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 (NASDAQ: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.
Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.