Sprint, T-Mobile, U.S. Cellular, and several other smaller wireless carriers are banding together with consumer advocates to request the Federal Communications Commission (FCC) cap fees charged for network connections they use to transfer voice and data for their customers. They argue that high fees are preventing them from expanding their services, thereby blocking President Obama’s goal of making high-speed Internet access available across the country. The companies that own the networks and charge those fees disagree. Who are they? AT&T and Verizon.
The two largest wireless carriers in the country, AT&T and Verizon, along with Qwest Communications, Embarq Corporation, and Windstream, Inc., control 80 to 90 percent of the “backhaul” network, which connects to the main Internet artery. Smaller carriers must pay a fee to use that network to provide their services. Ok, what the heck does that mean? Think of it this way:
You and your neighbor both have lemonade stands, and you both sell pretty much the same lemonade to your customers. But your neighbor moved onto the block before you did, and he owns the well that supplies the water you both use to make your lemonade, and it’s the only water source available. He lets you use his well—for a fee. So to make up what you’re paying to use the well, you have to charge a bit more for your lemonade. Meanwhile, since your neighbor’s making extra profit from the fees you pay him, he can afford to lower the price of his lemonade just enough to make it more attractive than yours. So what happens? Your customers are very likely to leave your stand and buy their lemonade from your neighbor because they can get roughly the same product for less money. If it continues, you’ll eventually go out of business.
That’s what the smaller wireless carriers say is happening here. Because the larger companies control the networks everyone needs to use to provide voice and data services, and they’re charging high fees to use those networks, the smaller companies are slowly being edged out of the competition. Not so, say the companies controlling the networks. Their argument is that capping network prices would obstruct Internet growth because the smaller companies then would have no incentive to build connections of their own. USTelecom said those companies, “…want policies that minimize their own investment in U.S. broadband.” In other words, they want to use the well without having done any of the work to dig it, and at a price that will not motivate them to go dig their own.
High network fees have a negative effect on consumers in two ways. First, if you’d rather get your cell phone service from Sprint, T-Mobile, U.S. Cellular, or any other company besides AT&T or Verizon, for whatever reason, you are likely paying a bit more than you would by going to the companies that control the networks. It’s a manipulation of the business, and of you, because at best, it restricts freedom of choice, and at worst, it’s almost like price gouging. Second, that freedom of choice will be further restricted if the smaller businesses are forced to go under altogether. Then, if you want wireless service at all, you’ll be stuck with the big two.
That may sound extreme. I mean, is a company really going to go out of business over network fees? Well, add in a loss of customers, which translates to further loss of revenue, and companies like Sprint are looking at a very real possibility of not being around much longer. They’ve lost a lot of customers to AT&T because of the iPhone, and to the other carriers for simple lack of good customer service. They’re pinning big hopes on the Palm Pre, but so far, sales of that phone have been lackluster, and certainly not enough to give Sprint the boost it was looking for.
On the other hand, if you were the guy who owned the well, would you lower your fee to use it so your neighbor could more easily compete with you?
This request comes at a really interesting time, as well. The Senate recently made a similar request of the FCC—to look into the exclusive deals that wireless carriers construct with handset makers to determine whether they’re detrimental to consumers. It looks like the FCC is leaning toward doing that, so why not throw in some scrutiny of network fees at the same time? Things are not looking good for wireless carriers, especially the larger ones. But we’re starting to see some good things on the horizon for consumers.
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