How the FCC Could Shape a Mobile Data-Driven Economy

The direction the agency takes under its next chairman will have major implications for governments, for growth and for innovation.

Tom Wheeler, President Obama's nominee to be the next chairman of the Federal Communications Commission (FCC), has a critical choice to make if he is confirmed by the Senate. The direction he takes with mobile broadband regulation will set the future pace of U.S. growth and innovation. It also will have major implications for government at all levels, on issues ranging from public-safety communications to rural health care to economic development.

If confirmed, Wheeler would come to the FCC at a critical juncture: The agency is at a regulatory fork in the road. For three years in a row, the FCC has been unable to conclude, in its annual mobile competition report, whether or not the mobile phone market is competitive. This is not simply a technical issue. Rather, it highlights an internal debate: The FCC can't decide what regulatory framework to apply to the mobile broadband market and, by extension, to the entire digital network.

Along one path, the FCC can adopt the "old-school" view of telecommunications regulation: treating mobile as a very different service from fixed-line, even though both can provide most of the same services. Such a top-down regulatory approach--similar to what European regulators are using--would push the FCC to take an activist role in controlling prices and forcing increasing competition in local wireless markets.

The alternative is for the FCC to think more broadly about the United States as a "data-driven" economy, one in which digital information is king and the nature of the telecom pipe matters less and less. All sorts of companies are already actively competing to provide the same services--email, video, social networks, search, games, banking--via both mobile and fixed-line broadband. From the perspective of consumers, there has never been more choice, both among telecom providers and among the providers of the various applications.

There are strong indications that the old-school approach has significantly hampered the European economy. Regulated at the country level, mobile broadband providers are unable to engage in efficiency-enhancing mergers and spectrum-sharing arrangements. Wireless investment by European telecoms was two-thirds of U.S. wireless investment in 2011, with providers unable to make up for the decline in mobile voice revenues with revenues from increased data usage, as providers in the United States have been able to do. European customers, facing high roaming charges and gaps in cross-country coverage, spend an average of just 170 minutes a month on their phones, compared to 945 minutes for U.S. consumers--in spite of the fact that Europe has a higher mobile penetration rate.

Meanwhile, in the United States, rapid data-driven growth has been a bright spot in an otherwise slow-growth economy. The "App Economy" has created more than 500,000 jobs since 2007, along with more than 2.7 million apps on about a dozen different operating systems. Mobile commerce doubled in 2012, and now constitutes 11 percent of all e-commerce sales. Mobile heath applications are among the most promising cost-saving developments in health care. And Progressive Policy Institute research found that three of the four nationwide wireless service providers (AT&T, Verizon and Sprint-Nextel) were among the top 25 U.S. companies investing in America, based on their capital expenditures in 2011.

State and local governments have a particularly large stake in the direction the FCC takes. Maintaining the old-school approach of ignoring wireless communications as a substitute for fixed could limit availability of the Internet in underserved areas and in libraries and schools. In contrast, a data-driven approach not only would eliminate definitional barriers between fixed and wireless but also could encourage local economic development by enabling more cities to become the next Chattanooga, Tenn.
, or Lafayette, La., which have deployed universal broadband networks, or the next Kansas City or Austin, Texas, which are deploying Google Fiber. Moreover, the promise of mobile health applications could save millions of dollars in state-run health programs and hospitals over the next few years.

The FCC's own reports show that mobile broadband is fast becoming a substitute for wired connections. Almost 40 percent of households now are wireless-only, up from 10 percent in 2007. In the last two years alone, consumers added 30 million new wireless connections (and more than 80 million wireless Internet connections), consuming more data at an ever-lower cost.

Taking the road of convergence with the data-driven economy would finally enable the FCC to evolve with the telecom sector of the 21st century. The FCC could work with wireless service providers and other stakeholders to make new rules that are dynamic and designed for today's integrated communications ecosystems. These rules would redefine "competitive" to fit the organizational structure of today's telecommunications landscape, recognizing that it is the pace of innovation, and not the number of providers, that drives prices and investment. And they would recognize that it's no longer just traditional telecom firms that provide wireless communication services.

Tom Wheeler's expansive history in the telecom and media sector, and as a venture capitalist for tech startups, suggests that he would make innovation and growth a top priority. The best way to achieve that is to take the road of convergence with the data-driven economy.