In the eyes of some, the Federal Communications Commission’s great experiment with personal communications services licensing has been a smashing success. Facilities-based competition is all around. Subscriber numbers and revenues are growing by leaps and bounds, with equipment and service prices falling just as quickly.
While there is some truth to this fickle fanfare, it is not the full picture.
Others view PCS as a mixed success. The more disillusioned say mixed failure is more like it. Mixed on different levels and for various reasons. It’s a rather harsh judgment, given the relative novelty of PCS and auctions and the competitive bullishness of the mobile telephone business in contrast to other telecom sectors.
For sure, Congress and federal regulators made some bold decisions to pave the way for PCS.
Former FCC chairman Alfred Sikes had the foresight to reserve the 2 GHz band for emerging technologies, like PCS. His successors, James Quello and Reed Hundt, moved quickly to craft service rules and auction licensing guidelines.
Then the bidding began. With it came the good and the not-so-good.
FCC dropped the ball
As `good’ as some people believe the state of wireless business is today, there is a sense much could be better. There is anguish in the industry that the FCC started something big and then dropped the ball, welshing on its end of the bargain to deregulate after taking billions of dollars from firms for wireless licenses after Congress authorized spectrum sales in 1993.
Why, the industry asks, isn’t the FCC more vigilant about addressing antenna moratoria and taxes that burden PCS and other wireless carriers?
Congress got states out of the wireless industry’s way five years ago and has since told the FCC it can deregulate the rest of the way. But, for all its rhetoric about competition, the industry says the FCC has not chosen to finish the job Congress began in 1993.
“We really believe the FCC missed the opportunity to deregulate when they refused to grant the forbearance we sought,” said Jay Kitchen, president of the Personal Communications Industry Association.
The FCC, responding after a year to PCIA’s forbearance petition, last month refused to kill mandatory wireless resale and to streamline other rules.
“The PCS industry has clearly shown that competition clearly fosters new service provisions and lowers prices. We’re going to fight for deregulation,” said Kitchen, who earlier this year launched a six-point plan to make wireless competitive with the wireline local loop.
But Kitchen has met resistance to PCIA’s Agenda for a Wireless America.
“It’s frustrating for them (carriers). It’s frustrating for the consumer,” he laments.
The grand plan
It has been almost five years to the day since the then-Democratic Congress created a wireless model for competition with a social conscience. New digital PCS licensed via auction would battle duopoly cellular carriers in each market. And if things worked out really well, PCS would give landline telco monopolies a run for their money.
Women, minorities, small businesses and rural telcos would be integrated into the wireless revolution through discounts and installment payments on licenses.
Today, the promise of PCS has not been fully realized.
The added competition of PCS comes mainly from corporate giants, like AT&T Corp., the Baby Bells, GTE Corp. and Sprint Corp., which dominated the market long before new digital PCS phones came on the scene.
How did this happen?
The FCC, with the Clinton Justice Department’s blessing, allowed Bell monopolies to partner in PCS bidding and then auctioned the A and B blocks first. The result: a veritable PCS cartel.
The infamous C-block
Meanwhile, nearly everyone else is scratching and clawing for survival.
The infamous PCS C block, the auction vehicle minorities and small businesses had hoped would transport them into the digital age, is in virtual disarray. A conservative-leaning Supreme Court can take partial credit by curbing federal affirmative action.
But there is plenty more blame to go around. Look to the FCC, Congress, the Clinton administration and overzealous PCS bidders. The financial crisis across the Pacific hasn’t helped matters either. All that Asia-Pacific foreign capital for PCS was a mirage.
NextWave Telecom Inc., Pocket Communications Inc. and General Wireless Inc., which accounted for more than half of the $10.2 billion in the C-block auction, are in bankruptcy. Others C-blockers, more or less fortunate, have returned scores of licenses to the FCC for re-auction.
Spectrum use
“It matters less how fast the FCC can auction spectrum than how quickly people can utilize it. The fact of the matter is it (the auction program) just didn’t work,” said Tom Gutierrez, a lawyer for NextWave and other PCS firms.
Gutierrez said his firm has calculated that 80 percent of the C-block PCS spectrum is unused.
“In retrospect, the commission probably should have given more attention to payment arrangements based on leasing spectrum rather than selling it,” said Gutierrez. “That would have been the best way to overcome access to capital for small businesses and minorities.”
Moreover, the federal government would be collecting recurring revenue for as long as spectrum licenses held their value. While that sounds good in theory and looks good on paper, it didn’t fit into budget deficit politics of the early 1990s.
PCS auctions became political pawns in the battle between the GOP-led Congress and the Democratic White House to balance the budget. Maximizing auction receipts all but eclipsed the venerable FCC public-interest standard in those early, ethereal days of multibillion dollar auctions.
So, then, should the FCC have held the C-block PCS auction first?
Rules and more rules
Jim Casserly, an aide to FCC Commissioner Susan Ness, said it is a fair question. He also said the many rule reiterations have done little to instill stability in the PCS market.
Likewise, Paul Misener, a wireless adviser to Commissioner Harold Furchtgott-Roth, said a big concern has been “the lack of rational and fairly straight forward rules for auctions.” He added: “We certainly would like to remove burdens and regulations when there is competition.”
One the plus side
“Overall, this has been a resounding success. But the process is incomplete,” said Dan Phythyon, chief of the FCC’s Wireless Telecommunications Bureau.
Phythyon said he was reluctant to talk about the timing of the C-block PCS auction and other related issues because of pending litigation.
Furchtgott-Roth dissented from the FCC’s ruling against the PCIA forbearance petition.
On the plus side, Casserly said PCS has spawned new mobile telephone service providers. “It shows the difference between a duopoly and competition,” he remarked. Casserly said technical flexibility has been good for PCS.
Look out
Others are less generous.
“The (PCS) business plans did anticipate many of the regulatory requirements,” said Brian Fontes, senior vice president for policy and administration at the Cellular Telecommunications Industry Association.
“It seems the commission cares foremost about licensing but has not followed through to facilitate competition,” said Fontes.
The FCC had better brace itself. The wireless industry is angry and restless.
