Open access is a policy that improves choice, increases competition, and might increase America's standing in the international broadband rankings. It is one of the key policy recommendations filed with the FCC by the Ad Hoc Public Interest Spectrum Coalition (PISC) regarding the upcoming 700 mhz spectrum auction. We think that the public interest is best served when the same company that owns the “pipe” (in this case, the wireless network) does not also control the retail side of things. Increased competition is more likely than a monopoly (or duopoly) model to give customers choice in broadband service as to speeds and pricing– and it is more likely to bring broadband to areas that are currently underserved.
Open access is a wholesale/retail business model. The wholesaler owns the pipe, and sells network access and connection to retail outfits, who deal with the customers. It's pretty simple stuff. But some, such as the Progress and Freedom Foundation, have said that open access has been tried before, and failed. According to the PFF report, the market in competition for local telephone service provided by Competitive Local Exchange Carriers (CLECs) never took off. In most markets, the Incumbent Local Exchange Carriers (ILECs)– such as the Bell companies, who own the communications pipe into the home– are still the only viable option for local telephone service. So the question is: Why should we port this allegedly failed model over to a new area?
There are a number of reasons why open access didn't work to open up local telephone competition. The 1996 Telecommunications Act required ILECs to share their lines, and sell access to their networks at wholesale prices. But it didn't make them want to. The ILECs saw open access as a threat, and CLECs as dangerous competitors to be thwarted by any means possible. Unfortunately, the courts and the FCC did little to promote the intent Congress expressed in the Act, giving its provisions a decidedly pro-monopolist slant. The open access model proposed by PISC not only requires the network operators to open itself up to competing retailers. It makes them want to, by structuring the business environment such that the independent retailers will help them make money.
There are, however, successful communications wholesale/retail business models that we can point to, to demonstrate that an open access model can be viable for wireless communications. It is simply not the case that only vertically integrated monopolies can succeed in the marketplace. The most striking domestic example is the rise of “Mobile Virtual Network Operators” (MVNOs). These are companies like Virgin Mobile, Helio, ESPN Mobile, and Qwest Wireless that, from a customer's perspective, work just like traditional mobile operators like AT&T or Sprint. But the MVNOs do not actually own any towers or control any spectrum; they lease it from the “real,” non-virtual carriers.
The business of selling communications services wholesale has also been successful for carriers– most notably, Sprint. Big players like Virgin Mobile and Helio lease their infrastructure from them. Sprint has been increasing the number of MVNOs it does business with, and other carriers are not far behind. Want to start your own MVNO? Fill out Sprint's handy application.
The number of MVNOs keeps increasing. While a lot of MVNOs go after markets the primary carriers are less interested in– the youth and prepaid market or sports fanatics– not all MVNOs are so specialized. Qwest Wireless, for instance, is a full-service provider that offers integration with their local phone service business.
The compartmentalization of wireless services continues: the last few years have seen the rise of the MVNE, the Mobile Virtual Network Enabler. If you want to start a wireless company, not only can you outsource your infrastructure to a carrier and be an MVNO. Now you can outsource your billing and other support to an MVNE such as Visage, in order to focus on marketing, product development, and the other fun stuff.
MVNOs show that a wholesale/retail business model for communications can work, but only when the wholesaler cooperates. The ILECs were reluctant to cooperate because they were overly concerned with harming their existing business models. The wireless companies were more willing to try different business models, and they were rewarded for their creativity. But how do you ensure cooperation from the wholesaler who might end up winning the 700 mhz spectrum, particularly if that winner ends up being an entity such as SpectrumCo— a group comprised mainly of cable companies, i.e., existing broadband providers who are likely to be little interested in creating a competitor to their existing service– to whom open access is anathema? You make it so that the wholesaler depends on the retailers in order to make money. To that end, PISC has asked that the wholesaler be limited in its ability to also be a retailer. This would have the effect of making the wholesaler more cooperative with independent retailers. Both the law and market forces would ensure their cooperation.
Even though MVNOs have been largely successful, we do not have to look to whether they are as successful as the primary carriers. As long as it makes sense for the primary carriers to act as MVNO wholesalers, any success by an MVNO is value created that would not have been created under a pure vertically integrated model. But the most important point with MVNOs is not just that the companies involved are able to succeed. It's that MVNOs are able to innovate in terms of hardware (Helio) and business models (the prepaid market) in ways that the primary carriers haven't. MVNOs are able to succeed and in so doing offer consumers choices they otherwise wouldn't have. Open access to the 700 mhz spectrum that's up for grabs should have a similar effect on wireless broadband.
There are a number of policies that could help facilitate the creation of a third pipe of broadband. Rules preventing incumbent broadband providers from snatching up the spectrum are also a good idea, as well as rules that try to make sure that the bidding process is fair. Open access is a policy that attempts to ensure that the wireless broadband market will remain competitive, regardless of who wins the auction, and it's a business model that has already been successful among wireless providers.