Market Watch

US Regulator Promotes Mobile Broadband Coverage with Data Roaming Order


Display Driver IC Forecast

The Federal Communications Commission (FCC) has passed a ruling which potentially gives all mobile network operators access to the mobile internet networks of facilities-based providers, which include AT&T Inc and Verizon Wireless. Under the order providers must strike roaming agreements enabling access to their networks on a "commercially reasonable basis". If a carrier attempts to form an agreement but gets refused, it is able to apply for a ruling from the FCC. The order passed with a slim margin of 3 to 2 votes. It has not been received positively by the larger operators, claiming it will discourage investment, whereas the smaller operators claim the opposite.

The legislation comes after action taken in April 2010 which eliminated the "home roaming" agreement, which allowed carriers to refuse voice roaming requests from other operators if they already offered voice services in the area. This decision also had a clause whereby disputes could be settled through the FCC.

The new regulation was made in accordance with the FCC objective of increasing consumer access to mobile broadband across the country. The regulator states that it will balance incentives for new entrants whilst maintaining competition between the incumbent providers.

Analysis
One year after scrapping a highly controversial agreement on voice roaming, the FCC has passed another controversial agreement, this time for data. It is no surprise that the agreement has left the large operators unhappy; currently they are able to negotiate agreements with the smaller carriers independent of the FCC ruling. We therefore expect these have been set with high level prices and restricted to certain carriers.

The claim that it will reduce innovation within the industry may well be valid. By taking away the ability to allocate agreements to only certain providers, rural markets are fully opened up to competition. This leaves a disincentive for the providing carrier to improve its technology in the area, as it may only have a small percentage of the customers who will benefit. Furthermore, wholesale providers such as Clearwire and Lightsquared will suffer from a reduction in cash through a loss of business, which is vital for expansion of coverage. It is not just operators who have been left unhappy with the order. Of the 5 voting parties on the FCC board, 2 voted against the decision, stating that it was beyond the legal scope of the commission to implement the ruling.

We expect the main beneficiaries of this to be the smaller carriers, such as MetroPCS and Leap Communications. These no-contract providers, popular with lower income demographics, are already expanding throughout the US. As such, having the ability to offer country-wide data coverage with no sunk cost investment of their own is highly desirable. This is accentuated in comparison to voice as data networks need continuous investment to both improve access speeds and remain competitive. Further possible beneficiaries are the US cable companies who are looking to provide mobile services to their customers as part of a quadplay strategy. Doing so would put them in a better position to compete against AT&T and Verizon.

The big three operators are protective over their data networks, and a natural concern arising from the decision would be increased traffic relying on networks which already struggle. However, part of the "commercially reasonable" clause is that hosts are able to safeguard their networks against exactly this problem. It states that a provider does not have to offer agreements where it is not technically or economically reasonable. This only increases the controversy of the bill; technically and economically reasonable are undefined terms which can be interpreted in numerous ways by the operators. The FCC states that it will settle disputes if agreements cannot be made; we expect that this clause may provide a breeding ground for such cases.

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