The No. 4 wireless company argued in a petition to the Federal Communications Commission that the largest carriers -- AT&T and Verizon -- charge artificially high prices when customer from smaller carriers, including T-Mobile and Sprint, data roam on their networks. In the document, T-Mobile asked the FCC to set specific guidance and enforcement criteria for determining whether a data roaming agreement is commercially reasonable.
The FCC granted T-Mobile's petition on Dec. 18. That in itself does not immediately provide rate relief for T-Mobile or its customers, but it does give the company (and Sprint) an easier path should it challenge what its rivals charge.
What T-Mobile asked for
The FCC already has a rule, the Data Roaming Order, that requires deals to be commercially reasonable, but it offered no clear definition for that term. That left a huge loophole and allowed AT&T and Verizon to create their own definition for "commercially reasonable," which it seems is very different from T-Mobile's. In petitioning the FCC, "The Un-carrier" sought more clarity from the government agency.
Despite adoption of the rule, however, real-world industry experience shows that providers continue to be stymied in their efforts to negotiate data roaming agreements on commercially reasonable terms. These problems are due in large part to certain ambiguities in the "commercially reasonable" standard for data roaming -- ambiguities that could not have been foreseen at the time, but which have become apparent with experience. The data roaming marketplace, and the consumers who rely on it for ubiquitous, affordable wireless service, would benefit substantially if the Commission provided greater clarity on the meaning of its "commercially reasonable" standard in the context of data roaming
Basically, T-Mobile argued that "commercially reasonable" is a meaningless gray area completely open to interpretation and manipulation. In its petition, the company suggested using four benchmarks set by former FCC chief economist Joseph Farrell to determine whether a price is in fact commercially reasonable:
- Whether a wholesale roaming rate offered to a retail competitor substantially exceeds the relevant retail rate
- Whether a wholesale roaming rate substantially exceeds roaming rates charged to foreign carriers when their customers roam in the U.S
- Whether a wholesale roaming rate substantially exceeds the price for wholesale data service that a seller charges to mobile virtual network operator customers;
- How the proposed wholesale roaming rate compares to other competitively negotiated wholesale roaming rates.
AT&T and Verizon both spoke out against the T-Mobile petition when it was submitted, and both issued statements decrying the FCC decision. AT&T explained its argument in a public statement. The company charged that T-Mobile was not simply looking for clarification of existing rules, but was seeking a major overhaul of a system that is "functioning well." AT&T pointed out that T-Mobile was also ignoring the fact that it has the option of building out its own network, The statement added that T-Mobile's own admission that what it pays for roaming had declined shows that its petition was unnecessary:
Those declines include very marked declines in the rate T-Mobile is paying to AT&T. That rate is more than 70% lower than it was just three years ago, and it compares favorably with the rates T-Mobile claims it pays other providers. In fact, the rate T-Mobile pays AT&T is lower than the average rate paid by AT&T: AT&T currently pays an average roaming rate that is higher than the 30 cents T-Mobile reports that it paid to other providers in 2013 (and significantly higher than the 18 cents T-Mobile projects it will pay in 2014).
This FCC decision won't produce any immediate changes, but it's another tool at T-Mobile and Sprint's disposal to force their larger competitors to abide by the terms of the Data Roaming Order. It should offer more cost certainty for both carriers and allow them to continue to compete nationally with AT&T and Verizon despite not have equal infrastructure in all parts of the country.
In accepting the petition the FCC has not changed anything, but it has given its existing rules teeth that allow for the words commercially reasonable to actually be applied in the way consumers would define them. That's good for the public and it's good for Sprint and T-Mobile.
Daniel Kline owns shares of Apple. The Motley Fool recommends Apple and Verizon Communications,. The Motley Fool owns shares of Apple. 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.