USA - wireless networks

Wireless Carterfone: A Long Overdue Policy Promoting Consumer Choice and Competition

Rob Frieden, Penn State University

Wireless carriers in the United States operate as regulated common carriers when providing basic telecommunications services, such as voice telephone service, text messaging and speed dialing to services and content. Remarkably, stakeholders debate whether this clear cut regulatory status requires wireless carriers to provide service to any compatible handset, subject to a certification process to ensure that such use will not harm carrier networks.

Thirty-nine years ago the Federal Communications Commission (FCC) established its Carterfone policy establishing such a right for wireline subscribers. Consumers now take for granted the right to purchase their choice of telephones and other devices (e.g., computer modems, answering machines) and to attach them to wireline networks without carrier-imposed limitations. After announcing its Carterfone policy, the FCC identified ample consumer benefits and applied this fundamental right in several instances so that consumers can freely use their handsets to access services, applications and content. This fundamental right has accrued unquestionable benefits to consumers and the national economy.

Wireless operators have vigorously opposed efforts to convince the FCC that it should establish a wireless Carterfone policy. Opponents claim that Carterfone offered an industry-specific remedy to a monopoly environment where the Bell System controlled both the manufacture and distribution of telephones and telephone service. They assert that the lack of such vertical integration and the existence of robust competition in the wireless marketplace obviate the need for rules requiring carriers to unlock the handsets they sell and to open their networks for access by any compatible handset.

This paper explains why wireless Carterfone policy constitutes a long overdue policy response to carrier practices that often have nothing to do with protecting their networks from technical harm or other legitimate network management needs. For example, blocking the implementation of wireless Carterfone enables carriers to continue locking subscribers into two-year service contracts with substantial penalties for early termination. In exchange for the service commitment, consumers acquire a carrier-subsidized handset, but they also consent to carrier-imposed restrictions on the use of the handset they bought, including the ability to access telecommunications and content services of competitors even after the carrier has recouped its subsidy.

This analysis explains how wireless carriers benefit financially by avoiding Carterfone obligations and refutes the rationales and justifications for this behavior. The paper also demonstrates that the FCC has ample statutory authority to apply wireless Carterfone policy based on the largely ignored fact that when wireless cellular telephone companies provide telecommunications service, they remain subject to most common carrier regulations regardless of the fact that they also may offer less regulated information services. Finally, this report explains that wireless carriers must comply with public interest regulatory mandates even though they might conflict with carriers’ preferred business plans. The Commission has undertaken a number of analogous initiatives to protect consumers from mandatory bundling arrangements, such as its 2005 order mandating alternatives to cable set-top box leasing, which underscore the continued importance of Carterfone principles to protecting the public interest.