Will Rural Operators Get to Participate in 4G?

By Tara Seals

Do Verizon Communications Inc. and AT&T Inc. together form a de facto national duopoly for broadband? Verizon for one, says no, unsurprisingly, but critics say the impending 4G rollouts highlight a competitive crisis for rural carriers in particular.

The last FCC spectrum auctions were geared to help create new national wireless carriers; carriers that were expected to use LTE and WiMAX to bring more broadband availability and competition to many areas of the country, including the rural and the underserved, often by including smaller operators in the mix. The FCC looks to the technology to close the digital divide as well, as it’s more cost-effective than any terrestrial approach in bringing the baseline throughput to greenfield areas. But AT&T and Verizon won the lion’s share of the 4G spectrum, changing the conversation around the role of the FCC and the National Broadband Plan, and giving many rural advocates pause.

Even before 4G arrives, smaller operators are squeezed out by the duopoly, some maintain. “When it comes rural wireless there are a lot of issues already, including the question of roaming revenue,” said Caressa Bennet, managing principal at law firm Bennet & Bennet pllc, speaking at the Policy Summit at the Billing & OSS World Conference & Expo last week. “A lot of big carriers don't want to pay the roaming rates and won't let the smaller guys get service. Or, they have one-way roaming, where the little carrier can run on big carrier only, not the other way around, which cuts off a revenue stream.”

Bennet explains that access to existing spectrum as a first priority toward ensuring competition. “We must make sure there's access to spectrum for competitive providers,” she notes. “There’s actually another 500MHz of 3G spectrum out there, especially in rural areas, which is underutilized and could provide new opportunities. Verizon is sitting on a lot of it.”

When it comes to solving some of these issues, the FCC has a bit of an existential crisis. The FCC is mandated to make sure every person in the country has a baseline level of broadband (4mbps downstream, 1mbps up). In the wake of the Comcast decision limiting the FCC’s oversight on Net-neutrality practices of service providers, many are calling for broadband to be reclassified as a common carrier service, as voice is today. That would give the FCC the ability to regulate carrier business decisions on the subject at will. For now, broadband regulation is a difficult thorn for the FCC.

Brian Rice, executive director for Verizon’s government relations, points out issues with what he termed “regulatory creep.”

“When it comes to the reclassification issue, one driving concern is the level of regulatory overhang; we feel too much will impact investment decisions,” he said. “And any impact to us impacts folks downstream.”

What the FCC can still do is provide funding for new builds in areas where there is no private-business case for a carrier to take it upon itself to enable the baseline throughput, especially in rural and underserved areas. However, it’s not clear whether the FCC will subsidize more than one carrier in a given market. One of the things it will take into account in making that decision is the opportunity for wholesale strategies to provide choice on one network.

Rice says that as it rolls out 4G, Verizon is looking to work with rural carriers to partner with on 4G in places it doesn’t want to deploy it itself. There will be announcements of such leasing arrangements in the next 60 to 90 days, Rice noted.

Bennet counters the statement: “Verizon is only interested in working with a rural wireless or telco company in areas where there is no wireless service; it’s calling these ‘white spaces,’” she said. “The FCC needs to be able to look at that.”

“Verizon’s open to all comers but we don't need a federal agency dictating the terms for negotiations,” Rice shot back.

Rice said its move to make leasing deals is key for rural providers because 4G will go a long way to erasing the broadband gap for the underserved. He also says 4G in general should close any discussion on whether or not there is meaningful broadband competition in this country.

“Verizon demonstrates that because of actions to deregulate the market and getting cable into different areas and 4G wireless soon rolling out nationwide, which offers speeds comparable to a wireline connection, you really do have three, four, five competitors in the majority of the country,” said Rice. “About 80 percent of the country has at least two providers, and that will go up to three as 4G rolls out. We’re going to see a lot of competition with respect to broadband services.”

Of course, Verizon and AT&T will be the LTE providers in their own territories, meaning they will act as a second and a third choice for broadband in their home zones. The result is that most Americans will have a choice between AT&T, Verizon, the local cable company and perhaps WiMAX from Clearwire Corp. or one of its MVNOs, like Sprint. Rural areas will likely only have two of those choices though. And while the D-block spectrum for public safety is earmarked for creating a new national competitor with 100-percent coverage, it’s unlikely that will happen soon. There isn’t much left to give rural operators an entrée into the 4G game. “Verizon and AT&T have too much of a duopoly on spectrum,” said Bennet, “especially in the 800MHz, which is beachfront property for 4G.”

The few rural and competitive providers fortunate enough to snag 4G-ready spectrum face yet another hurdle: the fact that AT&T and Verizon have different band classes than they do. Because of their sheer size, LTE devices are being made to work in AT&T and Verizon’s specific band classes — not the rest of the 700MHz band. “So if you’re not AT&T or Verizon, you won’t be able to get equipment,” said Bennet. “The FCC needs to standardize that across the block, to make everything interoperable. But AT&T and Verizon are concerned that doing so will slow down their implementation.”

Will the FCC be able to address some of the issues of rural carriers as the new era of wireless access continues to roll out? "Continuous private sector activity and competition are critical," said Marcus Maher, an FCC decision-maker. "Broadband competition can't work without access to things that others own: poles from utilities, rights of way from the government, backhaul circuits from other carriers. The FCC always has an important role in ensuring access to these.”

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