Toward a Common Wireless Market
Imagine a world where you can buy a mobile phone, and if you have problems with service—say, poor reception at home—you can move to a different service provider that offers better reception simply by making a call and asking for service to be transferred. No need to change your phone; no need to figure out if your new service provider supports your current device; no need to get your old provider’s permission to leave. Nor would there be a cost linked to user choice. Currently, users who want to move from one service provider to another cannot do so without paying a substantial penalty, and they also have to absorb the sunken cost represented by their current cell phone and bear the cost of purchasing a new one.
The key to this imaginary world is that all service providers would have networks that operate on a specified set of frequencies and provide mobile devices that are technologically standardized—very much not the situation in today’s wireless environment in the United States. Along with promoting user flexibility, adopting “interoperable” networks and devices would bring other benefits as well. Cell phone users, for example, would enjoy better call quality in places where their service had been spotty, as carriers tapped into competitors’ networks to roam in areas where their own coverage was poor. Prices would be lower, as carriers would be relieved of some of the cost of building expansive new wireless networks. Innovation in the device market would be encouraged, as mobile device manufacturers and developers (and especially smaller companies) were able to focus on designing new products that have to support only one standard.
This world is possible, and the nation is at a critical point for making it happen, as the wireless industry is in the early stage of converting to the next generation of wireless communications. Unfortunately, the industry seems to be making a hash of this shift, with individual carriers working to achieve their own advantage at the expense of interoperability. It is time for the federal government, through the Federal Communications Commission (FCC), to bring order to the process.
A jumble of standards
Currently, the mobile wireless industry in the United States is a hodgepodge of incompatible wireless standards, with different operators deploying various wireless technology standards on widely variable frequencies. The largest four wireless providers are a sufficient sample to make this point. Currently, AT&T and T-Mobile use networks based on GSM (Global System for Mobile Communications) standards, whereas Sprint and Verizon use networks based on CDMA (Code Division Multiple Access) standards. As a further complication, these networks run on varying frequencies across the radio spectrum, so even in the rare cases where the underlying technologies are compatible, spectrum incompatibilities prevent full interoperability.
This level of confusion in the marketplace is not a result of any inherent technological limitations, but rather of FCC policy decisions. The mobile wireless market began with a common standard when, building on work begun at Bell Labs, the Telecommunications Industry Association proposed the Advanced Mobile Phone System (AMPS) as a standard for mobile wireless phones, and the FCC adopted the standard in the early 1980s. AMPS was relatively successful for its time, although it was an analog system and therefore noisy and relatively insecure. The AMPS standard provided, by and large, a unified frequency band plan. This led to decreased infrastructure costs for operators and lower barriers to marketplace entry.
By the mid-1980s, researchers had developed second-generation (2G) digital technologies that overcame the analog problems. In Europe, coincident with the formation of the European Union, the European Conference of Postal and Telecommunications Administrations decided to resolve the incipient problem of incompatible digital wireless systems across the nascent union. The organization initiated the process of creating a single standard for the region, but soon handed over responsibility to the newly founded European Telecommunications Standards Institute. The result was development and adoption of the GSM standard, and by 1993 more than a million people were using mobile devices tailored to GSM.
GSM was a political and economic success, and it quickly spread beyond Europe with its adoption by Telestra of Australia. GSM has since become the de facto global standard for mobile wireless communication, with over 3 billion connections and with an installed base that is virtually global in its reach. This ensured interoperability led to increased competition, lower prices, and the rapid adoption of mobile wireless technology around the world, as economies of scale pushed the cost of infrastructure deployment to affordable levels.
The United States, however, followed a different path. In keeping with the prevailing governmental tenor of the times, the FCC put aside its designation of a unified frequency band plan, as called for under the AMPS standard, and chose to rely on market competition to determine technical standards for 2G wireless systems. This shift effectively allowed individual operators to determine which technological standards to deploy, perhaps in an effort to stimulate technological innovation.
The result was a proliferation of multiple standards, with each operator attempting to select standards that would give it a technological advantage. Over time, two standards became dominant: CDMA, which was promoted by a leading U.S. wireless technology company, Qualcomm; and GSM (though implemented with different frequency allocations than the European frequency band plan). It is worth pointing out that at the time, CDMA systems, which enabled multiple parties to transmit on similar frequencies simultaneously, were more efficient than GSM systems, which relied on allocating small fractions of time for each device to transmit.
Still, the FCC’s decision had the effect of encouraging the industry to adopt incompatible standards. Also, the FCC continued its historical practice of handing out licenses to local markets, failing to recognize the mobile wireless industry as a truly nationwide resource. This focus on local allocation has led to situations in which individual operators have different frequency allocations in different markets around the country, leading to even more fragmentation.
Changes also were continuing in Europe. With the increased adoption of GSM standards by non-European nations, the European Telecommunications Standards Institute opened up its standards development process, creating the Third Generation Partnership Project (3GPP) to guide work on wireless technologies. The 3G wireless systems being developed were driven predominantly by the trend toward providing data (Internet) access on mobile devices. These new smartphones combined voice and data services and created a need for greater bandwidth on mobile wireless networks. Under 3GPP, researchers in various nations continued work on the GSM standards and incorporated some of the technological elements of CDMA, erasing some of the earlier criticism of GSM’s technological inferiority.
In the United States, the industry largely continued along the path it had settled into during its 2G transition, with the FCC not doing much to change the status quo. The two technological standards that had become dominant in the United States—CDMA and GSM—continued development into the 3G environment. The industry remained divided and insufficiently competitive.
The wireless world continued to change, however, increasingly moving to fourth-generation (4G) technologies as mobile wireless transitioned from providing voice-based services to providing ubiquitous Internet access, where “voice” is just one of the many applications that can be run on mobile devices. The 3GPP process has been a huge international success, with participation by a large portion of the global wireless industry. Also, the two largest mobile wireless operators in the United States (AT&T and Verizon Wireless) have been involved and have decided, along with a number of other U.S. service providers, to adopt the 4G GSM-based standard. The adoption of 4G GSM, known as Long Term Evolution (LTE), promises to revolutionize mobile communications.
It is fitting, then, that LTE is the arena in which the future of mobile wireless communications in the United States is currently being decided. Although there are operational LTE networks, much of the standards development is still in process, and there is still time for the FCC to act to engender a more competitive future.
There are mixed signs, however, as to the FCC’s intent. On the one hand, it has recently identified interoperability as an important consideration to lower costs, increase economies of scale, and improve competition in the wireless technology sector. Yet it also appears to be moving toward LTE standards that would allow companies to operate in separate frequency bands. This way, the mobile wireless networks would be theoretically interoperable but practically remain as isolated networks.
The primary advantage of using the same standard is defeated because the wireless operators have predictably engaged in the balkanization of the LTE standard, by ensuring that their individual spectrum assets (frequency bands) are written into the standard in such a way that preserves the status quo, with the effect that the devices in one frequency band are unable to function on other frequency bands. It appears that all of this is being done to lock in subscribers, by making the cost of shifting from one service provider to another prohibitive. Mobile wireless operators are already protected from subscribers taking advantage of subsidized mobile phones through the imposition of early-termination fees that ensure that subscribers bear the full cost of their phones if they leave before the contract period has elapsed. This balkanization defeats the rationale of standardization and retains the price barriers and user lock-in of the status quo.
Guide to action
All is not lost, however. LTE is still a standard very much in development, and the FCC can still bring about the truly competitive mobile wireless market of the future. Fundamentally, the FCC needs to make promoting interoperability an active policy stance and to take a leading role with industry in the process of setting standards for LTE. The FCC needs to commit to working toward interoperability in two major areas: technical-standards compatibility and mobile wireless spectrum interoperability. In other words, the FCC has to ensure that everyone speaks the same language (technical standards) and that they all speak in understandable accents (frequency compatibility).
The first job is already under way, as illustrated by the expressed desires of many U.S. mobile wireless operators to use the same LTE standard (same language) as the technical basis of their 4G systems—in effect, merging the GSM and CDMA tracks. For job two, the FCC should immediately begin to promote interoperability in the design of these new 4G systems and ensure that the new standard is written in such a way as to enable spectrum-based interoperability (same accents). To support such efforts, the FCC needs to use its license-granting authority to ensure that future spectrum allocations are carried out in such a way that interoperability is required from service providers serving the mobile wireless market.
One place where the FCC can begin establishing a common marketplace is in the 700-megahertz (MHz) band of the spectrum, which the government periodically auctions off to private mobile service providers. The 700-MHz band is particularly attractive for wireless applications, because its excellent propagation characteristics allow for superior coverage, enabling signals to penetrate buildings and other architectural infrastructure. (The FCC also has declared its intention to build the next-generation public safety network in this band.) However, although most private holders of rights within the 700-MHz spectrum band have adopted LTE as their technological standard, they have also worked to ensure that the standard is written in such a way as to prevent interoperability, locking in their customer base and increasing infrastructure costs for smaller operators with adjacent spectrum holdings. The FCC cannot allow such actions to persist.
With different policies and a focus on interoperability, the FCC can move the wireless industry toward a single interoperable market in which consumers have real choice and flexibility. This truly competitive market is achievable in the near future, and it can be reached with minimal financial and logistical impact on mobile wireless operators, because current infrastructure will continue to operate as usual. By acting now, at the transition from 3G to 4G/LTE systems, the FCC will ensure minimal disruptions to the highly productive mobile wireless sector, as well as a freer and more competitive wireless marketplace for mobile users.
Tolu Odumosu is a postdoctoral research fellow in the Science, Technology and Public Policy Program at the Harvard Kennedy School and at Harvard’s School of Engineering and Applied Sciences. Venkatesh “Venky” Narayanamurti ([email protected] seas.harvard.edu) is the Benjamin Peirce Professor of Technology and Public Policy and professor of Physics at Harvard University and the director of the Science, Technology, and Public Policy Program at the Harvard Kennedy School.