The iPhone hearing
This morning the House Commerce Committee, chaired by Rep. Markey (D-MA), is holding a hearing about a range of wireless issues: the role of states in providing consumer protection in this market, and the role of Congress and the FCC in protecting innovation. Markey's focused in particular on early termination fees and portability generally. He's also concerned that the carriers are exerting too much control over the features and functions of wireless devices. He's aware that Carterphone broke Ma Bell's stranglehold over devices for the wireline marketplace, and says the FCC could do the same thing for wireless. Markey urges the FCC to seize the opportunity to require open access for wireless services in the upcoming auction, and welcomes Chairman Martin's suggestion that this may happen for a portion of the auctioned spectrum.
How you see this set of issues turns in part on whether you believe the wireless sector is competitive or not.
The battle lines are clearly drawn here; Rep. Upton (R-MI) says that “innovation” happens when there is enough spectrum available for wireless services, and that we can best enhance consumer choice through the operation of market forces. He asserts that the wireless market is highly competitive, with four national carriers and many regional players, and that there's no need to emulate policies that have applied in the past to monopolists. Indeed, from his perspective imposing Carterphone requirements on wireless networks would “punish” current innovative wireless carriers.
The public safety theme is muted in this hearing - Rep. Harman (D-CA) says that her priority is to assure open access, wholesaling, and a national, not regional approach in the 700 MHz auction, so that when the next attack on US soil happens (she says likely this summer), we will be fixing the interoperable communications problem faced by first responders. And the Verizon witness notes that more flexible phones that work across networks would not necessarily be compliant with new E911 standards requiring access to public safety answering points, disabled-access requirements, GPS, and radio-frequency emission standards. (This was skillfully done — require Carterphone, and no one will be able to call for help.)
Even the state-preemption theme gets little play. Tony Clark of the North Dakota PSC presents very credible testimony that states should continue to have enforcement powers (and the state AGs support him), but no one takes him up on it.
What everyone wants to talk about is competition and Carterphone. Steven Zipperstein, GC of Verizon Wireless, says his customers aren't asking about being able to bring other devices onto the Verizon network. (A response could be: consumer expectations are extraordinarily low in this country when it comes to wireless phones.) Zipperstein also notes that if there's a business plan supporting open access, an entrepreneur will enter the 700MHz auction and carry out that plan voluntarily.
Tim Wu says that we've allowed a spectrum-based oligopoly in wireless to control innovation and the development of new devices, and that the US is not leading the world in this area as a result. He points out that over 90% of the retail market for new devices is controlled by the four national carriers, and they've successfully imposed a bottleneck -tying the devices to their networks. He makes the strong point that Americans should see these phones as property that they're not being allowed to use freely.
Philip Verveer, of Willkie, Farr, notes that Part 68 (the certification rules carrying out Carterphone, so that any certified device can attach to wireline) took 10 years to write. He says the wireless market is vigorously competitive and can't be described as an oligopoly.
Jason Devitt, of Vindigo and Skydeck is outspoken, clear, and heroic. He's making the point that he's furious that he has to ask for permission to innovate - refrigerators don't have to ask for permission to attach to the electrical grid (beyond certification), cars don't have to ask for permission to use highways, but he has to ask his competitors the carriers permission to introduce a new application on their network. He has some concrete examples: the Verizon phone work on GSM networks in Europe, but not the US; why can't he provide an application that allows a phone to work on all four networks in the US? Why are ringtones so expensive? Why won't carriers take any legal risk?
After hearing from the CTIA representative, Chris Murray of Consumers Union takes the floor, and makes some simple points very persuasively. He thinks we've got tight oligopoly behavior here, because two dominant providers control wireline, broadband isn't competitive, and very few actors can bundle wireless with these other services. He's worried about hefty termination fees, and he notes that preempting state enforcement (where the damages can be paying back these termination fees) will remove a way of policing this kind of behavior. And he says clearly that applications are being stopped from reaching consumers. Things are going better in Europe because they don't allow the carriers to carry out this locking-down behavior.
Jason Devitt makes a strong point: there are very few people dumb and crazy enough to fight the carriers. Chrmn. Markey: “At least you were crazy enough to come and testify here.”
Weekend reading
The New York Times reported today that Bill Clinton was reading Drew Westen's The Political Brain this past weekend. I feel so trendy. I was reading it too.
Clinton does come off awfully well in this book. He and FDR are among the few emotionally-intelligent-and-communicating-it Presidents the Democratic party has produced. Westen's point is that politics is a marketplace of emotions and narratives, not a marketplace of ideas. He writes persuasively. It does seem as if the Democrats have been steadily missing all possible boats for decades.
At one point today I had Political Brain in my hand while a big screen was projecting images in front of me. On that screen were two images: President Bush speaking in a folksy way to people about healthcare, and the Oakland airport being evacuated because of a terrorism scare. The sound was off, and I could see Bush's relaxed shoulders and his easy way of making eye contact. People were just nodding along with him, smiling benevolently. Meanwhile, things are not going too well for this country, and airports get evacuated. He's a guy people would want to have a beer with, but he may be governing (if Cheney isn't doing absolutely everything) with that same gut sense - and it's not working.
The Democrats don't seem to be able to find that kind of good-guy, emotionally-connected candidate. Westen's point is that in order to govern (rationally!) the first step is to get elected. You can't take that first step without emotion.
===Today, Chairman Martin feints towards “open access,” in a shrewd political move. If he can defuse network neutrality advocates by claiming to be giving them something they wanted, without really doing so, that will be quite a trick. I'll explain the trick tomorrow, along with a report on the “iPhone hearing.”