Wandering along the road to competition and convergence - the changing CMRS roadmap.

• Author: Kennedy, Leonard J.
• Position: Commercial mobile radio services

1. INTRODUCTION: THE WIRELESS ROAD LESS TRAVELED--TWO ROADS DIVERGED A. Once Again, Whither Wireless? B. Charting a Federal Course for CMRS--The FCC as Wilderness Guide II. WIRELESS LANDSCAPE IMPROVEMENTS--1998-2003 III. PERSISTENT PROBLEMS: MISGUIDED LEGAL ANALYSES AND STATE REGULATORY BURDENS A. Conflicting Court and Commission Decisions 1. Section 332 Cases: Same Laws and Similar Facts Yield Inconsistent Holdings 2. Central Office Telephone and CMRS Preemption Law 3. Bastien v. ATT Wireless Services--Complete Preemption Redux 4. The Burdens of Universal Service Levies 5. Epidemic of Class Action Suits Against CMRS Providers B. Continuing Federal, State, and Local Burdens on CMRS 1. State and Local Taxation 2. The Mobile Telecommunications Sourcing Act 3. Federal Fees 4. The Inefficiency of Multiple Regulatory and Tax Structures IV. NEW CHALLENGES: "CONSUMER PROTECTION" SENTIMENT, CONVERGENCE AND OPTIMIZING COMPETITION A. Consumer Protection Legislation B. Convergence 1. Wi-Fi and the Proliferation of Unregulated VoIP Services 2. Would Regulation of VoIP Sound the Death Knell for Wi-Fi and/or TCP/IP? C. Optimizing Competition V. REGULATION'S IMPACT ON INVESTMENT: LESSONS FOR AMERICAN WIRELESS FROM EUROPE'S SPECTRUM MISADVENTURES AND U.S. AIRLINE DEREGULATION A. Two Models of Licensing "Scarce" Spectrum 1. The American Market-Based Spectrum Allocation Model 2. The European State-Sponsored Spectrum Allocation Model B. Promoting Competition and Encouraging Network Investment: Deregulation and Regulatory Consistency in Nationally-Networked Industries--The Case of Airlines 1. Deregulation and Consolidation: The Airline Industry 2. Lessons for CMRS from Airline Deregulation VI. THE ROAD AHEAD: REGULATORY ECONOMY, FACILITATED INVESTMENT, LIMITED TAXATION APPENDIX 1 I. INTRODUCTION: THE WIRELESS ROAD LESS TRAVELED--TWO ROADS DIVERGED ...

   In May of 1998, the Authors surveyed America's wireless terrain in a Federal Communications Law Journal article (1) and observed that commercial mobile radio services ("CMRS") stood at a pivotal crossroads. (2) One road led to a new land envisioned by the Omnibus Budget Reconciliation Act of 1993 ("1993 Act") (3) and the Telecommunications Act of 1996 ("1996 Act") (4)--a deregulated landscape fostering competition, investment, and regulatory consistency through a uniform federal framework. The other road led back to the far country of the original Communications Act of 1934 ("1934 Act") (5)--a regulated, static industry landscape preserving the legacy of dual, and often conflicting, federal and state jurisdictional regimes tied to artificial geographical and political boundaries and onerous state burdens.

   >From this crossroads, the Authors looked back at the history of the 1934 Act and across the ocean to the enviable wireless position held by most European mobile carriers and posed the question: "Whither American wireless?" The Authors argued forcefully that unleashing the full potential of wireless communications in the United States would require both a frank acknowledgement that the unique nature of wireless technologies transcends old categories of state and local networks and an unblinking acceptance of Congress's vision for a national regulatory scheme. This overarching wireless framework marked by federal forbearance and extremely limited state regulatory involvement--was essential to induce the nationwide build-out of a robust wireless communications infrastructure capable of serving customers where they live, work, study, and play.

   Yet, many court cases and regulatory decisions since then have struggled to accept this federal "new world order" for wireless prescribed by Congress and identified by the Authors. Presently, the Authors believe that entrenched, regressive attitudes towards CMRS have enticed some policymakers to envision pouring this promising new wine back into yesterday's casks of a balkanized system that ignores the deregulatory framework spelled out by Congress in the 1993 and 1996 Acts. (6) As such, the time appears right to revisit the wireless terrain five years down the road from 1998 to glean the hard-won lessons of the past half decade and the best policy prescriptions for tomorrow.

   1. Once Again, Whither Wireless?

      Today, the broad telecommunications terrain is littered with the steaming wrecks of failed companies, the struggling remnants of former titans (AT&T, MCI/WorldCom), and gaping potholes of regulatory uncertainty. Scholarly journals and publications are filled with explications of the "parade of horrors" (7) in the telecommunications sector (including corporate fraud, distraught shareholders, overcapacity, commodification of some services, price increases for others, decreasing competition, and investors chilled by constant uncertainty). (8) Even more postmortems detail "what went wrong" with the once lofty promises promoted by many who saw the 1996 Act as a chance to build "castles in the sky." Some even blame the tarnished telecommunications sector for dragging down the U.S. economy as a whole. (9) Yet, important lessons have been learned by those who have managed to survive, and potentially vibrant CMRS, wireless fidelity ("Wi-Fi") and voice over Internet protocol ("VoIP") innovators stand poised on wireless, cable, and telecommunications platforms for the final assault on the status quo of the last century's communications models.

      Perhaps most prominently, the wireless industry stands out as a battered but promising survivor of the 1990s telecommunications saga. While facing its own set of significant challenges since 1998 (including costly and complex state and federal mandates, taxes and fees, unpredictable regulation and court decisions, and huge investments in the build-out of their networks), on the whole, wireless carriers have--with the notable exception of Nextwave--avoided the bankruptcies and liquidations encountered by emerging wireline operators. Instead, the wireless industry's past half decade has been marked by increased competition and consumer demand, innovative new products and features, significant debt reduction and balance sheet revival, service improvements, and delivery on the promises of "convergence."

      What was done right in this area that helped to set CMRS apart? Will wireless operators be able to improve in the current environment? The Authors believe an examination of the CMRS industry's evolution, its still-looming barriers, and its prospects for the future will provide a useful road map for this critical industry in the 21st century.

   2. Charting a Federal Course for CMRS--The FCC as Wilderness Guide

      This Article explores legal and policy developments affecting CMRS providers since 1998 in the overall context of national and international telecommunications industry regulation and other networked industries. The Authors conclude that while the amendments to Sections 332 and 2(b) in the 1993 Act give the Federal Communications Commission ("Commission" or "FCC") exclusive, plenary regulatory jurisdiction over CMRS providers, (10) many courts and regulators have failed to recognize this fact--at great cost to industry and consumers. These failures severely impede wireless companies' ability to optimize their inherently national networks as well as their sales, marketing, and billing services. The Authors believe that despite strong overall growth and technological development in the post-1998 CMRS marketplace, the threat of continued inconsistent treatment of wireless companies by judges and regulators stifles investment opportunities, subverts Congress's deregulatory vision, and may ultimately frustrate CMRS's role as the engine of the next stage of technological development.

      But which road taken in 2004 and beyond will best achieve these long-term aims of deregulation, innovation, and competition? The Authors believe that the Commission is the appropriate guide to lead the wireless sector out of the current morass and into the full promise of convergence. As the "expert agency" designated in American administrative law structure (11) to be the implementer of laws in complex policy areas, the Commission is the right body to reiterate and implement the federal framework for CMRS laid out by Congress in 1993 and 1996. To rectify the problems identified in this Article and realize the full potential of wireless technologies, the Commission should:

      * Overcome political concerns and boldly state the imperative for minimal state regulatory involvement in wireless matters. Clear, well-articulated Commission decisions emphasizing the federal framework for wireless are much more likely to generate judicial deference than Commission orders which somewhat quixotically seek to placate all constituencies;

      * Proactively submit clarifying comments to state PUC proceedings affecting wireless carders, just as state regulators now file comments at the Commission. This new commitment by the Commission to "regulatory economy" would shave years off the current process for determining the correct boundaries for state/federal action and greatly improve regulatory predictability for carders and their investors.

      Only such a major recalibration of the Commission's approach will address the recurrent problems in the wireless sector and generate the increased competition, convergence, innovation, and regulatory predictability that have so far eluded policymakers, consumers, and industry. Without this shift in Commission leadership, these bright promises for CMRS and the telecommunications sector as a whole will remain constantly beyond the horizon and still further down the wireless road less traveled.

2. WIRELESS LANDSCAPE IMPROVEMENTS 1998-2003

   The five-year period from 1998 to 2003 resulted in tremendous growth in the wireless marketplace. Notwithstanding the significant gains in dispatch and messaging services, this period (see Appendix 1) produced dramatic net increases in gross revenue, subscribers, nationwide...