FEATURE: Net Neutrality's threat to wireless

Net Neutrality issues loom for wireless carriers

By Brian Dolan

There's a growing debate over whether or not basic net neutrality rules apply to wireless networks. Earlier this week the New America Foundation organized a panel debate on this topic that drew a crowd of more than a hundred attendees.

The wireless net neutrality issue is gaining traction, thanks to a petition filed with the FCC on Feb. 21 by eBay subsidiary and VOIP provider Skype. The petition asked the FCC to confirm that basic net neutrality rules apply to wireless networks. It also questions whether Carterphone rules also should apply. Skype's petition is a derivative of a white paper written by Columbia University Law School Professor Timothy Wu and published by the New America Foundation in January. The paper claims that the wireless carriers' control over which handsets can connect to wireless networks has stymied innovation in the industry and has even led to some cases of alleged consumer fraud.

The CTIA, of course, disagrees with Wu and Skype. CTIA President and CEO Steve Largent says that Skype's filing contains glaring legal flaws and a complete disregard for the vast consumer benefits provided by the competitive marketplace.

During the panel, Wu said that the debate about wireless net neutrality does not center on horizontal competition within the industry, but with vertical competition and the effects of the "carrier oligopoly" on the handset market. Those effects include difficulty in entering the equipment market, feature crippling on handsets, consumer fraud over false promises for 3G services and data plans as well as issues surrounding application development.

CTIA's head counsel Michael Altschul countered Wu by saying that three of the four wireless carriers in the U.S. are offering 3G services that match DSL speeds, which means in some markets there are as many as 12 broadband service providers.

Skype's director of government and regulatory affairs, Chris Libertelli, however, argued that worldwide the mobile device market has a split of about 50-50 when it comes to where consumers get their phones from: carriers or independent channels. In Asia about 80 percent of phones are sold through third parties. In Europe about 70 percent are sold through independent channels. In the U.S., 90 percent to 95 percent of phones are sold through carriers. "We think the consumer should have that meaningful right to attach any non-harmful device to a wireless network, just like Carterphone allows in the wireline space," Libertelli says.

Stifel Nicolaus' investment banker Blair Levinson said that a service provider agnostic device in the U.S. would be a revolutionary move for the industry--much more revolutionary than the launch of Apple's iPhone, expected later this year. However, he believes that Skype needs to demonstrate harm in a marketplace that most people think is fairly robust. CTIA's burden is proving that wireless carriers' practices with handsets are really in the consumers' best interests.

Consumer Union's Jeannine Kenney argued that mobile broadband is not a substitute service. And while there are choices for mobile broadband services, it doesn't make sense for a consumer to switch providers when all the providers are discriminating. In addition, she noted that consumers are increasingly locked into contracts for bundled services.

The impromptu discussion at The New America Foundation framed the growing debate over wireless net neutrality, but this is a discussion that has just begun. This issue will have a serious impact on the wireless industry and wireless carriers, in particular, if it continues to gain traction.