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700 MHz Update: Will VZ Comply with the Rules?

Last Friday (HT: IPDemocracy), Google filed a petition [PDF] asking that the Commission ensure that Verizon understands what those “open platform” requirements for the C Block really mean. Verizon has taken the position in the past that its own devices won’t be subject to the “open applications” and “open handsets” requirements of the C Block rules, and Google says it is concerned that Verizon doesn’t plan to follow those requirements in the future.

This is big. Here’s the background.

In the 700 MHz auction rules, the Commission noted that public advocacy organizations were claiming that “incumbent wireless carriers . . . routinely choke bandwidth to users, cripple features, and control the user experience” in order to protect their highspeed internet access businesses. Verizon had argued strenuously that “imposing an open access business model undermines the auction process and competitive bidding,” but the Commission nevertheless stated that it would “require licensees to allow customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choice.” The nickname for this requirement imposed on the C Block of spectrum (a large 22 MHz block divided into a few regional licenses) was “open platforms for devices and applications.”

Accordingly, ....we will require only C Block licensees to allow customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choosing in C Block networks, so long as they meet all applicable regulatory requirements and comply with reasonable conditions related to management of the wireless network (i.e., do not cause harm to the network.).

Specifically, a C Block licensee may not block, degrade, or interfere with the ability of end users to download and utilize applications of their choosing on the licensee’s C Block network, subject to reasonable network management.

The rules explicitly say that C Block licensees may not “disable features on handsets it provides to customers,” and “shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice.”

When this rule was released I expressed skepticism about the “reasonable network management” and “regulatory requirements” wiggle room provided. I also noted that Verizon had insisted on retaining the ability (1) to privately “certify” applications and devices for use on its network (a process during which a great deal of mischief is possible, as we know from the pre-Carterfone days), (2) to sell heavily-subsidized handsets of its partners in its retail stores (which will make it unlikely for competing, full-price handsets to be popular), and (3) to prioritize its proprietary or charged-for content over “ordinary” Internet traffic.

But even I didn’t imagine that Verizon would actually claim that the handsets *it sells* for use on its 700 MHz network would not be subject to these limitations, weak as these limitations are. That’s what Google’s petition says:

Notwithstanding the clarity of the rule, Verizon has taken the public position that it may exclude its handsets from the open access condition.

Apparently VZ plans to treat customers using non-VZ handsets differently from VZ-handset customers, by giving them different access rights. And maybe VZ plans to not allow *its* handsets to download particular applications. In a nutshell, it’s unclear what VZ’s plans are in detail, and for this reason Google wants to make sure that VZ will adhere to the rules.

This petition appears to be designed to smoke out the truth: did the Commission draft these conditions so loosely (“regulatory requirements”) that VZ’s reading is tenable? Or is VZ simply playing fast and loose, hoping that it will be too difficult for any single actor to challenge it, given the Commission’s comfort with ambiguity? Or were the rules actually designed to be unambiguous?

My own opinion is that VZ will do anything it can to retain discretion over use of its networks, both wired and wireless, and that there likely is at this moment a strongly-held belief inside that company that no reasonable regulator could possibly require VZ to operate an “open platform.”

“Where’s the revenue in being a commodity transport provider? VZ is a broadcaster!” Watch for First Amendment claims from VZ in response to the Google petition.

[My article on the auction is available here.]

By Susan Crawford, Professor, Cardozo Law School in New York City

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Christopher Parente  –  May 8, 2008 10:41 AM

Interesting post. No doubt Verizon will examine all its options. They argued against the open access provision in the first place, only giving up when it was obvious the Commission wouldn’t budge. But as you note, there’s always the question of what the open network provisions actually mean, and the true intentions of the Commission.

Whatever happens, Google looks to be in a strong position. Their aim is making sure they have access to consumer networks. They got the provision inserted, perhaps got Verizon to spend more for the spectrum than they would have otherwise, and are also backing the WiMax effort of Sprint and Clearwire.

Meanwhile Verizon has the regulatory and PR headache of grappling with the FCC about open access, and maybe being perceived as violating the C block terms.

Milton Mueller  –  May 8, 2008 12:42 PM

Susan, stay on this! As I’ve expressed elsewhere, I am concerned, but less worried than you, about the wireless network operators’ hope to be “broadcasters”. I can’t see a strategy of vertical integration into content as viable even in the imperfectly competitive market we have now, much less as we move toward a new WiMax alternative (even if that does have heavy participation from cable operators). Another point: the rules as you quote them above seem to address vertical integration into handsets but not so much into content.

There is a lot of evidence that VZ is internally conflicted on this point of integration into content. On the one hand they are talking about the vast expansion of their network market by extending the network to “any device, anywhere, any time” on the other hand they sometimes talk in 1992-vintage tones of becoming cable-like content providers. But how much real movement do you see in that direction?

Still, VZ knew the rules when they bid for the spectrum and they knew the intent of the rules and it’s concerning that they might attempt to play with them now.

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