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CONTACT: Amy Smorodin
December 22, 2009
(202) 289-8928
Wireless Investment, Innovation and Competition
PFF Releases Transcript of October Event on Wireless Issues

WASHINGTON D.C. - The wireless sector has been identified as a key component of increased broadband deployment and penetration.  At the same time, the wireless service sector is under increasing scrutiny from antitrust and regulatory officials.  Yet, analysts claim there may be too much competition.  Would increased regulation of wireless markets be necessary or counter-productive?  How can a regulator encourage innovation and investment in wireless?  These and other policy issues were discussed at a congressional seminar hosted by The Progress & Freedom Foundation.  Today, PFF is releasing a transcript of the October event, "Wireless Investment, Innovation and Competition: Advance or Retreat?"

Ruth Milkman, Chief of the FCC's Wireless Telecommunications Bureau, outlined steps the agency plans to take to support competition and innovation in the wireless industry. These include, "unleashing spectrum for broadband, removing obstacles to 4G deployment, preserving the openness of the Internet while recognizing the differences between wired and wireless technologies, and empowering consumers by supporting a vibrant, transparent and competitive mobile marketplace."

Gregory Rosston, Deputy Director of the Stanford Institute for Economic Policy Research, presented the findings of an academic paper he co-authored on network neutrality and antitrust.  He stated that while vertical integration could permit anticompetitive behavior, there are also efficiencies that result which must be weighed when considering regulation.  "With a network neutrality rule, you're saying, we're not going to do this balancing test," he explained.  "We're going to take a rule that says, we don't care about the vertical efficiencies and the integration efficiencies that might arise from it, we're going to disallow those and not count them. We're going to have a per se rule against it."

Craig Moffett, Senior Analyst at Bernstein Research, discussed how network neutrality regulation could undermine the economic foundation of the wireless sector.  He explained that, "the arbitrage risk comes from very low bandwidth applications like voice and texting. And so, when you throw the door open to network neutrality, what you are in fact saying is we are going to sanction arbitrage of low bandwidth, high revenue, applications. And substitute for them with low revenue applications over the data network instead."  Moffett questioned how long the wireless sector would be able to support increasing network demands under the current business model.

Brett Glass, Owner and Founder of Lariat Networks, also discussed how possible regulation would undermine the financial viability of wireless Internet service providers.  "We had a hard time when we renewed our credit line for our business this year.  They asked me if I would be willing to guarantee the credit line with my own personal real estate.  Because they trusted that, but they weren't so sure whether a wireless provider was going to be able to prosper under the regulation," he stated.  Glass also questioned how regulation would effect competition.  He explained that "if you want to promote innovation, the way you do it is you enable people to compete with one another. So, they have to start thinking about competing with one another via innovating. And you certainly don't want to put regulatory barriers in the way of trying something new."

Thomas Hazlett, Professor of Law and Economics at George Mason University, reviewed the history of deregulation and "unregulation" of broadband Internet providers and identified the successful interplay between infrastructure and application providers.  "The market we're talking about saving once again 10 years later is the market that has been produced competitively through the interplay of these rival forces.  And so you talk about regulation being needed today to somehow preserve the 'openness of the Internet' -- that is an openness that wouldn't have been there, if there hadn't have been the investment and the dynamic forces that were unleashed precisely because we did not answer that call 10 years ago."

Kathleen Ham, Vice President of Regulatory Affairs at T-Mobile USA, discussed her company's experience as an example of how the wireless industry responds to consumer demand in today’s competitive environment.  "There are some examples where my company decided not to do something or changed its policy on something very quickly, based on that kind of consumer input," she explained.  "And that happens a lot faster than regulation. That's real-time, in-the-marketplace competition, consumer interest driving those types of solutions and changes.  And it is that kind of flexibility that I think is going to drive innovation."

Wayne Leighton, Partner at Empiris, discussed the role of wireless network innovation and how regulation can adversely affect such innovation in the marketplace.  He stated, "If the networks aren't innovating, the other elements in this ecosystem, the applications, the devices on which they're run, those can't work either.  They can't work nearly as well."  Leighton warned, "certain types of rules that might prohibit managing that network can actually result in less capability and, therefore, less innovation for all the other elements in the wireless ecosystem.  In addition, certain practices by the carriers that may seem anticompetitive, and that may in fact be anticompetitive in the old wireline world where you have one provider, may not be anticompetitive in a world where you have multiple facilities-based providers that are competing very, very strenuously."

Complete statements from the panelists and questions from the moderator, PFF Senior Fellow Barbara Esbin, and audience members can be found in the transcriptAudio of the event is also available.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



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