Tying, subsidizing, and IMS

In response to my post a couple of days ago about the possibility that VZ might not plan to comply with the 700 MHz “open platform” rules, someone wrote:

would you have the FCC mandate that every mobile device must be capable of running every operating system? If Verizon sells me a BlackBerry, should the device allow me to install Android, Palm OS, Windows Mobile, or Symbian OS? Obviously, Google believes the answer is yes (they will make the most money if they can install their OS on every device). Is it good for consumers if the FCC starts managing software specifications for computers and mobile devices?

Here’s the problem that the question doesn’t aknowledge::  VZ controls its network AND markets devices, and would like to tie the two together. The Google petition suggests that VZ plans to give its subsidized devices exclusive “better” access rights to its network (we don’t know in what way) than other, non-VZ-connected devices.  VZ also plans to “cripple” the devices it provides (or “optimize” them) to run only the applications and operating systems and everything else it wants to offer.  This isn’t good for anyone other than VZ, and puts VZ in control of innovation in both devices and applications.

Marketing differently-abled devices is obviously fine in the abstract.  The problem here is that if VZ can say “only our devices will work well with our network,” “only our devices can be subsidized in the way you’re used to,” and “you can do only X, Y, and Z with these devices, but don’t worry, they’re cheap,” they will have successfully returned us to the pre-Carterfone days.  Without Carterfone, we wouldn’t have had modems. Without modems, we wouldn’t have had the commercial internet.  That’s why we should be deeply concerned about VZ’s plans.

The problem is that VZ is a dominant, vertically-integrated network operator and device-provider.  This isn’t any old new-gadget-maker – it’s Ma Bell, reconstituted.

VZ will say: Trust us.  We’re here to provide the best possible consumer experience. Why would we ever do anything that would interfere with all possible uses of our network? Don’t force us to allow all devices to use our network – that will squelch our wildly-innovative nature.

Well, VZ has every incentive to compete with the open internet.  They can’t adequately monetize the open internet.  So the point of the “open platform” conditions, weak and game-able as they were, was to de-link network provision from both device-provision and application-provision.  Now it appears that VZ may argue that those links are necessary in order for their network to work properly.

Now, I’m not saying that government drafting specs is generally a good idea – but to characterize the certification of Part 15 devices (say) as the drafting of specs is unfair.  To the extent there is a need for ANY specifications for attachment to internet access, and perhaps there may be for wireless access, there is a role for government to come up (in cooperation with all netops) with a standard set of specs for devices that are permitted to attach to highspeed networks, to work to ensure that those specs don’t allow the network operators to discriminate in ways that serve its revenue plans, and then to police an effective de-linking of devices from network-provision.

Here’s why this is so important::  VZ plans to overlay on all of its networks, wired, fiber, and wireless, a cell-phone-like-billing-system called IMS.  IMS comes in many guises and isn’t fully baked yet (I believe, but who knows), but it’s a child of the mobile phone system.  It allows for discrimination and billing and other “management” efforts that VZ thinks are appropriate.  Add IMS together with network-provision and subsidized-device-provision, and you’ve achieved the traditional telephone model::  a fully-managed network, where everything requires permission and can be billed for perfectly.

That’s not the internet.

8 thoughts on “Tying, subsidizing, and IMS

  1. Brett Glass

    I’m a wireless ISP. I’m not a big guy — in fact, I only serve one county. I supply equipment to my users — a few models of several brands that my engineering tests conform to work well with my network. Every wireless link is individually engineered to ensure quality. Other equipment, while its makers claim that it conforms to standards, is likely to yield inferior service and also to disrupt the network. Should I be forced to allow any equipment — no matter how badly designed, or whether or not it is FCC certified — onto my network? To do so could destroy the network’s utility for everyone. Should lawyers who have no experience in the business, and seem to have no goal other than to attempt to regulate other people’s businesses, be allowed to dictate what I do to provide good service — or to run me out of business by harming my network? I don’t think so. With all due respect, I think that Ms. Crawford should find something else to do rather than constantly trying to regulate small business out of business.

  2. Susan:

    It is useful to note wrt your argument (which I think is essentially correct) that the FCC _did_ impose regulations specific to AT&T — as the dominant player in the telehone world — to make the Carterfone ruling work.

  3. Chuck Jackson

    We had modems before carterfone. The original 103 modems were a bell design and were available well before carterfone (hard wired). The competive CPE equipment market began to develop before carterfone. I had a non-bell acoustically-coupled modem in my office before carterfone. We had telecopiers (as fax machines were called in those days) before carterfone.

    Carterfone was important—but it’s important to get the history right also. (For anyone who wants to tie innovation to regulation, I think one can show that Judge Bazelon’s decision in Hush-a-Phone was a key step in bringing an acoustically-coupled dial-line fax machine to market.)

    The 1960’s wireline world was vastly different from today’s wireless world. The telephone industry was non-competitive and bell both manufactured equipment and provided service. Wireless today is a competitive industry with firms that buy equipment from a competitive equipment market.

    Poor wireline telephone equipment imposes few negative externalities on anyone other than the customer who uses it and those he or she talks to on the phone. The big exception to this is party lines—my bad phone could tie up service for everyone else on the party line. Recognizing this, the FCC never applied its registration program to party lines.

    Wireless telephones are much like party lines. In addition, wireless terminal equipment is both a complement and a substitute for wireless network equipment. Use of higher performance terminal equipment by user A can increase the service quality or system capacity available to others. That’s not the case in the wireline world.

    I could go on, but my basic point should be clear—any attempt to apply the wireline “carterfone principles” to wireless is profoundly flawed.

  4. J.B.

    Based on Chuck and Brett’s comments you’d think no unlicensed spectrum space could ever work. But my WiFi seems to be working just fine at the moment. No doubt the FCC certification standards for devices on open networks on licensed spectrum will be even more stringent. Not only are the problems you guys are worrying about problems that CAN be solved, they’re problems that already HAVE been solved. Enough with the excuses.

    Also… the idea that forcing Verizon to have an open network on the C-band is “regulating small business out of business” was good for a laugh. Thanks, Brett!

  5. The European concept of significant market power (SMP) may be relevant here. Verizon Communications (the landline guys) have SMP – they’re a monopoly. On the other hand, Verizon Wireless doesn’t have SMP in the provision of mobile voice telephony. At least for mobile voice the US market is competitive, yielding low costs and the highest average minutes of use per subscriber of any country.

    There is at least a chance that, by 2010, the US will end up with five competing national wireless networks offering data services (AT&T Mobility, Verizon Wireless, Sprint PCS, T-Mobile USA and Clearwire).

    If so, five competitors is enough to give us open Internet access without regulation. That would be preferable to regulatory intervention (which is frequently followed by regulatory capture and market stagnation).

  6. But, Brough, AT&T and VZ are owned by the same people that bring us DSL, and they have zero interest in undermining their DSL/fiber plans with wireless.

    The relevant market I’m talking about is highspeed internet access, not mobile voice.

    The potentially game-changing element is the new Clearwire. Absent that, I don’t think there’s a chance we’d see competition in open highspeed Internet access.


  7. Brett Glass

    Susan, there you go again: denying the existence of the 4,000 to 8,000 WISPs who do exist in this country and are far outperforming Clearwire. (This seems to be an essential element of your push to regulate the Internet so that no small player can EVER enter or even remain.)

    In any event, the “new” Clearwire isn’t a “game changer,” because they’re not changing how they do business. They’ll burn through their capital even faster than the old Clearwire did.

    As for the comment above by “J.B.” — Guess what? We’re operating on unlicensed spectrum. And doing it well. However, we do engineer each link to control noise and ensure quality We cannot and will not let a customer put up random equipment of his or her own to connect to our network. This is one of the reasons customers are so happy with our service.

  8. Brett Glass

    P.S. — By the way, the last thing that would work is for the government to try to tell us how to engineer our networks. We provide first rate service even over unlicensed spectrum because we’re the best in the business at engineering them while staying withing the bounds of the FCC regulations. None of our competitors even comes close. Want to kill that innovation? Want to ensure only mediocre service for customers rather than the higher quality and reliability that we provide? Then go ahead and regulate.

Leave a Comment