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Carriers Constrain Entrepreneurs

Previously, I’ve written about how the success of the MVNO (though not without its problems) demonstrates how an Open Access-like business model can work in a wireless context. The underlying carrier, such as Sprint or Verizon, can sell access to its network at wholesale rates to a company like Virgin Mobile, which then markets to consumers. This model can be and is a success both for the retailer and the wholesaler.

MVNOs are not perfect. To the extent that the MVNO competes with the underlying carrier for the carrier’s existing customers, the carrier has an incentive to limit what kinds of markets the MVNO can enter, and what services it can provide. While it is true that some MVNOs (like Qwest Wireless) are full-service providers, the full potential and flexibility of a non-vertically integrated wireless communications model has yet to be realized, as carriers seek to protect their incumbent business model.

Yesterday at the Senate Commerce Committee’s 700 MHz hearing, Amol Sarva, who was involved with Virgin Mobile very early on, spoke of his experience there. His oral remarks reflect the sentiments expressed in his written testimony, which I quote:

We had to compromise away many degrees of freedom to get a deal done with the network partner, Sprint. We agreed to market a prepaid product that would not directly compete with Sprint’s products nor compete for Sprint’s mainstream customers.

Additionally, it can be difficult to even reach an arrangement with a carrier.

Virgin Mobile USA was successful in spite of a huge number of hurdles raised by the wireless incumbents. We almost failed to get a network deal with any carrier. We almost failed to navigate the arduous device certification process. Who knows how many other ventures have failed to pass through the “star chamber” of the wireless incumbents’ technical and business requirements processes?

Open Access for some of the 700 MHz licenses would allow entrepreneurs to gain access to the public’s spectrum. It would eliminate the need for huge outlays of capital which keeps much of the telecommunications industry in the control of behemoths. To paraphrase Mr. Sarva’s oral remarks, it would replace a “bet early and big” model with a “bet small and often” model that is more amenable to entrepreneurs.

Mr. Sarva’s written testimony is available at Free Press. Virgin Mobile has noted that the views of Mr. Sarva are not its own. CSPAN coverage of the hearing is available here.

This post has been featured here with kind permission from Public Knowledge.

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