable television operators to
convert digital video content back into analog so that subscribers can continue
to use television sets lacking the subsidized digital converter.125
i. Informing the Public
After granting several extensions of time for broadcasters to continue
transmitting in an analog format, the FCC now faces a congressionally
mandated, February 17, 2009 deadline for the complete migration to digital
transmission. The Commission recently auctioned off the vacated broadcast
126
UHF television spectrum generating $19.6 billion for the national treasury.127
The FCC now recognizes the need to inform the public that conventional
analog television sets will not receive digital transmissions without a
converter or a subscription to an MVPD such as a cable television operator.
Toward the goal of informing the public about the impending change, the
FCC established a comprehensive consumer outreach initiatives that requires
broadcasters, MVPDs, retailers, and manufacturers to publicize the digital
transition in addition to efforts by the FCC.128
The Commission’s multifaceted approach requires television broadcast
licensees to conduct on-air consumer education efforts including public
service announcements, all MVPDs to include periodic notices about the
transition in customer bills, and all manufacturers of television receivers or
related devices—e.g., set-top converters and digital video recorders—to
2008] HOLD THE PHONE 713
129. Id. ¶ 2:
[B]roadcasters must provide on-air information to their viewers about the DTV transition, by
compliance with one of three alternative sets of rules, and must report those efforts to the
Commission and the public. Second, multichannel video programming distributors (“MVPDs”)
must provide monthly notices about the DTV transition in their customer billing statements.
Third, manufacturers of television receivers and related devices must provide notice to
consumers of the transition’s impact on that equipment. Fourth, DTV.gov Partners must
provide the Commission with regular updates on their consumer education efforts. Fifth,
companies participating in the Low Income Federal Universal Service Program must provide
notice of the transition to their low income customers and potential customers. Sixth, the
winners of the 700 MHz spectrum auction must report their consumer education efforts.
130. Rules to Implement and Administer a Coupon Program for Digital-to-Analog Converter Boxes,
72 Fed. Reg. 12,097 (Mar. 15, 2007) (to be codified at 47 C.F.R. pt. 301), available at
http://www.ntia.doc.gov/ntiahome/frnotices/2007/DTVCouponFinalRule_031207.pdf.; see also Press
Release, Nat’l Telecomm. & Info. Admin., Commerce Department Issues Final Rule to Launch Digital-to-
Analog Converter Box Coupon Program (Mar. 12, 2007), http://www.ntia.doc.gov/ntiahome/
press/2007/DTVfinalrule_031207.htm (announcing a program granting all U.S. households access to two
$40 coupons that can be used toward the purchase of digital-to-analog converter boxes starting January
2008).
131. DTV Consumer Educ. Initiative, F.C.C. 08-56, 2008 WL 582525, ¶ 6 (Feb. 19, 2008):
There is a clear and compelling need for educational efforts directed toward consumers. As
Association of Public Television Stations (“APTS”) fou nd in its most recent quarterly consumer
survey on the DTV transition, a majority of Americans do not fully understand the transition.
Moreover, as the Commission’s Consumer Advisory Committee (“CAC”) points out, a
substantial number of Americans have not yet made the switch to digital. By the end of 2007,
it was expected that only one-third of households would have a digital television. Of
households that rely on over-the-air (“OTA”) broadcasts, only seven percent own a digital
television. Furthermore, the households that principally rely on OTA broadcasts are the most
vulnerable and arguably the most difficult to reach; almost half have annual incomes of less
than $30,00 0, and two-thirds are headed by someone over 50 years of age or someone for whom
English is a second language. Thus, we must take immediate and effective action to ensure that
viewers are informed of the effect that the full-power digital transition will have on them and
the options that are available to them to make the transition to digital television without losing
full-power television service.
include transition information with the devices. The FCC will also work
129
with the National Telecommunications and Information Administration to
require retailers to participate in a program that provides consumers access to
government subsidized converter boxes. The Commission noted that many
130
consumers do not know about the impending conversion to digital television
and the fact that the conversion will render analog televisions inoperative.131
ii. Must Carry Conversion of Digital Signals to Analog
Even as the FCC strives to achieve the complete conversion to digital
television, the Commission has proposed to require cable operators to
continue delivering analog signals of broadcast stations after the February 17,
714 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
132. Carriage of Digital Television Broadcast Signals, Amendment to Part 76 of the Comm’n’s Rules,
F.C.C. 07-71 (May 4, 2007), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-
71A1.doc.
133. Section 614(b)(4)(B) of the Communications Act of 1934 directs the F.C.C. to revise the
mandatory signal carriage rules to reflect changes necessitated by the transition from analog to digital
broadcasting. 47 U.S.C. § 534(b)(4)(B) (2000).
134. Carriage of Digital Television Broa dcast Signals, Amendment to Part 76 of the Comm’n’s Rules,
F.C.C. 07-71, ¶ 4 (May 4, 2007) (footnote omitted), available at http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-07-71A1.doc.
135. “The prohibition against material degradation ensures that cable subscribers who invest in a
HDTV are not denied the ability to view broadcast signals transmitted in this improved format.” Id. ¶ 5.
136. “In other words, the signal must be “viewable” on all television sets connected to the cable
provider’s system.” Id. ¶ 17.
2009 conversion deadline. In assessing the post-digital conversion, must-
132
carry obligations of cable operators, the Commission considers it in the
133
public interest for cable operators to downconvert must-carry broadcast station
content:
[W]e propose that cable operators must comply with this “viewability” provision and
ensure that cable subscribers with analog television sets are able to continue to view
all must-carry stations after the end of the DTV transition by either: (1) carrying the
digital signal in analog format, or (2) carrying the signal only in digital format,
provided that all subscribers have the necessary equipment to view the broadcast
content. In the absence of such a requirement, analog cable subscribers (currently
about 50% of all cable subscribers, or approximately 32 million house holds) would
no longer be able to view commercial must-carry stations or non-commercial stations
after February 17, 2009. We believe such an outcome would adversely impact the
DTV transition and would unduly burden millions of consumers.134
On the other hand, the Commission reiterated that cable operators must not
downgrade high-definition broadcast retransmissions.135
Ironically, the Commission does not appear to follow consistently its
prohibition on signal degradation by cable operators. On one hand, cable
operators cannot degrade must-carry broadcast high-definition television
signals by delivering a signal with lower resolution, but on the other hand, the
FCC proposes to require cable operators to degrade digital signals and convert
them into the inferior analog format that offers lower resolution than the
digital signal. The Commission proposes a stringent test to ensure no
136
degradation of high-definition signals and no discrimination against broadcast
high-definition signals vis-à-vis cable network high definition signals:
[W]e previously determined . . . that a broadcast signal delivered to the cable
headend in HD must be carried in HD in order to comply with the prohibition on
material degradation. We continue to require such carriage and reiterate that
2008] HOLD THE PHONE 715
137. Id. ¶ 12 (citing Carriage of Digital Television Broadcast Signals, Local Broadcast Signal
Carriage Issues, Applicat ion of Network Non-Du plication, Synd icated Exclusi vity & Sports Blackou t Rules
to Satellite Retransmission of Broadcast Signals, 16 F.C.C.R. 2598 (2001)).
138. See Appropriate Treatment for Broadband Access to the Internet Over Wireless Networks,
F.C.C. 07-30 (Mar. 23, 2007), available at http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-
30A1.pdf.
139. See supra note 7 and accompanying text.
140. A safe harbor constitutes “[a]n area or means of protection [or a] provision (as in a statute or
regulation) that affords protection from liability or penalty.” BLACK’S LAW DICTIONARY 1363 (8th ed.
2004).
141. Pub. L. No. 103-66, 107 Stat. 312 (1993) (codified at 47 U.S.C. § 332).
requirement. We now propose revisions to the material degradation requirements . . .
with respect to carriage of bits in the broadcast signal. Specifically, we propose to
move from a subjective to objective measure.137
The Commission’s objective measure would replace a general
nondiscrimination obligation with an explicit requirement that cable operators
retransmit broadcast high-definition content on a bit-by-bit basis, without
compression.
V. DOES THE FCC HAVE JURISDICTION TO IMPOSE WIRELESS
CARTERFONE AND NET NEUTRALITY RULES?
CMRS operators provide both regulated common-carrier
telecommunications services and lightly regulated information services—e.g,
broadband internet access. The combination of regulatory classifications
138
has the potential to cause uncertainty as to how far the common carrier
designation extends for two reasons. First, the FCC has expressed a
preference for making “either/or” regulatory classifications of services that
combine telecommunications and information services. The Commission
139
strongly prefers to shoehorn any and all converged services into the lightly
regulated information services “safe harbor,” including wireless broadband
140
internet access. Second, both Congress and the FCC consider even core
wireless telecommunications services as qualifying for uncharacteristically
light government oversight.
The Omnibus Budget Reconciliation Act of 1993 amended section 332
141
of the Communications Act of 1934 to create the CMRS carrier category. The
law defines CMRS as “any mobile service . . . that is provided for profit and
makes interconnected service available (A) to the public or (B) to such classes
of eligible users as to be effectively available to a substantial portion of the
716 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
142. 47 U.S.C. § 332(d)(1) (2000); see also 47 C.F.R. § 20.3 (2007), which defines “commercial
mobile radio service” as
[a] mobile service that is: (a)(1) provided for profit, i.e., with the intent of receiving
compensation or monetary gain; (2) An interconnected service; and (3) Available to the public,
or to such classes of eligible users as to be effectively available to a substantial portion of the
public; or (b) The functional equivalent of such a mobile service described in paragraph (a) of
this section.
143. See Reexamina tion of Roaming Obli gations of Commercia l Mobile Radio Serv. Providers, WT
Docket No. 05-265, F.C.C. 07-143 (F.C.C. Aug. 7, 2007) (report and order and further notice of proposed
rulemaking), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-143A1.pdf.
144. Id. ¶ 5.
public.”
142 While deemed common carriers, CMRS operators qualify for
regulatory forbearance that eliminates some of the conventional regulatory
burdens imposed on common carriers, including the obligation to secure
regulator approval of the rates charged for service.
Notwithstanding significant regulatory forbearance, CMRS operators still
retain their common carrier status and core obligation to provide the public
with access to other carriers. This interconnection obligation requires carriers
to provide the public with wireless-to-wireline network access—i.e., access
to the conventional wired PSTN—and the duty to provide subscribers with
“roaming” access to other wireless carriers when a subscriber travels outside
his or her home network area.143
CMRS operators do not have unlimited and unconditional authority to
determine whether and how their subscribers can access other networks.
While the FCC has forborne from regulating the price of access and some
terms and conditions for service, the Commission cannot abandon its
regulatory responsibility to ensure that CMRS operators provide access and
interconnection on a fair and nondiscriminatory basis. For example, a CMRS
operator must provide its subscribers with access to the network services of
other carriers operating in locations where the CMRS operator does not. The
FCC recently reiterated that the common carrier responsibilities still borne by
CMRS operators include the responsibility to provide access to “the facilities
of another CMRS provider with which the subscriber has no direct pre-
existing service or financial relationship to place an outgoing call, to receive
and incoming call, or to continue an in-progress call.”144
It follows that the even streamlined CMRS common carrier regulation
includes FCC jurisdiction to impose subscriber handset-attachment
responsibilities relating to subscribers’ access to CMRS operators. Bear in
mind that even for non-common carriers such as cable television operators, the
FCC imposed a restriction on cable television operator set-top box integration
2008] HOLD THE PHONE 717
145. See IP-Enabled Services, E911 Requirements for IP-Enabled Service Providers, 20 F.C.C.R.
10245, 10261 (2005) (“Ancillary jurisd iction may be employed, in the Commission’s discretion, when Title
I of the Act gives the Commission subject matter jurisdiction over the service to be regulated and the
assertion of jurisdiction is ‘reasonably ancillary to the effective performance of [its] various
responsibilities.’”).
146. 47 U.S.C. § 151-614 (2000).
147. See F.C.C. v. M idwest Video Corp., 4 40 U.S. 689, 700 (1979); Un ited States v. Midwest Video
Corp., 406 U.S. 649, 667-68 (1972); United States v. Sw. Cable Co., 392 U.S. 157, 177-78 (1968).
148. 467 U.S. 837 (1984).
149. Id. at 842-43.
150. Id. at 843, 844.
151. Nat’l Cable & Telecomm. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 980 (2005) (citing
Chevron, 467 U.S. at 843-44 & n.11).
152. Id. at 982.
of security and other functions along with the affirmative duty to provide
subscribers with a CableCARD or security download option in lieu of having
to lease a set top box from the cable operator.
A. Broad Title I Ancillary Jurisdiction
Additionally, the FCC has unspecified and possibly broad “ancillary”
jurisdiction to serve the public interest pursuant to Title I of the
145
Communications Act. For example, the Commission asserted jurisdiction
146
to regulate cable television prior to receiving explicit statutory authority based
on the potential for cable television to impact directly regulated broadcast
television. The FCC’s assertion of ancillary jurisdiction must meet a two
147
prong test articulated by the Supreme Court in Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc. Under Chevron, “[i]f the intent of
148
Congress is clear, that is the end of the matter; for the court, as well as the
agency, must give effect to the unambiguously expressed intent of
Congress.” However, if the statute is “silent or ambiguous with respect to
149
the specific issue,” courts have discretion to defer to the regulatory agency’s
statutory interpretation based on its expertise, provided the court can conclude
that the interpretation is “permissible” or “reasonable.” A regulatory
150
agency satisfies the second prong “even if the agency’s reading differs from
what the court believes is the best statutory interpretation.” Put another
151
way, “[a] court’s prior judicial construction of a statute trumps an agency
construction otherwise entitled to Chevron deference only if the prior court
decision holds that its construction follows from unambiguous terms of the
statute and thus leaves no room for agency discretion.”152
718 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
153. 20 F.C.C.R. 14986 (2005).
154. The Commission said as much in its Appropriate Regulatory Treatment for Broadband Access
to the Internet Over Wireless Networks Declaratory Ruling:
[T]he Commission [has] emphasized [that] consumer protection remains a priority and [has]
sought to develop a framework for consumer protection in the broadband age. Such a
framework would be built on the Commission’s Title I ancillary jurisdiction to ensure that
consumer protection needs are met by all providers of broadband Internet access services
regardless of the underlying technology, including providers of wireless broadband Internet
access services.
Appropriate Regulatory Treatment for Broadband Access to the Internet Over Wireless Networks, F.C.C.
07-30, WT Docket No. 07-53, at 25 (Mar. 23, 2007), available at http://fjallfoss.fcc.gov/
edocs_public/attachmatch/FCC-07-30A1.pdf (citing Appropriate Framework for Broadband Access to the
Internet over Wireline Facilities, 20 F.C.C.R. 14986, 14929-35 (2005)).
The FCC has invoked its Title I ancillary jurisdiction on a number of
occasions where no explicit statutory authority exists. Already the
Commission has stated that, should it be so inclined, it could impose
nondiscrimination and other operational limitations on internet service
providers based on its Title I ancillary jurisdiction: “The Commission, under
Title I of the Communications Act, has the ability to adopt and enforce the net
neutrality principles it announced in the 2005 Internet Policy Statement.”153
The FCC appears to have ample direct jurisdiction under Title II of the
Communications Act and ancillary Title I regulatory authority to apply the
Carterfone policy to wireless carriers and to impose wireless network
neutrality responsibilities. Nothing in Title I or II of the Communications
154
Act revokes such jurisdiction as a result of the passage of time between the
Commission’s initial decision to apply Carterfone and the fact that CMRS
carriers operate in a different environment than wireline service conditions
almost forty years ago. Nor does the FCC lose such jurisdiction because
CMRS operators face some degree of competition and do not vertically
integrate handset manufacturing and telecommunications services. Likewise,
the FCC does not lose jurisdiction over handset access to CMRS networks
simply because of greater complexity in the interface as compared to handset
access to wireline networks.
While questioning the wisdom of regulating wireless carriers, it appears
that no network neutrality opponent has stated that the FCC lacks jurisdiction
to impose Carterfone interconnection responsibilities on CMRS operators.
The technical relationship of telephone handsets with a wireline carrier’s
network directly parallels the technical relationship of wireless telephone
handsets with a wireless carrier’s network. Because CMRS carriers operate
as common carriers when providing telecommunications services, their
common carrier regulatory obligation includes the duty to provider subscribers
2008] HOLD THE PHONE 719
155. Part 68 Home Page, http://www.fcc.gov/wcb/iatd/part_68.html (last visited Aug. 23, 2008):
Part 68 of the FCC rules (47 C.F.R. Part 68) governs the direct connection of Terminal
Equipment (TE) to the Public Switched Telephone Network (PSTN), and to wireline carrier-
owned facilities used to provide private line services. Part 68 also contains rules concerning
Hearing Aid Compatibility and Volume Control (HAC/VC) for telephones, dialing frequency
for automated dialing machines, source identification for fax transmissions, and technical
criteria for inside wiring.
with network access via any compatible handset that does not risk causing
technical harm to the wireless network. For wired access, the FCC established
an equipment registration process to achieve speedy certification that
155
specific handsets can access wired carrier networks. Additionally, the
Commission established a common technical interface, including a standard
basis for all handsets to plug into the PSTN in the same way.
VI. FRAMING THE DEBATE IN TERMS OF BROAD “NETWORK ACCESS”
VERSUS CARTERFONE’S NARROW ISSUE OF CONSUMERS’
“RIGHT TO ATTACH”
Advocates and opponents for both wireline and wireless network
neutrality tend to frame the debate in broad terms about the scope and nature
of internet access and whether a sufficiently competitive marketplace exists
for remedying any unreasonable restriction or discrimination. Wireless
network neutrality supporters may have invited the broader debate by
combining advocacy for wireless Carterfone policy with arguments in favor
of more expansive anti-discrimination initiatives. They reasonably link
advocacy for attaching device to wireless networks with a commensurate right
to access any software or application available via such networks. However,
some wireless network neutrality advocacy goes further by adding issues that
may restrict legitimate business practices aimed at tiering consumer access by
offering, for example, different quality of service, bandwidth, and
transmission speeds.
Whether and how the Carterfone policy should apply wirelessly requires
an assessment on its own merits before assessing whether and how, once
implemented, the policy should also incorporate broader network neutrality
principles. By blending wireless Carterfone policy with wireless network
neutrality issues, advocates for both outcomes contribute to confusion about
what the FCC can and should do, and they invite opponents to launch a broad
sweeping attack that emphasizes worst case scenario problems that a wireless
Carterfone policy could not possibly trigger.
720 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
156. Implementation of Section 304 of the Telecomms. Act of 1996, Commercial Availability of
Navigation Devices, 13 F.C.C.R. 14775, 14780 (1998) (report and order) (“As a result of Carterfone and
other Commission actions, own ership of teleph ones moved from th e network operator to the consumer. As
a result, the choice of features and functions incorporated into a t elephone has increased substantially, while
the cost of equipment has decreased.”).
157. Revisions to Price Cap Rules for AT&T, 8 F.C.C.R. 5205, ¶ 12 (1993).
158. Implementation of Section 304 of the Telecomms. Act of 1996, 13 F.C.C.R. 14775 (1998); see
also 47 U.S.C. § 549 (2000) (The [FCC] shall . . . adopt regulations to assure the commercial availability,
to consumers of . . . equipment used . . . to access multichannel video programming and other services
offered over multichannel video programming systems, from manufacturers, retailers, and other vendors
not affiliated with any multichannel video programming distributor.”).
A macro-level assessment of the internet’s future juxtaposes with the
much narrower issues relating to whether and how the Carterfone policy
should apply to CMRS operators. Opponents of both initiatives have found
it advantageous to mischaracterize the nature and scope of what consumer
rights the FCC recognized in Carterfone. Oppositions to the Skype Petition
and sponsored research frame the debate in terms of network access, as
opposed to the core issue of whether subscribers should have the right to
attach any compatible device that does not harm the wireless network. By
framing the issue as an alarming and broad sweeping extension of an intrusive
regulatory umbrella addressing user access, opponents appear intent on
shaping the debate in terms of whether the wireless marketplace is or is not
competitive and whether market failure does or does not exist.
The FCC has identified empirical evidence that the Carterfone policy has
generated ample consumer benefits. The Commission views Carterfone as a
major catalyst for lower consumer prices, greater competition, and enhanced
service options in wireline telephony. Carterfone makes it clear that
156
“[c]ustomers have the right to use common carrier telecommunications
services in any way that is privately beneficial, so long as it is not publicly
harmful.”157
A. The FCC Has Applied the Carterfone Right to Attach Outside
Telephony Markets Well After 1968
In 1998, the FCC extended its Carterfone policy to cable television when
it recognized the right of consumers to use cable-ready televisions and to buy
set-top converters in lieu of the sole option of leasing one from their cable
television provider. The Commission explicitly linked this consumer right
158
to attach navigation devices with its previously articulated Carterfone policy:
2008] HOLD THE PHONE 721
159. Implementation of Section 304 of the Telecomms. Act of 1996, 13 F.C.C.R. 14775, 14778
(1998) (footnotes omitted).
The competitive market for consumer equipment in the telephone context provides the model
of a market we have sought to emulate in this proceeding. Previously, consumers leased
telephones from their service provider and no marketplace existed for those wishing to purchase
their own phone. The Carterfone decision allowed consumers to connect CPE to the telephone
network if the connections did not cause harm. As a result of Carterfone and other
Commission actions, ownership of telephones moved from the network operator to the
consumer. As a result, the choice of features and functions incorporated into a telephone has
increased substantially, while the cost of equipment has decreased.
Id. at 14780.
160. “Following the Carterfone principle adopted in the telephone context would allow subscribers
the option of owning their own navigation devices and would facilitate the commercial availability of
equipment.” Id. at 14786; see also Implementation of Section 304 of the Telecomms. Act of 1996,
Commercial Availability of Navigation Devices, 12 F.C.C.R. 5639, 5645 (1997) (footnotes omitted):
We propose to adopt the basic principle that equipment that is not part of a MVPD’s network
distribution plant may be acquired by subscribers and attached to the network, limited only by
the requirement that any such equipment attached to a MVPD’s network not cause it any harm.
This basic principle parallels that adopted in the telephone context by the Commission’s
Carterfone and subsequent decisions—devices that do not adversely affect the network and are
privately beneficial without being publicly detrimental, may be attached to the network.
161. Implementation of Section 304 of the Telecomms. Act of 1996, 13 F.C.C.R. 14775, 14780
(1998) (footnotes omitted).
Subscribers have the right to attach any compatible navigation device to a multi-
channel vid eo programming system. We conclud e that the core requirement, t o make
possible the commercial availability of equipment to MVPD subscribers, is similar
to the Carterfone principle adopted by the Commission in the telephone
environment. The Carterfone “right to attach” principle is that devices that do not
adversely affect the network may be attached to the network.159
The FCC also stated that it could and should extend its Carterfone policy
to other technologies and service markets despite the likelihood that non-
160
telephone networks raise other, possibly more complex, operational matters
than telephone network attachments:
The parallel to the telephone has limitations. When customer ownership of
telephone CPE became available, the telephone network was effectively a national
monopoly. Well developed technical standards existed throughout an almost
ubiquitous network. CPE compatible with the telephone network was part of this
environment. In contrast, cable networks do not reflect un iversal attributes, and ha ve
substantially different designs. Nor do satellite systems share commonality beyond
the most basic elements. . . . This Order seeks to accommodate these differences
from the telephone model.161
The Commission’s extension of its Carterfone policy to MVPD network
attachment contradicts wireless Carterfone opponents who claim that the
722 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
162. Serv. Rules f or the 698-746, 747-762 & 777-7 92 MHz Bands, Revi sion of the Comm’n’s Rules
to Ensure Compatibility with Enhanced 911 Emergency Calling Systems, 22 F.C.C.R. 15289 (2007).
163. Id. at 15361.
164. See, e.g., Comments of AT&T Inc. Opposing Skype Commc’n’s Petition to Apply Carterfone
Attach ment Regula tions to the Wi reless Indus., Skype Commc’n s Petition to Apply Carterfone Attachment
Regulations to the Wireless Industry, RM-11361 (Apr. 30, 2007), available at
http://fjallfoss.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf= pdf&id_document=6519408 144; Comments
of Verizon Wireless, Skype Commc’ns S.A.R.L., Petition to Confirm A Consumer’s Right to Use Internet
Commc’ns Software & Attach Devices to Wireless Networks, RM-11361 (Apr. 30, 2007), available at
policy could only apply to a monopoly, vertically integrated wireline
telephone environment.
B. Open Platform Access in a Portion of the 700 MHz Frequency Band
Recently, the FCC recognized the public interest benefits accruing from
applying wireless Carterfone policy when establishing operational rules for
a portion of the quite valuable reallocated spectrum that can provide next
generation wireless services. The FCC
162 established an “Open Platform”
requirement for a 22 MHz block of choice “beachfront” 700 MHz spectrum
made available for auction in the conversion from analog to digital broadcast
television, scheduled to occur by February 17, 2009.
The winning bidder must allow consumers to use the handset of their
choice and download and use any applications, subject to certain reasonable
network management conditions that allow the licensee to protect the network
from harm:
Although we generally prefer to rely on marketplace forces as the most efficient
mechanism for fostering competition, we conclude that the 700 MHz spectrum
provides an important opportunity to apply requirements for open platforms for
devices and applications for the benefit of consumers, without unduly burdening
existing services and markets. For the reasons described below, we determine that
for one commercial spectrum block in the 700 MHz Band—the Upper 700 MHz
Band C Block—we will require licensees to allow customers, device manufacturers,
third-party application developers, and others to use or develop the devices and
applications of their choice, subject to certain conditions . . . .163
VII. ASSESSING THE COSTS AND BENEFITS OF WIRELESS CARTERFONE
AND NETWORK NEUTRALITY
Opponents to wireless Carterfone and network neutrality offer numerous
reasons why one or both initiatives would cause harm to carriers and
consumers. Collectively, they oppose both types of initiatives on grounds
164
2008] HOLD THE PHONE 723
http://fjallfoss.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6519408104; Marius
Schwartz & Federico Mini, Hanging up on Carterfone: The Economic Case Against Access Regulation in
Mobile Wireless (May 2, 2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=984240;
Hahn et al., supra note 39; Wireless Net Neutrality: From Carterfone to Cable Boxes, PHOENIX CENTER
POL’Y BU LL. (Phoenix Ctr. for Advanced Legal & Econ. Pub. Policy Studies, Washington, D.C.) (Apr.
2007), available at http://www.phoenix-center.org/PolicyBulletin/PCPB17Final.doc.
165. Jessica E. Vascellaro, A Fight Over What You Can Do on a Cellphone, WALL ST. J., June 14,
2007, at A1:
Research In Motion Ltd. wants to move beyond its core business market, so it designed a
device with features like video and music players. RIM wanted to include an electronic map,
too, to let users find directions. But it needed AT&T Inc., which sells BlackBerrys to
consumers and provides wireless service, to agree that the new model launched earlier this year
could include this mapping software.
AT&T said no. It wanted to offer its subscribers its own version of a map service, and
charge them $9.99 a month.
that the CMRS operators face extreme competition, offer consumers
increasingly greater value at lower prices, and have invested billions of dollars
in network upgrades. Opponents suggest that proponents of the application
of wireless Carterfone and net neutrality should bear a high burden of proving
that market failure exists and that the pervasive regulatory intervention would
generate more benefits than costs. Opponents view the Carterfone policy as
appropriate only for the vertically integrated Bell system monopoly and not
the CMRS marketplace where carriers do not manufacture equipment and
subscribers can freely acquire handsets from non-carrier sources. They
consider restrictions on handsets and access to applications to be legitimate
business decisions that protect networks from technical harm, help the carrier
provide low cost service, and make it possible for carriers to cooperate with
law enforcement agencies.
Regardless of how competitive one characterizes the CMRS marketplace,
or how likely carriers might collude or engage in consciously parallel
behavior, carriers have uniformly established policies that deny subscribers
device attachment flexibility and network neutrality. No carrier filing or
sponsored research dispute that CMRS carriers lock phones, impose early
termination fees, disable built in features of subscriber’s purchased handsets,
create walled garden content with an eye toward thwarting subscriber access
to other content, and block subscriber use of “unauthorized” software and
applications.165
The carriers and researchers have generated some credible and other
disingenuous reasons for such limitations. One uncharacteristically candid
rationale recognizes that “[v]ariety, options and greater ‘openness’ can entail
various costs. Restrictions by wireless carriers that might strike some as
724 UNIVERSITY OF PITTSBURGH LAW REVIEW [Vol. 69:675
166. Schwartz & Mini, supra note 164, at 24.
167. See Hush-A-Phone Corp. v. United States, 238 F.2d 266, 269 (D.C. Cir. 1956) (“The
intervenors’ tariffs [prohibiting the use of plastic device to enhance privacy and low volume conversations],
under the Commission’s decision, are in unwarranted interference with the telephone subscriber’s right
reasonably to use his telephone in ways which are privately beneficial without being publicly detrimental.”).
168. Cellnet Commc’ns, Inc. v. F.C.C., 149 F.3d 429, 437 (6th Cir. 1998) (affirming the FCC’s right
to eliminate resale provisions because elimination of such requirements would not upset customers’ rights
to use their telephones).
169. See supra note 2 and accompanying text.
excessive can reflect sound business judgments about relevant tradeoffs.”166
Put even more bluntly, CMRS operators can extract greater profits by denying
subscribers Carterfone device attachment freedom and network neutrality. As
currently constituted, the marketplace does not punish any single carrier for
engaging in such practices because, even at the conclusion of a two-year
service contract, subscribers cannot migrate to a carrier with clearly more
liberal device attachment and network access policies.
VIII. CONCLUSION
The onset of wireless Carterfone and net neutrality initiatives signals
higher stakes when handsets offer access to much more than cordless voice
telephone service. On one hand, CMRS operators want to stimulate
subscriber interest in, and willingness to pay for, next generation network
services and features. But on the other hand, the carriers want to limit access
so that subscribers cannot use options available from unaffiliated ventures
who do not share revenues with the carrier providing the telecommunications
transmission link.
CMRS operators that limit, block, and disable some new features
available from handsets or available via enhanced access to the internet reduce
the scope, reach, and versatility of services available to consumers. These
carriers have concluded that in light of the FCC’s inaction and apparent
indifference, CMRS providers can limit consumer options that would be
“privately beneficial without being publicly detrimental.” Limiting,
167
blocking, and disabling handset access to the plethora of existing and
prospective services bolsters carriers’ revenue streams by foreclosing
competitive alternatives in ways that constitute “an unwarranted interference
with a person’s use of their telephone,” an outcome appellate courts will not
168
tolerate, nor should the Commission.
169
Already some purchasers of Apple iPhones and other cellphones have
resorted to “self-help” tactics to eliminate manufacturer or carrier-imposed
2008] HOLD THE PHONE 725
limitations on the handset’s versatility, features, and access to third-party
applications and content. Rather than all but criminalize such tactics, the FCC
should establish a handset technical certification process that makes it possible
for any handset operating in the proper format and frequency to access any
carrier’s network. At the very least, the Commission should expressly adopt
a wireless Carterfone policy that forecloses CMRS operators from imposing
handset restrictions based on theoretical rationales, novel economic
constructs, invocations of national security, explanations about the need to
manage spectrum, and unjustified concern about the “technical integrity” of
their networks. Rather than wait for a consumer revolt, the FCC could adopt
a wireless Carterfone policy that would place the burden on carriers to explain
why their subscribers should not have the same handset attachment rights as
wireline subscribers have enjoyed for forty years.
