Why AT&T and Verizon Are to Blame for Expensive Mobile Data

Four public interest groups have claimed that AT&T  (NYSE: T  ) and Verizon  (NYSE: VZ  ) have been leveraging their large networks to force competitors to pay them excessive fees for data roaming. This causes the smaller carriers to charge higher prices to their own subscribers, which allows the big companies to keep their rates high as well, the group wrote in a filing with the Federal Communications Commission. 

Public Knowledge, the Open Technology Institute at New America Foundation, Benton Foundation, and Common Cause submitted a document to the FCC in support of T-Mobile's  (NYSE: TMUS  ) Petition for Expedited Declaratory Ruling filed with the commission. T-Mobile wants the FCC to force AT&T and Verizon -- by far the biggest mobile phone companies -- to negotiate lower rates when customers of other companies "roam" on their networks. In 2011 the FCC adopted rules requiring that the terms of any data roaming agreement be "commercially reasonable." T-Mobile now wants a "prospective guidance and predictable enforcement criteria for determining whether the terms of any given data roaming agreement or proposal" meet that standard. 

AT&T and Verizon oppose T-Mobile's request.

What is being argued?

In 2011 the FCC determined that AT&T and Verizon have both the incentive and the capability to raise data roaming rates (or deny data roaming entirely), hurting or crippling its competitors. The commission attempted to put measures into place that would prevent that.

T-Mobile's complaint states that those steps haven't worked. The document filed in support of the T-Mobile complaint states that growth in demand for smart phones and data packages has enhanced the ability of AT&T and Verizon to leverage their market power to impose higher costs on their rivals, hurting all subscribers.

The complaint further details how AT&T and Verizon are using the size of their networks and the fact that smaller companies have to make deals with them to keep prices high:

To the extent AT&T and Verizon can artificially increase the cost of data roaming for rivals, rendering aggressive price competition economically unfeasible, it does more than extract monopoly rents from competitors. It allows Verizon and AT&T to charge artificially inflated prices to their own customers as well. In this case, Verizon and AT&T maintain strict data caps and overage fees and are able to maintain these strategies by rendering truly unlimited plans for competitors economically unfeasible. 

T-Mobile is right to complain and it's good to see the company getting support from major public interest groups. The only thing that makes the FCC act in favor of regular citizens seems to be focused media attention and an interested American people.

Why does this matter?

While Sprint and T-Mobile -- especially if they merge, as appears to be in the works -- have the heft to take on AT&T and Verizon, smaller carriers are much more vulnerable. 

T-Mobile's petition says that small carriers have reported problems, including "offers of wholesale data roaming rates many orders of magnitude higher than the offering carrier's retail rates to its own data customers, delays of more than eight months to obtain even initial responses to roaming requests, requests for detailed long-term traffic projections, and proposed hefty penalties for any resulting deviations from those projections."

AT&T and Verizon operate using wireless spectrum licensed from the United States government as administered by the FCC. The commission has the ability to dictate terms of those licenses as it does with other areas it controls. 

By being able to charge essentially whatever they want for roaming under whatever terms they desire, AT&T and Verizon can freeze out competitors. It would be like allowing UPS and FedEx to own major highways and then set whatever fee it wants for Amazon or Domino's Pizza delivery vehicles to use those roads.

What will the FCC do?

If the public raises a fuss the FCC will likely side with T-Mobile at least partly. This could force AT&T and Verizon to create a reasonable, transparent cost structure for wholesale roaming. That could result in savings that allows Sprint  (NYSE: S  ) and T-Mobile to lower prices, which could force AT&T and Verizon to follow. If the FCC steps in it could also make it easier for smaller, regional carriers to compete.

Without public attention, however, the FCC will probably do little more than offer more vague language that only helps the biggest players. 

The wireless airwaves are a public commodity that should be used in the best interests of the American people. The FCC should be pushing the companies licensing them into doing what's best for as many people as possible even if that hurts the bottom line.

Unfortunately, it seems the FCC only sides with the American public over large corporations when the public is paying attention.

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Read/Post Comments (8) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 16, 2014, at 10:19 AM, gwtx2 wrote:

    I long for the day that someone comes along and pushes the behemoths off the cliff. They are all crooks.

  • Report this Comment On July 16, 2014, at 10:50 AM, TXObjectivist75 wrote:

    Um, if UPS paid to build the highways, why wouldn't they have the right to keep DHL and FedEx off them? If AT&T and VZ don't want others piggybacking on the infrastructure they paid to build, why should they be forced to?

  • Report this Comment On July 16, 2014, at 11:31 AM, Chishiki wrote:

    They didn't install all of those networks. They simply bought them off other companies over the years. To make matters worse. They are preventing other companies from deploying networks by charging them so much for roaming. The FCC should not force them to sell roaming at a lower price. What they should do is force ATT & Verizon to sell off part of their network.

  • Report this Comment On July 16, 2014, at 12:57 PM, ErikEriksen wrote:

    whether they built or bought, that are THEIRS... Sprint and Tmo can build their own...

  • Report this Comment On July 16, 2014, at 2:00 PM, dtam1 wrote:

    it's not as simple as "ups paid to build the highways", "sprint and tmo can build their own".

    there's a limited amount of resources (frequencies) that we have and att and verizon gobble it all up without doing anything with it, therefore artificially keeping prices high.

  • Report this Comment On July 16, 2014, at 4:13 PM, anash91 wrote:

    There's too much of an oligopoly. ATT and Verizon, along with Sprint and Tmobile all need to be broken up

  • Report this Comment On July 16, 2014, at 8:31 PM, ErikEriksen wrote:

    do you really believe that they cannot build a bigger network with the resources they have? do you really think they HAVE TO HAVE more frequencies to do so?

    Their current freqs operate alongside all the rest in major markets...minimal freqs does NOT mean limited coverage area.

  • Report this Comment On July 18, 2014, at 3:52 PM, djlaino wrote:

    I imagine part of such regulations about sharing infrastructure is that it is not in the public's interest to duplicate infrastructure; not economically or physically. Imagine each carrier building its own tower everywhere. Now instead of that one tower everyone fought so hard to deny in their neighborhood, there are four such towers. Imagine the highway scenario, only now there are several parallel highways, each exclusive to each delivery company. VZ and AT&T should be compensated for the use, but they should not be able to use those charges to stifle and try to kill off competition to their benefit.

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