Critiquing Wireless Carterfone

by on June 1, 2007 · 4 comments

In the latest installment of TechKnowledge, I critique Tim Wu’s recent article on “wireless Carterfone”:

True, a government-designed standard is not impossible, but “not impossible” is a long way from a good idea. Indeed, Wu seems to be implicitly conceding that it is far from the “simple requirement” he touts in his Forbes article. He seems to be proposing that the FCC dictate to wireless carriers what network services they must offer, who may access them, on what terms, and at what price.

History suggests that such efforts often end badly. Even when a government-created monopoly situation makes public utility regulation unavoidable, as in the Carterfone case, it can take a decade or longer for the dust to settle. The Clinton-era FCC attempted to create competition in the telephone and DSL markets by requiring Baby Bells to “unbundled” their local phone lines and lease them at FCC-determined prices to competitors. The Bells ultimately killed the plan using a combination of lobbying, litigation, and foot-dragging. But for the nine years between the passage of the Telecom Act in 1996 and the Supreme Court’s Brand X decision in 2005, telecommunications firms spent tens of millions of dollars on lawyers and lobbyists to seek advantage in the regulatory arena.

An even better example is the seemingly interminable battle over the CableCARD, a credit-card-sized device that allows televisions to decode cable signals without a set-top box. It, too, was prompted by the 1996 Telecom Act, which instructed the FCC to create regulations opening the market for cable set-top boxes. The CableCARD fight is closely analogous to Wu’s proposal because the FCC ordered the cable industry to develop a standard interface that could be used to build third-party set-top boxes. Like the Bells, the cable industry has done everything in its power to slow the progress of the CableCARD effort because it prefers to continue using proprietary set-top boxes. As a result, after more than a decade of bickering, the CableCARD continues to be a niche product.

Even the Carterfone decision itself shows that forcing owners to open their networks is not a simple process. Wu is right that Carterfone was a landmark decision exposing a government-backed monopolist to much-needed competition in the market for telephone equipment. But it took a long time to come about, much less have an impact. Thomas Carter began selling the Carterfone in 1959. Soon after, he sued AT&T on antitrust grounds. He got a favorable court ruling in 1966, and the FCC released the Carterfone decision in 1968. But the FCC didn’t formally codify the principles behind that decision until 1975.

I agree with Wu that it would probably be good for technological progress if at least some of the carriers adopted more open policies for their wireless networks. But I think he is overestimating how easy it would be for the FCC to pry those networks open by regulatory fiat. And given that any FCC intervention is likely to stretch well into the next decade, it seems premature to be declaring the market competition a failure after just 3 years of competition in the 3G marketplace. This isn’t exactly a market that’s standing still, and there’s every reason to think that one of the incumbents could be persuaded that a more open network would be profitable.

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