Consider Sprint’s apparent decision to use “roaming” in Oklahoma and Kansas instead of building its own network. Now, roaming is a standard feature of mobile networks worldwide. Company A might not have as much capacity as it would like in some geography, so it pays company B, who does have capacity there, for access. Company A’s customers therefore get wider coverage, and Company B is paid for use of its network.

The problem comes with the FCC’s 2011 “digital roaming” order. Last spring three FCC commissioners decided that private mobile services — which the Communications Act says “shall not . . . be treated as a common carrier” — are a common carrier. Only D.C. lawyers smarter than you and me can figure out how to transfigure “shall not” into “may.” Anyway, the possible effect is to subject mobile data — one of the fastest growing sectors anywhere on earth — to all sorts of forced access mandates and price controls.

We warned here and here that turning competitive broadband infrastructure into a “common carrier” could discourage all players in the market from building more capacity and covering wider geographies. If company A can piggyback on company B’s network at below market rates, why would it build its own expensive network? And if company B’s network capacity is going to company A’s customers, instead of its own customers, do we think company B is likely to build yet more cell sites and purchase more spectrum?

With 37 million iPhones and 15million iPads sold last quarter, we need more spectrum, more cell towers, more capacity. This isn’t the way to get it. And what we are seeing with Sprint’s decision to roam instead of build in Oklahoma and Kansas may be the tip of this anti-investment iceberg.

Last spring when the data roaming order came down we began wondering about a possible “slow walk to a reregulated communications market.” Among other items, we cited net neutrality, possible new price controls for Special Access links to cell sites, and a host of proposed regulations affecting things like behavioral advertising and intellectual property (see, PIPA/SOPA). Since then we’ve seen the government block the AT&T-T-Mobile merger. And the FCC is now holding up its own important push for more wireless spectrum because it wants the right to micromanage who gets what spectrum and how mobile carriers can use it.

Many of these items can be thoughtfully debated. But the number of new encroachments onto the communications sector threatens to slow its growth. Many of these encroachments, moreover, are taking place outside any basic legislative authority. In the digital roaming and net neutrality cases, for example, the FCC appeared clearly to grant itself extra- if not il-legal authority. These new regulations are now being challenged in court.

We need some restraint across the board on these matters. The Internet is too important. We can’t allow a quiet, gradual reregulation of the sector to slow down our chief engine of economic growth.

— Bret Swanson

The new proposal — called America’s Broadband Connectivity Plan — also reforms the antiquated and broken Inter Carrier Compensation system, which sets the terms for traffic exchange among communications companies. In a broadband-mobile-Internet world, ICC, like USF, no longer works and is often exploited with arbitrage schemes that add no value but shuffle money via clever manipulation of the rules.

For too long wrangling and indecision between industry and government — and among industry players themselves — has delayed action. We now have a good consensus leap on the road to modernization.

So why are Washington regulators gradually encroaching on the Net’s every nook and cranny? Perhaps the explanation is a paraphrased line about Washington’s upside-down ways: If it fails, subsidize it. If it succeeds, tax it. And if it succeeds wildly, regulate it.

Whatever the reason, we should watch out and speak up, lest D.C. do-gooders slow the growth of our most dynamic economic engine.

Last December, the FCC imposed a watered down version of Net Neutrality. A few weeks ago the FCC asserted authority to regulate prices and terms in the data roaming market for mobile phones. There are endless Washington proposals to regulate digital advertising markets and impose strict new rules to (supposedly) protect consumer privacy. The latest new idea (but surely not the last) is to regulate prices and terms of “special access,” or Internet connectivity in the middle of the network.

Special access refers to high-speed links that connect, say, cell phone towers to the larger network, or an office building to a metro fiber ring. Another common name for these network links is “backhaul.” Washington lobbyists have for years been trying to get the FCC to dictate terms in this market, without success. But now, as part of the proposed AT&T-T-Mobile merger, they are pushing harder than ever to incorporate regulation of these high-speed Internet lines into the government’s prospective approval of  the acquisition.

As the chief opponent of the merger, Sprint especially is lobbying for the new regulations. Sprint claims that just a few companies control most the available backhaul links to its cell phone towers and wants the FCC to set rates and terms for its backhaul leases. But from the available information, it’s clear that many companies — not just Verizon and AT&T — provide these Special Access backhaul services. It’s not clear why an AT&T-T-Mobile combination should have a big effect on the market, nor why the FCC should use the event to regulate a well-functioning market.

Sprint is a majority owner and major partner of 4G mobile network Clearwire, which uses its own microwave wireless links for 90% of its backhaul capacity. Sprint used Clearwire backhaul for its Xohm Wi-Max network beginning in 2008 and will pay Clearwire around a billion dollars over the next two years to lease backhaul capacity.

T-Mobile, meanwhile, uses mostly non-AT&T, non-Verizon backhaul for its towers. Recent estimates say something like 80% of T-Mobile sites are linked by smaller Special Access providers like Bright House, FiberNet, Zayo Bandwidth, and IP Networks. Lots of other providers exist, from the large cable companies like Comcast, Cox, and TimeWarner to smaller specialty firms like FiberTower and TowerCloud to large backbone providers like Level 3. The cable companies all report fast growing cell site backhaul sales, accounting for large shares of their wholesale revenue.

One of the rationales for AT&T’s purchase of T-Mobile was that the two companies’ cell sites are complementary, not duplicative, meaning AT&T may not have links to many or most of T-Mobile’s sites. So at least in the short term it’s likely the T-Mobile cells will continue to use their existing backhaul providers, who are, again, mostly not Verizon or AT&T. It’s possible over time AT&T would expand its network and use its own links to serve the sites, but the backhaul business by then will only be more competitive than today.

This is a mostly unseen part of the Internet. Few of us every think about Special Access or Backhaul when we fire up our Blackberry, Android, or iPhone. But these lines are key components in mobile ecosystem, essential to delivering the voices and bits to and from our phones, tablets, and laptops. The wireless industry, moreover, is in the midst of a massive upgrade of its backhaul lines to accommodate first 3G and now 4G networks that will carry ever richer multimedia content. This means replacing the old T-1 and T-3 copper phone lines with new fiber optic lines and high-speed radio links. These are big investments in a very competitive market.

Given the Internet industry’s overwhelming contribution to the U.S. economy — not just as an innovative platform but as a leading investor in the capital base of the nation — one might think we wouldn’t lightly trifle with success. The chart below, compiled by economist Michael Mandel, shows that the top two — and three out of the top seven — domestic investors are communications companies. These are huge sums of money supporting hundreds of thousands of jobs directly and many millions indirectly.

via Michael Mandel

We’ve seen the damage micromanagement can cause — in the communications sector no less. The type of regulation of prices and terms on infrastructure leases now proposed for Special Access was, in my view, a key to the 2000 tech/telecom crash. FCC intrusions (remember line sharing, TELRIC, and UNE-P, etc.) discouraged investments in the first generation of broadband. We fell behind nations like Korea. Over the last half-dozen years, however, we righted our communications ship and leapt to the top of the world in broadband and especially mobile services.

I’m not arguing these regulations would crash the sector. But the accumulated costs of these creeping Washington intrusions could disrupt the crucial price mechanisms and investment incentives that are no where more important than the fastest growing, most dynamic markets, like mobile networks.Time for FCC lawyers to hit the beach — for Memorial Day weekend . . . and beyond. They should sit back and enjoy the stupendous success of the sector they oversee. The market is working.

— Bret Swanson

So of course the Federal Communications Commission on Thursday declared mobile data roaming (which is a private mobile service) a common carrier. Got it? The law says “shall not.” Three FCC commissioners say, We know better.

This up-is-down determination could allow the FCC to impose price controls on the dynamic broadband mobile Internet industry. Up-is-down legal determinations for the FCC are nothing new. After a decade trying, I’ve still not been able to penetrate the legal realm where “shall not” means “may.” Clearly the FCC operates in some alternate jurisprudential universe.

I do know the decision’s practical effect could be to slow mobile investment and innovation. It takes lots of money and know-how to build the Internet and beam real-time videos from anywhere in the world to an iPad as you sit on your comfy couch or a speeding train. Last year the U.S. invested $489 billion in info-tech, which made up 47% of all non-structure capital expenditures. Two decades ago, info-tech comprised just 33% of U.S. non-structure capital investment. This is a healthy, growing sector.

As I noted a couple weeks ago,

You remember that “roaming” is when service provider A pays provider B for access to B’s network so that A’s customers can get service when they are outside A’s service area, or where it has capacity constraints, or for redundancy. These roaming agreements are numerous and have always been privately negotiated. The system works fine.

But now a group of provider A’s, who may not want to build large amounts of new network capacity to meet rising demand for mobile data, like video, Facebook, Twitter, and app downloads, etc., want the FCC to mandate access to B’s networks at regulated prices. And in this case, the B’s have spent many tens of billions of dollars in spectrum and network equipment to provide fast data services, though even these investments can barely keep up with blazing demand. . . .

It is perhaps not surprising that a small number of service providers who don’t invest as much in high-capacity networks might wish to gain artificially cheap access to the networks of the companies who invest tens of billions of dollars per year in their mobile networks alone. Who doesn’t like lower input prices? Who doesn’t like his competitors to do the heavy lifting and surf in his wake? But the also not surprising result of such a policy could be to reduce the amount that everyone invests in new networks. And this is simply an outcome the technology industry, and the entire country, cannot afford. The FCC itself has said that “broadband is the great infrastructure challenge of the early 21st century.”

But if Washington actually wants more infrastructure investment, it has a funny way of showing it. On Sunday at a Boston conference organized by Free Press, former Obama White House technology advisor Susan Crawford talked about America’s major communications companies.  ”[R]egulating these guys into to an inch of their life is exactly what needs to happen,” she said. You’d think the topic was tobacco or human trafficking rather than the companies that have pretty successfully brought us the wonders of the Internet.

It’s the view of an academic lawyer who has never visited that exotic place called the real world. Does she think that the management, boards, and investors of these companies will continue to fund massive  infrastructure projects in the tens of billions of dollars if Washington dangles them within “an inch of their life”? Investment would dry up long before we ever saw the precipice. This is exactly what’s happened economy-wide over the last few years as every company, every investor, in every industry worried about Washington marching them off the cost cliff. The White House supposedly has a newfound appreciation for the harms of over-regulation and has vowed to rein in the regulators. But in case after case, it continues to toss more regulatory pebbles into the economic river.

Perhaps Nick Schulz of the American Enterprise Institute has it right. Take a look. He calls it the Tommy Boy theory of regulation, and just maybe it explains Washington’s obsession — yes, obsession; when you watch the video, you will note that is the correct word — with managing every nook and cranny of the economy.

What the per capita metric really measures is household size. And because the U.S. has more people in each household than many other nations, we appear worse in those rankings. But as the Phoenix Center has noted, if each OECD nation reached 100% broadband nirvana — i.e., every household in every nation connected — the U.S. would actually fall from 15th to 20th. Residential connections per capita is thus not a very illuminating measure.

But look at the actual Internet traffic generated and consumed in the U.S.

The U.S. far outpaces every other region of the world. In the second chart, you can see that in fact only one nation, South Korea, generates significantly more Internet traffic per user than the U.S. This is no surprise. South Korea was the first nation to widely deploy fiber-to-the-x and was also the first to deploy 3G mobile, leading to not only robust infrastructure but also a vibrant Internet culture. The U.S. dwarfs most others.

If the U.S. was so far behind in broadband, we could not generate around twice as much network traffic per user compared to nations we are told far exceed our broadband capacity and connectivity. The U.S. has far to go in a never-ending buildout of its communications infrastructure. But we invest more than other nations, we’ve got better broadband infrastructure overall, and we use broadband more — and more effectively (see the Connectivity Scorecard and The Economist’s Digital Economy rankings) — than almost any other nation.

The conventional wisdom on this one is just plain wrong.

What we have here is “mission creep.” First, Net Neutrality was about an “open Internet” where no websites were blocked or degraded. But as soon as the whole industry agreed to these perfectly reasonable Open Web principles, Net Neutrality became an exercise in micromanagement of network technologies and broadband business plans. Now, Louderback wants to go even further and regulate prices. But there’s still more! He also wants to regulate the products that broadband providers can offer.

Hooray. We live in a nation of laws and elected leaders, not a nation of unelected leaders making up rules for the rest of us as they go along, whether in response to besieging lobbyists or the latest bandwagon circling the block hauled by Washington’s permanent “public interest” community.

This was the reassuring message yesterday from the D.C. Circuit Court of Appeals aimed at the Federal Communications Commission. Bottom line: The FCC can abandon its ideological pursuit of the “net neutrality” bogeyman, and get on with making the world safe for the iPad.

The court ruled in considerable detail that there’s no statutory basis for the FCC’s ambition to annex the Internet, which has grown and thrived under nobody’s control.

. . .

So rather than focusing on new excuses to mess with network providers, the FCC should tackle two duties unambiguously before it: Figure out how to liberate the nation’s wireless spectrum (over which it has clear statutory authority) to flow to more market-oriented uses, whether broadband or broadcast, while also making sure taxpayers get adequately paid as the current system of licensed TV and radio spectrum inevitably evolves into something else.

Second: Under its media ownership hat, admit that such regulation, which inhibits the merger of TV stations with each other and with newspapers, is disastrously hindering our nation’s news-reporting resources and brands from reshaping themselves to meet the opportunities and challenges of the digital age. (Willy nilly, this would also help solve the spectrum problem as broadcasters voluntarily redeployed theirs to more profitable uses.)

The Federal Communications Commission recognized these trends and needs in its new National Broadband Plan. It set the bold goal of unleashing 500 MHz of mostly dormant wireless spectrum for more productive use in new broadband Internet and media applications.

On March 29, the FCC had a chance to begin putting its Plan into action when it approved the acquisition of SkyTerra by Harbinger Capital. The result of the merger is a new wireless company that will use both MSS satellite spectrum and so-called ATC terrestrial spectrum to deliver a new hybrid mobile service. Harbinger announced it would build a nationwide, wholesale, “open access” 4G broadband wireless network at the cost of $6 billion. Although not part of the FCC’s 500 MHz push, the new Harbinger strategy aligns nicely with the goal of more, better, and broader wireless access and options throughout the country (in this case, Canada, too).

But the FCC order, which was not voted by the full commission but issued by the bureau chiefs, contains two curious provisions. The provisions restrict Harbinger’s cooperation with two important mobile service providers and could hinder the very goal of extending more wireless coverage to more Americans.

In an attachment to its acquisition approval, the FCC said Harbinger may not lease capacity or otherwise partner with the two largest U.S. mobile phone companies — Verizon and AT&T — without the FCC’s prior permission. The FCC also barred Verizon and AT&T, should any cooperative agreement or lease be allowed, from consuming more than 25% of the bytes carried in any “Economic Area.” Quite baffling, and as far as I know, unprecedented.

The broad effect of these restrictions will be to reduce flexibility and growth in this fast-moving arena, to restrict much needed spectrum in key geographies from the companies that serve more than half of all Americans, and to place an unnecessary obstacle in the way of a wireless upstart seeking to bring more capacity and competition to the mobile world.

Many were already skeptical Harbinger could pull it off, the FCC order notwithstanding. Too expensive, too technically demanding, they say, too much competition, with the existing carriers and the likes of ClearWire. But instead of clearing the way for a small competitor to make a go of it, the FCC is adding burdens to Harbinger’s daunting task.

If you were starting a business, one with very large upfront capital costs, how would you like Washington telling you that your two largest potential customers are off limits? The FCC conditions make Harbinger’s proposed network neither “wholesale” nor “open access.” More like a boutique continental 4G wireless network. Sound good? Didn’t think so.

The FCC order could also effectively bar 176.3 million American mobile phone users (Verizon’s 91.2 million customers, AT&T’s 85.1 million) from taking advantage of this new spectrum. We are always looking for ways to expand robust coverage, whether in dense high-usage cities or in tough-to-serve rural, mountain, and coastal areas. Harbinger’s eclectic strategy is to combine both satellite resources and terrestrial repeaters both to add capacity to major markets and to serve out-of-the-way North America. But a large number of American mobile customers could now be blocked from this unique way to expand coverage.

What’s bizarre about this FCC order is that it so pointedly offends its own strategy, laid out just weeks ago in its major National Broadband Plan. The FCC dedicated lots of time and energy to wireless. “Goal No. 2” of the Plan is:

The United States should lead the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.

Within the large section on Spectrum, the FCC highlighted its priorities under these major headings:

5.2 ENSURING GREATER TRANSPARENCY CONCERNING SPECTRUM ALLOCATION AND UTILIZATION

5.3 EXPAND INCENTIVES AND MECHANISMS TO REALLOCATE OR REPURPOSE SPECTRUM

5.6 EXPAND OPPORTUNITIES FOR INNOVATIVE SPECTRUM ACCESS MODELS

Transparency? Seriously, now. This order, issued by the bureau chiefs and not the Commissioners, gave no opportunity for input by the mobile carriers, who were not even party to the transaction. They were not consulted or even notified. Harbinger, meanwhile, was at the mercy of the FCC staff. You want your acquisition approved? Then these are the conditions you’ll have to swallow. This was a case study in opaque spectrum policy.

Expand incentives to repurpose spectrum and for innovative access models? Talk about contracting incentives to repurpose spectrum and encourage new innovations, such as Harbinger’s unique and speculative satellite-4G hybrid system.

I’m no lawyer, but the FCC conditions seem awfully arbitrary. Policy-making by mere whim. Unaccountable, off the cuff, and blatantly contrary to its own shiny new Broadband strategy.

I doubt these conditions on the Harbinger order can stand. But regardless, let’s hope this episode is not a portent of Broadband policy to come.

— Bret Swanson

— Nick Shulz, at the Enterprise Blog, March 25, 2010

International comparisons in such a fast-moving arena as tech and communications are tough. I don’t pretend it is easy to boil down a hugely complex topic to one right answer, but I did have some critical things to say about a major recent report that got way too many things wrong. A new article by that report’s author singled out France as especially more advanced than the U.S. To cut through all the clutter of conflicting data and competing interpretations on broadband deployment, access, adoption, prices, and speeds, however, maybe a simple chart will help.

Here we compare network usage. Not advertised speeds, which are suspect. Not prices which can be distorted by the use of purchasing power parity (PPP). Not “penetration,” which is largely a function of income, urbanization, and geography. No, just simply, how much data traffic do various regions create and consume.

If U.S. networks were so backward — too sparse, too slow, too expensive — would Americans be generating 65% more network traffic per capita than their Western European counterparts?