Verizon Proposes New Roaming Deal

With lawmakers and federal regulators showing an interest in additional wireless industry regulations, Verizon Wireless July 21 proposed new conditions for offering roaming connectivity to small carriers. Under the proposal, Verizon says it is willing to offer two-year roaming deals on its networks to other carriers, including those that hold spectrum licenses but don't offer service in a Verizon region.

The proposal is in sharp contrast to Verizon Wireless' long-held position that it shouldn't be forced to offer roaming connectivity to competing carriers that hold licenses to operate in a region but haven't built out their networks.

"The committee has expressed concerns that the FCC's approach may disadvantage midsize and small competitors who face obstacles to building out their networks," Verizon Wireless President and CEO Lowell McAdam wrote in a letter to Rep. Henry Waxman, chairman of the House Energy and Commerce Committee. "We appreciate the openness and seriousness of conversations with committee staff and have used the dialogue as a catalyst to develop a proposal that balances the concern for viability for new entrants with the need to [provide incentives for] network investment and spectrum utilization."

The roaming proposal is the second offer in two weeks by Verizon Wireless in a move to pre-empt lawmakers' possible antitrust concerns about the practices of dominant wireless carriers. As carriers are facing pressure from Congress over exclusive handset deals like AT&T's deal with Apple's iPhone, Verizon July 17 offered to limit exclusive handset deals to six months and make the devices available to the nation's smallest carriers.

Like the handset proposal, Verizon's proposed roaming deal was dismissed by consumer and advocacy groups as an empty political gesture.

"This is yet another attempt for Verizon to use its version of corporate charity to influence policymakers at a time when substantive, legally binding rules are what is required for fairness," Public Knowledge Legal Director Harold Feld said in a statement. "We note that in both cases, the handset-exclusivity terms offered last week and this one, that parties that are supposed to be the beneficiaries are not impressed with Verizon's offerings. That should signal policymakers that these are hollow offers."

Feld added, "We would hope that the days are over when Congress and the FCC preferred begging companies to behave rather than actually protecting consumers and competitors. We need rules of the road that encourage competition and make sure consumers get the service they deserve on all providers—not corporate charity that disappears when regulators are no longer looking. Anyone who responds to this by saying, 'Let's give the market another chance' needs a serious reality check."

The exclusive handset deals offered by carriers have already gained the attention of Congress, with the Senate Commerce Committee holding a hearing June 17 questioning the practices of wireless carriers. Unlike wire-line services, which are required by law to allow consumers to connect the legal devices of their choice to carriers' networks, the wireless market is pocked with exclusive deals such as AT&T's arrangement with Apple.

"Effective immediately for small wireless carriers (those with 500,000 customers or less), any new exclusivity arrangement we enter with handset makers will last no longer than six months—for all manufacturers and all devices," Verizon's McAdam wrote to Rep. Rick Boucher, chairman of the U.S. House Energy and Commerce Committee's Subcommittee on Communications, Technology and the Internet.

Since the letter was made public, a firestorm of criticism has followed. The latest group to dismiss Verizon's offer is a coalition of MAP (Media Access Project), Free Press and the Consumers Union.

"In response to ... political pressure, Verizon Wireless has taken a small step in the right
direction. However, the impact of this action is largely insubstantial and benefits few consumers," the groups wrote to Boucher in a July 20 letter. "Furthermore, industry self-regulation cannot be a substitute for meaningful consumer protection laws, particularly in a market that demonstrates insufficient competition."

MAP Vice President Parul Desai added in a statement, "[The] attempt by Verizon to limit concerns over its exclusive handset deals with mobile device manufacturers falls short of serving the public interest. It is clear Verizon continues to embrace and defend unlimited handset exclusivity practices for all consumers, save a small minority. The fight for greater access and innovation in our wireless market is far from over."

The groups noted that only 5 percent of the nation's carriers have 500,000 subscribers or less. The letter to Boucher also pointed out that a six-month period of handset exclusivity could result in as much as 15 months of exclusivity in practice, considering the time it takes for carriers to bring new handsets onto the market.

"Fifteen months in the handset market is the difference between 'cutting-edge' and
'obsolete.' Without the ability to negotiate for all devices, the Verizon Wireless offer does not offset this harm," the groups stated in their letter to Boucher. "The better solution is to encourage manufacturers to make interoperable phones from the outset by doing away with any exclusive deals in the wireless market."

Verizon and other major wireless carriers contend that exclusive handset deals are essential to promote competition and innovation in device development and design.

"This new approach is fair to all sides. We work closely with our vendors to develop new and exciting devices that will attract customers. When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device," McAdam wrote to Boucher. "Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device."

Nevertheless, the practice of exclusive handset deals is drawing the attention of key players in Congress, including Sen. Herb Kohl, chairman of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights. In July 6 letters to Federal Communications Commission Chairman Julius Genachowski and Christine Varney, head of the Department of Justice's Antitrust Division, Kohl wrote, "We on the Antitrust Subcommittee have become concerned with emerging barriers to competition in an already highly concentrated market."

Kohl urged the Department of Justice and the FCC to begin investigations into the practices of wireless carriers to ensure that the wireless telephone market remains open to competition and to remove barriers to entry and expansion by new competitors. Kohl raised a host of questions about the wireless carriers' policies, including regarding price fixing in text messaging, roaming arrangements and prices, spectrum restraints, exclusive handset deals between carriers and cell phone makers, and early termination fees.

"The practice of large cell phone companies gaining exclusive deals to [carry] the most in-demand cell phones is a serious barrier to competition," Kohl wrote. "Consumers are unlikely to obtain cell phone service from companies if they cannot obtain desired handsets."

Kohl's letters were sent on the same day that reports surfaced that the DOJ is opening an antitrust investigation into the consumer practices of such powerhouse providers as AT&T and Verizon.