Verizon, Sprint get into war of words over data roaming rules

Verizon Wireless (NYSE: VZ) and Sprint (NYSE: S) are tussling over data roaming rules, with Sprint arguing that the FCC should not overlook the differences in spectrum holdings and the "head start" Verizon and AT&T (NYSE: T) got in building out their nationwide networks. Verizon maintains that Sprint's arguments are "tired" and designed to avoid building out its network.

The backdrop to the sniping between the carriers are petitions that Verizon and AT&T have filed for the FCC to review a ruling the agency's Wireless Telecommunications Bureau made in December 2014 that clarified the agency's data roaming rules. The FCC sided with arguments from T-Mobile US (NYSE:TMUS) and agreed that when trying to resolve disputes over whether data roaming agreements are "commercially reasonable," it may take into account factors such as retail rates, international roaming rates, MVNO/resale rates and roaming rates charged by other providers. Verizon and AT&T strongly disagreed with the ruling and want the full FCC to review it.

Sprint notes in its filing that the ruling "clarified that the build-out factor does not give host carriers license to deny or charge exorbitant rates for data roaming."  

In a recent FCC filing, Sprint noted that the FCC has "repeatedly acknowledged" that "there are areas where expanding a provider's network is 'economically infeasible or unrealistic.'"

"In many rural areas, where it is not economically feasible or rational to install duplicative network facilities given the unique challenges associated with overcoming low population densities, incentives are not the issue," Sprint said. "Less densely populated areas do not generate the revenue necessary to sustain the high cost of installing and operating multiple networks. Indeed, even though Verizon held spectrum licenses in the areas served by legacy Alltel, Verizon chose to acquire Alltel rather than build another network duplicating Alltel's. Both Verizon and AT&T also utilize roaming in certain rural areas."

Sprint said its opponents on the data roaming issue, especially Mobile Future, a policy advocacy group that counts Verizon and AT&T as members, do not to take into account that it is difficult to build out coverage in rural areas using higher-band spectrum, which has weaker propagation characteristics and requires more cell sites than low-band spectrum. Sprint also noted that Verizon and AT&T have 10x10 MHz blocks of 700 MHz spectrum, while T-Mobile and Sprint have only 5x5 MHz capability for low-band LTE, and not in all parts of the country.

Additionally, Sprint contends that Verizon and AT&T have had "tremendous head-start advantages" in building their networks. "Those advantages include billions of dollars in explicit government subsidy programs, such as state and federal high cost universal service programs, and implicit subsidies granted through inflated access charges," Sprint said. "If those benefits were made available to competing carriers, it would help enable them to operate on a more level playing field with AT&T and Verizon. Given the Commission's long-standing policy of ensuring that high cost universal service funds do not support multiple wireless networks, however, such subsidies are no longer available. Although competitive carriers invest heavily in their networks and actively pursue innovative commercial arrangements among themselves to reduce their reliance on AT&T and Verizon, they are unable to replicate the subsidized AT&T and Verizon footprints."

In response, Verizon said the FCC "should reject Sprint's self-serving proposals and maintain its long-standing roaming policies that appropriately encourage carriers to expand and improve their wireless networks. Sprint's filing makes its motives crystal clear: Sprint wants to rely on roaming instead of deploying its considerable spectrum assets and extending its network into more rural, less populated areas."

Verizon contends that Sprint wants to focus on improving its network in high-density areas and reaping profits as a result while ignoring investment in the rest of the country. It should be noted, though, that Sprint has said it plans to massively densify its network by adding thousands of macro cell sites and tens of thousands of small cells.

The FCC, Verizon said, "should remain focused on the need to preserve investment incentives and encourage facilities-based competition in both urban and rural markets. That is what is best for consumers."

"Given these motives, it is equally clear why Sprint sprinkles its filing with tirades against the alleged 'head-start advantages' that Verizon has supposedly enjoyed over the years -- allegedly giving Verizon a leg up in terms of investing in its network," Verizon said. "Sprint is trying to shift the focus from the consequences of its business strategy by raising tangential issues. The Commission should reject these claims out of hand."

Verizon said that Sprint claims that Verizon avoided investing in rural areas by purchasing Alltel. "This is just wrong: Verizon paid $28 billion for Alltel and its network assets -- a very substantial commitment to rural America and to a robust, nationwide footprint" Verizon said. "Second, Alltel's participation in the Commission's old high-cost universal service programs did not give Verizon a unique head start on network build-out. Verizon agreed to give up Alltel's legacy USF support as a condition of transaction approval, yet continued to invest in the network facilities acquired from Alltel by upgrading them to LTE. Sprint also was free to, and in fact did, participate in the same USF programs. And the Commission's new mobility fund USF programs are open and available to Sprint."

"Sprint's complaint that Verizon collected 'implicit subsidies granted through inflated access charges' that paid for build-out of its wireless network also rings hollow," Verizon added. "If Sprint is suggesting that the Verizon ILECs' access charge revenues are subsidizing the Verizon Wireless business, that is just not true, and Sprint offers nothing to support such an allegation."

Verizon also points out that "Sprint chose not to buy low-band spectrum in either the 700 MHz auction or on the secondary market (including cellular spectrum that Verizon divested after buying Alltel) so its complaints now that it suffers a competitive disadvantage fall flat."

"The obvious solution," Verizon said, is "for Sprint is to deploy its vast spectrum holdings or to buy the low-band spectrum it claims it needs, as its competitors have done, rather than free-ride on other carriers' network investments."

A Sprint spokesman declined to comment.

For more:
- see this Verizon FCC filing
- see this Sprint FCC filing
- see this CCA FCC filing

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