[Senate Hearing 113-223]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-223

 
                    STATE OF WIRELESS COMMUNICATIONS

=======================================================================

                                HEARING

                               before the

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 4, 2013

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
WILLIAM COWAN, Massachusetts         RON JOHNSON, Wisconsin
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

              SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, 
                            AND THE INTERNET

MARK PRYOR, Arkansas, Chairman       ROGER F. WICKER, Mississippi, 
BARBARA BOXER, California                Ranking Member
BILL NELSON, Florida                 ROY BLUNT, Missouri
MARIA CANTWELL, Washington           MARCO RUBIO, Florida
FRANK R. LAUTENBERG, New Jersey      KELLY AYOTTE, New Hampshire,
CLAIRE McCASKILL, Missouri           DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota             DAN COATS, Indiana
MARK WARNER, Virginia                TIM SCOTT, South Carolina
MARK BEGICH, Alaska                  TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut      DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii                 RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 4, 2013.....................................     1
Statement of Senator Pryor.......................................     1
Statement of Senator Wicker......................................     2
Statement of Senator Thune.......................................    57
Statement of Senator Klobuchar...................................    59
Statement of Senator Heller......................................    61
Statement of Senator Warner......................................    63
Statement of Senator Fischer.....................................    65
Statement of Senator Johnson.....................................    67
Statement of Senator Nelson......................................    69
Statement of Senator Rubio.......................................    71
Statement of Senator Blumenthal..................................    73
Statement of Senator Ayotte......................................    77

                               Witnesses

Steve Largent, President and CEO, CTIA--The Wireless Association     3
    Prepared statement...........................................     5
Steven K. Berry, President and Chief Executive Officer, 
  Competitive Carriers Association...............................     8
    Prepared statement...........................................    14
Doug Webster, Vice President, Service Provider Routing, Mobility 
  and Video Marketing, Cisco Systems, Inc........................    19
    Prepared statement...........................................    21
Thomas F. Nagel, Senior Vice President, Comcast Corporation......    23
    Prepared statement...........................................    25
George S. Ford, Ph.D., Chief Economist, Phoenix Center for 
  Advanced Legal and Economic Public Policy Studies..............    32
    Prepared statement...........................................    34
Delara Derakhshani, Policy Counsel, Consumers Union..............    49
    Prepared statement...........................................    51

                                Appendix

Response to written question submitted by Hon. Amy Klobuchar to 
  Steven K. Berry................................................    81


                    STATE OF WIRELESS COMMUNICATIONS

                              ----------                              


                         TUESDAY, JUNE 4, 2013

                               U.S. Senate,
Subcommittee on Communications, Technology, and the 
                                          Internet,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:32 p.m., in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
Chairman of the Subcommittee, presiding.

             OPENING STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARIZONA

    Senator Pryor. I'll go ahead and call this to order.
    I want to say welcome and good afternoon to everybody. I 
know we have a lot of people in attendance, and we understand 
that some people may be watching this on their mobile devices 
out in the hallway.
    [Laughter.]
    Senator Pryor. But, nonetheless, we want to say thank you 
to all of our witnesses for being here. Thank you for your 
preparation.
    This is the third in our, ``state of'' hearings in which 
we're trying to inform members about issues going on in the 
industry, but also hear from industry about what's going on, 
not just in the industry, but, really, around the world, and 
what all the trends are.
    Wireless communication is the focus of today's hearing. 
We're going to hear from panelists who represent wireless 
providers and equipment manufacturers, as well as other 
panelists who analyze and monitor the industry and who advocate 
on behalf of wireless customers.
    As we all know, wireless communications are used more and 
more. If you can say there is such a thing as the ``traditional 
cell phone''--but, from traditional cell phone that many of us 
have relied on for the last several years, which was primarily 
voice communications, to now we see an increase in the use of 
Internet through wireless devices, and even things that we are 
beginning to just take for granted, these wireless devices, 
like garage door openers, TV remotes, Wi-Fi, Internet 
connectivity. These--the--licensed or unlicensed, this is 
becoming ubiquitous and ever present in today's world. In fact, 
with a smartphone or tablet, someone in this room could have a 
video chat with a family member, turn on or off their home 
entertainment system, and even purchase tickets to tonight's 
Washington Nationals baseball game.
    I'm looking forward to hearing from our panelists. There 
are many new developments and new services that the industry is 
providing, and we are cognizant of that, and very appreciative 
of that, and appreciative of all the private investment that we 
see, and the many, many services that are being provided. And 
we, obviously, are concerned and we understand about the 
greatly increased need for the use of spectrum. We will all be 
interested to know the panelists' thoughts on the spectrum 
crunch and how it can be effectively addressed as both demand 
and technological innovations increase.
    So, are the administration and Congress doing enough, and 
are they doing it in the right way? How can we ensure that 
spectrum, a public good, is being maximized for consumers and 
for businesses, and ultimately the taxpayers? The panelists 
before us today will provide their insights to these questions 
and many others.
    I'm pleased to be joined today by Senator Wicker, my 
Ranking Member on the Subcommittee, and also we're going to 
have many, many of our Subcommittee Members come in and out 
today. This is a busy day on the Senate floor, so----
    Senator Wicker.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you very much, Mr. Chairman. I am 
glad to join you on this, our third, hearing on the state of 
the industry.
    Today, our focus is on the state of wireless communications 
in the United States. There is perhaps no platform for 
broadband delivery as dynamic and rapidly growing as mobile 
wireless communications. Consumers are turning to mobile 
technology in droves, making it their primary way of access to 
the Internet.
    Last year, global mobile data traffic grew 70 percent. When 
it comes to voice services, American consumers are consistently 
cutting the cord and transitioning from traditional landline 
service to wireless as their primary means for voice 
communication. According to a recent CDC study--interestingly, 
Mr. Chairman--Mississippi and Arkansas are leading the way in 
wireless-only households, with 42.3 percent of adults in 
Mississippi and 44.4 percent of adults in Arkansas making a 
full conversion. That same study found that, by the second half 
of 2011, one in three households had only wireless phones. The 
rapid migration to wireless raises a number of critical issues 
for policymakers, many of which will be mentioned and discussed 
by the witnesses on our panel today.
    As the Chair mentioned, one of the key issues for Congress 
to consider is how to maximize commercial access to spectrum in 
order to meet consumer demand for high-speed service and 
content-rich applications. One of the main avenues to achieve 
this goal is making the 1755-1780 megahertz band available for 
commercial services. This band was identified in the FCC's 
National Broadband Plan for its commercial potential. When 
paired with the AWS-3 band, this spectrum can be quickly used 
to expand existing systems, spur innovation, and drive economic 
growth.
    I understand the wireless industry and Federal agencies 
have been working together to study this issue, and that the 
industry has recently proposed a roadmap for clearing Federal 
systems out of the band. I urge DOD and other government 
entities currently using the band to continue to work together 
productively and in a quick, conclusive fashion to relocate 
operations and free up this spectrum for commercial and, 
ultimately, for consumer use.
    This committee also needs to monitor, closely, the progress 
of the FCC's impending incentive auction of wireless broadcast 
spectrum. The success of this auction is critical to 
construction of the National Public Safety Broadband Network 
established in the Spectrum Act. It also would free up spectrum 
and raise much-needed revenue for deficit reduction. To achieve 
success, it is imperative that there be widespread all-
inclusive participation in the auction. This is the best way to 
maximize revenues going forward, as Congress mandated.
    I would like to thank our witnesses for testifying today. 
We look forward to hearing your views on the issues of spectrum 
availability, the incentive auction, and the overall state of 
wireless services in this country.
    Thank you again, Senator Pryor, for holding this hearing, 
and I thank the members of our Committee, for their attendance 
and interest.
    Senator Pryor. Thank you.
    Let me say that what we'll do is, we'll dispense with our 
opening statements, and everybody's opening statement will be 
made part of the record. But, we would like to move quickly to 
our panel.
    We have a very distinguished panel today. I will recognize 
each one of them for a 5-minute opening.
    We would really appreciate it if you could keep it to 5 so 
that the Subcommittee would have plenty of time to ask 
questions.
    What I'll do, just to save time, is, I'll just go right 
down the list and then turn it over to Mr. Largent.
    First, we're going to have the Honorable Steve Largent, 
President and CEO of CTIA, The Wireless Association. Second, 
we're going to have Mr. Steven Berry, President and CEO of 
Competitive Carriers Association. Third, we're going to have 
Mr. Doug Webster, Vice President, Service Provider Routing, 
Mobility and Video Marketing, Cisco Systems. Fourth, we will 
have Mr. Thomas F. Nagel, Senior Vice President, Business 
Development and Strategy, Communication and Data Services for 
Comcast Corporation. Next, we will have Mr. George Ford, Chief 
Economist of the Phoenix Center. And last, and certainly not 
least, we'll have Delara Derakhshani, Policy Counsel for 
Consumers Union.
    So, again, welcome, all of you. And again, thank you, for 
the Subcommittee, for being here.
    Mr. Largent, if you'd lead us off. Thank you.

        STATEMENT OF STEVE LARGENT, PRESIDENT AND CEO, 
                CTIA--THE WIRELESS ASSOCIATION

    Mr. Largent. Mr. Chairman, Ranking Member Wicker, and 
members of the Subcommittee, thank you for this opportunity to 
testify on behalf of CTIA.
    As we meet today, I've just returned from our annual spring 
show, and I really wish you could have joined us. You would 
have seen a great testament to the state of the wireless 
industry. It's a vibrant, dynamic ecosystem that's innovative 
and competitive at every level. It's also an environment in 
which U.S. leadership is a consistent and defining 
characteristic.
    Perhaps the best indicator of the wireless industry's 
vibrancy is its investment record. If you believe that 
businesses commit capital to markets that are open and 
competitive, then the $30 billion that America's wireless 
carriers invested in 2012, alone, is a very good sign. This 
massive investment serves as a catalyst for what we, at CTIA, 
like to call ``the virtuous cycle of wireless investment and 
innovation.'' Here's what I mean by that: To start, capital 
expenditures drive the creation of networks capable of 
supporting greater speeds and functionalities. Those new 
networks create a demand for new and more powerful devices, 
which then drive the development of new applications and 
content. That leads the--to more consumer usage, and, as that 
grows, so does the need for more spectrum.
    This virtuous cycle is spinning at an incredible rate in 
the U.S. and is the reason why we are the world's leading 
wireless market. We have more than 50 percent of the world's 4G 
subscribers--let me repeat that--50 percent of the world's 4G 
subscribers, in spite of the fact that the U.S. is home to just 
5 percent of the world's wireless subscribers. These 
subscribers use sophisticated phones and tablets that run on 
chips and operating systems developed by great American 
companies, like Qualcomm, Apple, Google, and Microsoft. And 
these networks and devices serve as the foundation for a U.S.-
based applications industry that is creating jobs and 
transforming the way we consume information and engage in 
commerce.
    Along with changing the way consumers communicate, advanced 
wireless networks are enabling whole new vertical markets to 
emerge. Mobile commerce and finance, intelligent 
transportation, smart grid, and mobile health services and 
applications, are all made possible by the existence of robust 
wireless broadband capabilities. And each of these 
opportunities helps to transform our economy in positive ways. 
So, as I hope I've demonstrated, there are a lot of great 
things emanating from the U.S. wireless communications 
industry. The benefits of those developments are felt 
throughout our society. However, success is hard to achieve, 
and can be still harder to maintain. As a result, there is a 
vital role for Congress and other government entitles to enact 
smart policies that help the private sector to continue its 
hard work and innovation to advance U.S. leadership in this 
critical industry.
    Without question, the area where policy leadership is most 
important is access to spectrum. Carriers must have access to 
additional licensed spectrum in order to keep up with 
Americans' demand for mobile broadband. Fortunately, Congress 
recognized this when it included provisions in last year's 
SPECTRUM Act, authorizing the FCC to conduct incentive 
auctions. Although the FCC is moving to implement that 
legislation, it is critical that the incentive auction process 
move forward expeditiously. But, even if the incentive auction 
process yields the full 120 megahertz called for in the 
National Broadband Plan, numerous projections on increased 
network traffic clearly indicate we're going to need more 
spectrum to keep up with the demand. In fact, much more.
    To address that difference, Congress should, as it has in 
the past, look to repurpose bands held by Federal users for 
commercial use. It has worked well before, and it can work well 
again. One band that's especially important in enabling 
wireless companies to meet expanding demand is the 1755-1780 
megahertz spectrum. While that band is currently used 
domestically by DOD and other Federal agencies, it is used 
internationally for commercial mobile services. Harmonizing the 
U.S. allocation with international use will produce significant 
economies of scale and scope, and, importantly, make it 
possible for consumers to use their wireless devices outside of 
North America. There is a broad industry support for pairing 
the 1755 band with the spectrum currently available for 
licensing at 2155-2180. Current law requires 2155 band to be 
licensed by February 2015, and it's our hope that the 1755 band 
can be made available so that the two bands can be auctioned 
together.
    Pairing these bands will ultimately maximize their value to 
the industry, consumers, and also to the government, as the 
auction of the two bands, together, will deliver significantly 
more revenue to the Treasury than would an auction of just 2155 
band.
    CTIA looks forward to working with you to achieve this 
important objective. Thank you for your time today.
    [The prepared statement of Mr. Largent follows:]

        Prepared Statement of Steve Largent, President and CEO, 
                    CTIA--The Wireless Association

    Chairman Pryor, Ranking Member Wicker, and members of the 
Subcommittee, thank you for this opportunity to testify on behalf of 
CTIA--The Wireless Association.
    As you begin today's hearing, I have just returned from CTIA 2013, 
our annual spring trade show, which draws thousands of attendees from 
around the nation and around the world. I wish you could have joined 
us. Had you been able to do so, you would have seen a great testament 
to the state of the wireless industry--a vibrant, dynamic ecosystem 
that is innovative and competitive at every level. It is also an 
environment in which U.S. leadership, and the competitive advantage 
that leadership confers upon our national economy, is a consistent and 
defining characteristic.
    Perhaps the best indicator of the wireless industry's vibrancy and 
competitiveness is its capital investment record. If you believe, as I 
do, that businesses commit capital to markets that are open and 
competitive, and where they have a chance to earn a compelling return 
on what they invest, then the $30 billion America's wireless carriers 
invested in their networks in 2012 \1\--a nine percent year-over-year 
increase from 2011--is a very good sign. This investment, which 
according to Bank of America Merrill Lynch equals a quarter of global 
wireless investment last year,\2\ is all the more remarkable given the 
fact that the U.S. market includes just five percent of the world's 
wireless subscribers. It's a striking ratio: the U.S. comprises just 
five percent of the global wireless market but our investments outstrip 
that by five-fold.
---------------------------------------------------------------------------
    \1\ http://www.ctia.org/advocacy/research/index.cfm/AID/10316.
    \2\ Didier Scemama, ``Global Wireless CapEx: Increase 2013 Forecast 
by 7 percent,'' Bank of America Merrill Lynch, January 6, 2013.
---------------------------------------------------------------------------
    And, while the numbers are impressive, last year was not an 
anomaly. The wireless industry has always been an active investor. 
Since 2001, wireless carriers in the U.S. have invested nearly $300 
billion in their networks, and this figure does not include more than 
$35 billion in carrier expenditures on spectrum auctioned by the FCC.
    This massive capital investment serves as a catalyst for what we at 
CTIA like to call ``the virtuous cycle of wireless investment and 
innovation.'' Sustained capital expenditures facilitate the creation of 
networks capable of supporting greater speeds and functionalities, 
which, in turn, bring about new and more powerful and useful devices. 
The availability of new devices encourages the development of new 
applications and content, which help to drive consumer usage. And as 
usage grows, so too does the need for ever-more robust networks and 
more spectrum.
    This ``virtuous cycle'' phenomenon is seen most vividly in the U.S. 
market, where the world's most advanced Long-Term Evolution deployments 
have produced more than 50 percent of the world's 4G subscribers.\3\ 
These subscribers use sophisticated devices that run on chips and 
operating systems developed by great American companies like Qualcomm, 
Apple, Google, and Microsoft. And these U.S.-derived networks and 
devices serve as the foundation for a fertile applications development 
industry--again, with its hub here in America--that is creating jobs 
and helping transform the way we consume information and engage in 
commerce.
---------------------------------------------------------------------------
    \3\ As of March 2013, the U.S. was estimated to have 52.5 percent 
of the world's LTE subscribers, according to the Informa Telecoms & 
Media Group's World Cellular Information System (WCIS) database.
---------------------------------------------------------------------------
    America's wireless subscribers are the beneficiaries of this 
virtuous cycle. Carriers' fourth-generation network deployments and 
device vendors' launch of advanced handsets and tablets in the U.S. 
market put American consumers at the vanguard of global wireless users, 
all in an environment where the Bureau of Labor Statistics Wireless 
Price Index has declined in each of the last five years, and by nearly 
40 percent over the last 15 years.\4\ It is unquestionably the best 
story in the telecom sector.
---------------------------------------------------------------------------
    \4\ BLS Consumer Price Index Databases (not seasonally adjusted).
    
    
    Source: BLS Consumer Price Index Databases (not seasonally 
---------------------------------------------------------------------------
adjusted).

    As functionality has expanded and price has declined, adoption and 
usage have simultaneously exploded. Wireless subscriber units--that is, 
active devices associated with subscriptions or prepaid accounts--
totaled 326.4 million separate devices at year-end 2012. That's equal 
to 102 percent of the total U.S. population, a greater and greater 
percentage of which is making their wireless phone their only phone. In 
Arkansas and Mississippi, for instance, more than 40 percent of the 
population is now ``wireless-only.'' \5\ By comparison, just eight 
percent of the population in those states is ``wireline-only.'' \6\
---------------------------------------------------------------------------
    \5\ Centers for Disease Control and Prevention, ``Wireless 
Substitution: State-level Estimates From the National Health Interview 
Survey, 2010-2011,'' National Health Statistics Reports No. 61, October 
12, 2012.
    \6\ Ibid.
---------------------------------------------------------------------------
    Similarly, many people are making their wireless device their on-
ramp to the Internet. This is particularly true among Hispanics and 
African-Americans, where ownership of a home computer lags the total 
population and the mobile device is a critical tool for closing the 
``digital divide.'' Data shows that Hispanics and African-Americans are 
significantly more likely to use their mobile devices to go online.\7\ 
Overall, 55 percent of wireless users (and 74 percent of those under 
age 50) now use their mobile devices to access the Internet,\8\ with 
aggregate data usage now exceeding 1.5 trillion megabytes.\9\
---------------------------------------------------------------------------
    \7\ Pew Research Hispanic Center, ``Closing the Digital Divide: 
Latinos and Technology Adoption,'' March 7, 2013. Available at http://
www.pewhispanic.org/2013/03/07/closing-the-digital-divide-latinos-and-
technology-adoption/.
    \8\ Pew Research Center, ``Teens and Technology 2013,'' March 13, 
2013. Available at http://pewinternet.org//media/Files/Reports/2013/
PIP_TeensandTechnology2013.pdf.
    \9\ http://www.ctia.org/advocacy/research/index.cfm/AID/10316.
---------------------------------------------------------------------------
    Beyond changing the way that consumers communicate, the prevalence 
and power of 4G wireless networks is enabling whole new vertical 
markets to emerge. Mobile payment, intelligent transportation, smart 
grid and mobile health services and applications are made possible by 
the existence of robust, ubiquitous wireless broadband capabilities. 
Each of these opportunities can help transform our economy in positive 
ways, helping to drive additional investment and job creation. The last 
of these verticals, mobile health, is particularly exciting, as 
innovative m-health technologies and applications have enormous 
potential to improve the efficiency of health care delivery in the U.S. 
and around the world through more personalized care for patients, by 
reducing health care costs, and by eliminating geographic and economic 
barriers to the delivery of health services.
    So, as I hope I've demonstrated, there are a lot of great things 
emanating from the U.S. wireless communications industry and the 
benefits of those developments are felt throughout our society. 
However, as you know, success is hard to achieve and can be still 
harder to maintain.
    As a result, there is a vital role for policymakers--chiefly 
Congress, but also including the FCC, NTIA and other government 
entities--to complement the great work being done in the private sector 
with smart government policies that create an environment in which the 
private sector can work hard, innovate and advance U.S. leadership in 
this critical, ever-expanding industry.
    Without question, the most important area where continued policy 
leadership is necessary is access to spectrum. In order to keep pace 
with the demand Cisco will describe in its testimony, the wireless 
industry needs access to more spectrum.
    Spectrum is the resource on which all of the benefits that spring 
from wireless communications are founded. While manufacturers have 
tenaciously devised and used advanced technologies to get the most out 
of existing spectrum allocations and though carriers have innovatively 
used unlicensed Wi-Fi spectrum to ``offload'' traffic from carrier 
networks, those efforts are simply not enough. Carriers must have 
access to additional licensed spectrum in order to keep up with 
technological requirements and exploding consumer demand for mobile 
broadband.
    Fortunately, Congress recognized this when it included provisions 
in last year's Middle Class Tax Relief and Job Creation Act which 
authorized the FCC to conduct incentive auctions that may result in the 
conversion of some television broadcast spectrum for wireless broadband 
use. The FCC is moving to implement that legislation and it is vitally 
important that the incentive auction process move forward 
expeditiously. It is equally important that the Commission get it 
right. But even if the incentive auction process yields the 120 MHz 
called for in the National Broadband Plan, that and other bands 
identified for auction by last year's legislation will only represent a 
portion of what is needed for the industry to meet consumers' and 
businesses' need for wireless bandwidth.
    To address the difference between what the incentive auctions yield 
and what is necessary to achieve the five-and ten-year spectrum targets 
set by the National Broadband Plan, Congress should, as it has in the 
past, look to repurpose bands held by Federal users for commercial use. 
It has worked well before and it can work well again. According to a 
2011 GAO study, the Federal Government operates in approximately 70 
percent of the spectrum below 3 GHz--18 percent on an exclusive basis 
and 52 percent on a shared basis with non-government users. Just as it 
is appropriate to ensure that spectrum available to the private sector 
is being used efficiently and for the most highly valued services, the 
Federal Government must evaluate the use of its own spectrum and free 
spectrum for commercial operations wherever possible. The far-reaching 
benefits to our national economy are too vital to do otherwise.
    One frequency band currently occupied by Federal users that would 
be particularly helpful in allowing wireless companies to meet rapidly 
expanding demand is the 1755-1780 MHz spectrum. In the U.S., that band 
is currently used by the Department of Defense and other Federal 
agencies. However, the band is identified internationally for 
commercial mobile services and is used for that purpose throughout most 
of the world. Reallocation of the band would harmonize U.S. allocation 
of spectrum with international use, produce economies of scale and 
scope, and, importantly, make possible consumer use of their wireless 
devices outside North America by alleviating compatibility problems. 
The 1755-1780 MHz band is also immediately adjacent to existing 
domestic wireless commercial spectrum and would therefore fit 
seamlessly into the current mobile broadband spectrum portfolio, 
allowing for more immediate equipment development and deployment as 
well as facilitating easy migration of existing and developing 
technologies to these bands.
    There is broad industry support for pairing the 1755-1780 MHz band 
with spectrum currently available for licensing at 2155-2180 MHz. 
Current law requires the 2155-2180 MHz band to be licensed by February, 
2015 and it is our hope that the 1755-1780 MHz band can be made 
available so that the two bands can be auctioned together. Pairing 
these bands will maximize their value not only to industry, but also to 
the government. A study by the Brattle Group found that auctioning the 
2155-2180 MHz band by itself would yield $3.6 billion, but when paired 
with the 1755-1780 MHz band, the pairing could generate $12 
billion.\10\ Given the budget realities facing Congress and the 
country, a difference of that magnitude should not be ignored.
---------------------------------------------------------------------------
    \10\ http://www.brattle.com/_documents/UploadLibrary/Upload938.pdf.
---------------------------------------------------------------------------
    To be clear, CTIA recognizes that there are legitimate Federal 
spectrum needs that must be protected, and we believe that last year's 
improvements to the Commercial Spectrum Enhancement Act provide an 
appropriate framework for Federal relocation. Handled appropriately, 
relocation of Federal users from prime bands below 3 GHz can facilitate 
movement to state-of-the-art technology. This will reduce ongoing 
maintenance and procurement costs for Federal agencies and free up 
scarce resources under current budget caps. Wireless carriers can then 
use the relinquished spectrum to provide services and grow the economy, 
resulting in a win-win-win outcome for Federal users, wireless 
carriers, and the American public. For these reasons, CTIA urges the 
Subcommittee to remain focused on spectrum policy.
    Beyond a continued focus on bringing spectrum to market, two other 
areas where policy matters are regulation and taxation. With respect to 
the former, Congress established a deregulatory framework to govern 
wireless services twenty years ago and given the industry's record of 
investing, innovating, and competing, there is abundant evidence that 
charting that course was the right decision. Congress and the 
Commission should continue this long-standing commitment to ``light 
touch'' regulation and avoid imposing regulatory mandates that will 
raise costs and inhibit competitive differentiation among providers.
    Another area where policy can have a significant impact is 
taxation, and though tax policy is not necessarily within the province 
of this Committee, it is so important that it merits mention in this 
discussion. Corporate tax reform, keeping Internet access free from 
taxation, and the idea that wireless service and digital goods should 
benefit from clear rules preventing discriminatory taxation are all 
issues this Congress may address, and getting these issues right is 
vitally important. We need to retire the regressive, inefficient system 
of telecommunications taxation designed for Ma Bell and replace it with 
a 21st century tax system that reflects the reality that communications 
connectivity is central to virtually every aspect of our economy.
    Together, the right spectrum policies, regulatory restraint and 
sound tax policy can combine to support the investment and innovation 
that are pervasive in the wireless ecosystem, and which so demonstrably 
benefit the American public and economy. CTIA looks forward to working 
with you to achieve these objectives.
    Thank you for your time today.

    Senator Pryor. Thank you.
    Mr. Berry.

  STATEMENT OF STEVEN K. BERRY, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, COMPETITIVE CARRIERS ASSOCIATION

    Mr. Berry. Thank you, Mr. Chairman, Ranking Member Wicker, 
and members of the Subcommittee. Thank you for inviting me to 
testify today about the competition in the wireless industry.
    I'm here today on behalf of the Competitive Carriers 
Association, representing over 100 wireless carriers and nearly 
200 vendors and suppliers that support that competitive 
wireless ecosystem. My membership believes and includes 
innovative competitors of all sizes, from Sprint to Bug Tussel 
Wireless, in Wisconsin, and every members' district in every 
members' state that's here today.
    I'd like to talk about competition and what is needed to 
have a competitive wireless industry for years to come, and I 
may differ a little from my colleague sitting next to me. We 
are at a crossroads. Policymakers have two choices. One path 
leads down a dangerous road of continued concentration, the 
other creates a new framework for competition. Without a 
competitive framework, increased regulation will be needed to 
artificially replicate the benefits of competition. And none of 
us want that. The virtuous cycle that Steve refers to may 
become the vicious cycle if the small carriers can't get access 
to spectrum and devices. AT&T and Verizon dominate a wireless 
industry that's already heavily concentrated, more so than the 
auto, oil, or banking industries. The two largest wireless 
carriers control 70 percent of all revenue in the wireless 
industry, compared to the two top automakers controlling 35 
percent, oil controlling 25 percent, the top two largest banks, 
only 20 percent of the wireless--of the industry revenues. 
Policymakers should focus on a framework to create the next 
generation of competition.
    At CCA's spring event, I, too, met with my members and a 
diverse membership at CCA, and one of the main themes of our 
expo was growth. And with the right framework, our competitive 
carriers believe we're prime for economic growth, job creation, 
expansion of mobile broadband throughout the Nation, and a 
competitive framework that supports continued light-touch 
regulatory regime.
    There are three things the FCC can do today to help make 
this happen. First, the FCC should immediately restore 
interoperability into the lower 700 megahertz band. 
Interoperability has been fundamental to the wireless industry 
since its inception, and has supported the devices and roaming 
relationships. That all changed after auction 73, when AT&T was 
allowed to carve out a unique band plan in the lower 700.
    Mr. Chairman, in 2008, following the auction, you said, 
``History will show that the way the FCC structured the auction 
basically helped the two big wireless companies, to the 
detriment of competition in this country.'' History has proven 
your concerns to be accurate, Mr. Chairman. Yet, history need 
not repeat itself.
    The lower 700 megahertz band, unlike Humpty Dumpty, can be 
put back together again. It requires immediate action from the 
FCC. And the record is now complete, and the FCC must 
immediately act to restore interoperability, which will allow 
competitive carriers to utilize over $2 billion invested in 
beachfront spectrum. This will allow access to devices, data 
roaming, expandable broadband, especially in rural America, and 
spark new competition in the industry.
    Second, but maybe more important in the long run, 
competitive carriers must have access to spectrum. The FCC must 
revise its broken decade-old spectrum screen and apply those 
new rules to the upcoming incentive auction, using the 
authority the Congress just reaffirmed. Congress got it right, 
set the right tone; now it's up to the FCC to implement a 
competitive auction. Spectrum must be made available in small 
geographic areas so that the greatest number of carriers can 
participate, sized for bidding by all carriers. This means that 
it should be in CMAs, cellular market areas, in blocks of 
spectrum. This would maximize revenue to the Treasury, and the 
U.S. taxpayer will thank you.
    Let me be clear. All carriers, including Verizon and AT&T, 
should be allowed to participate in the auction. However, 
limiting how much spectrum any one carrier can obtain in a 
particular market just makes sense. No one or two carriers 
should be able to walk away with the entire pie. Some have 
claimed that DOJ's analysis tries to rig the auction. I don't 
read it that way, and nor does Attorney General Dick 
Thornburgh, who served under five Presidents. He recently wrote 
the DOJ and the FCC, and suggested that that policy is 
consistent with the competition policy under Republican and 
Democratic administrations, alike.
    I'd like to have his letter included in the record, if 
that's OK, Mr. Chairman.
    Senator Pryor. Without objection.
    [The information referred to follows:]

    
    
    
    
    
    

    Mr. Berry. And speaking about spectrum, incentive auctions 
should not be the only source of additional spectrum. Carriers 
need a functioning secondary market, and Federal holdings must 
be reviewed and, where possible, reallocated for commercial 
use. I totally agree with Mr. Largent that the 1755-1780 and 
2155-2180 needs to be paired and sold, and we ought to do it 
today.
    Finally, access to the networks is critical. As the 
transition to all IP networks move forward, the bedrock 
technology-neutral interconnection principles directed by 
Congress in the 1996 Act must be reaffirmed.
    Mr. Chairman, CCA and our members stand ready to help you 
and the Committee restore competition, spur investment and 
innovation, create jobs, and expand mobile broadband in rural 
America.
    Thank you.
    [The prepared statement of Mr. Berry follows:]

 Prepared Statement of Steven K. Berry, President and Chief Executive 
               Officer, Competitive Carriers Association

``Competition at the Crossroads: Preventing Duopoly in Today's Wireless 
                             Marketplace''

    Chairman Pryor, Ranking Member Wicker, and members of the 
Subcommittee, thank you for inviting me to testify about the state of 
competition in the wireless industry. I am here today on behalf of the 
Competitive Carriers Association, the nation's leading association of 
competitive wireless carriers, with over 100 carrier members ranging 
from small, rural providers serving fewer than 5,000 customers to 
regional and national providers serving millions of customers. We also 
represent almost 200 Associate Members--small business vendors and 
suppliers that serve carriers of all sizes and employ your 
constituents. The entire mobile ecosystem serving competitive carriers 
is dependent on vibrant competition in the wireless industry at all 
levels. CCA's diverse membership is bound together by a shared goal for 
competitive policies and a shared concern over the growing market power 
of the ``Twin Bells''--AT&T and Verizon. Through a steady stream of 
acquisitions, these two dominant carriers have turned what once was a 
robustly competitive wireless marketplace into an industry marching 
towards duopoly. I know that several members of this Subcommittee, as 
well as the Federal Communications Commission and the Department of 
Justice, have voiced the same concerns.
    In my testimony today, I will provide a snapshot of today's 
wireless industry, elaborate on the challenges facing competitive 
carriers, and offer proposals for restoring wireless competition going 
forward. Indeed, policymakers have two distinct and different paths for 
the future of the wireless industry--allow continued market dominance 
by two carriers and cement a duopoly in the industry, which will 
ultimately result in a heavy regulatory regime to attempt to replicate 
the benefits of competition, or establish a new competitive agenda for 
the next generation which will fuel economic investment, job creation, 
innovation, and increased consumer access to all the benefits of mobile 
broadband. Our members are prepared to invest, innovate, and create 
jobs, but need access to critical inputs to expand and grow their 
businesses.
    To fully appreciate where we stand as an industry, it is important 
to take stock of how we got here. The wireless industry in the United 
States actually began as a duopoly in 1981, when the Federal 
Communications Commission (``FCC'') divided a total of 50 MHz of 
cellular spectrum in each local area between just two providers, one of 
which was the incumbent wireline telephone company. Even with this 
duopoly, policies required the incumbent to support connectivity--
interoperability and roaming--to prevent a monopoly. Congress broke-up 
this original duopoly in 1994, when it provided the FCC with auction 
authority that led to making available 120 MHz of PCS spectrum. That 
auction, along with later auctions in other spectrum bands, gave rise 
to a host of new wireless carriers and sparked increased competition. 
For many years, until the late 2000s, the wireless industry was a 
shining example of robust competition, with numerous carriers at the 
national and regional level competing to deliver steadily improving 
services at declining prices. In the FCC's first 13 reports on the 
state of competition in the wireless industry released between 1995 and 
2009, the agency was able to conclude that the industry was 
characterized by either growing competition or ``effective 
competition.'' Policymakers hailed the wireless industry at the time as 
``one of the great success stories'' resulting from Congress's and the 
FCC's efforts to establish and maintain a regulatory framework in which 
competition could thrive.\1\
---------------------------------------------------------------------------
    \1\ See CTIA, Interview with Kevin Martin, at 6, Wireless Wave 
(Fall 2005), available at http://www.ctia.org/advocacy/index.cfm/AID/
10522.
---------------------------------------------------------------------------
    Today, however, the gains in wireless competition over the past two 
decades are in danger, as the Twin Bells threaten to drag the industry 
back towards a duopoly. The Twin Bells have gobbled up numerous 
competitive carriers in recent years, including ALLTEL, Dobson, 
Centennial, Rural Cellular Corporation, and a long list of others. And 
as AT&T and Verizon have grown, so too has the level of industry 
consolidation. According to the FCC's latest competition report, the 
wireless industry's Herfindhal-Hirschman Index (HHI) value--a common 
measure of consolidation--had grown to 2,873 by the end of 2011.\2\ To 
put that in perspective, that figure is 373 points higher than the 
level considered ``highly concentrated,'' and 722 points higher than 
the level measured in 2003, the first year the FCC calculated HHIs. The 
report also found that the Twin Bells together account for an 
astounding 67 percent of industry revenue.\3\ That combined share is 
far higher than the combined shares for the top two firms in other 
``consolidated'' industries. By comparison, the top two firms in the 
auto industry hold a 35 percent share of total revenue; the top two 
firms in the oil industry hold a 24 percent share; and the top two 
firms in the banking industry hold a 20 percent share.\4\ Not 
surprisingly in light of these figures, the FCC has been unable to find 
``effective competition'' in the wireless industry in any of its last 
three annual competition reports.
---------------------------------------------------------------------------
    \2\ Implementation of Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993, Annual Report and Analysis of Competitive 
Market Conditions with Respect to Mobile Wireless, Including Commercial 
Mobile Services, WT Docket No. 11-186, Sixteenth Report, FCC 13-34,  2 
(rel. Mar. 21, 2013) (``16th Mobile Wireless Competition Report'').
    \3\ Id.  52.
    \4\ See Free Press, Why the AT&T-T-Mobile Deal Is Bad for America, 
Mar. 22, 2011, at 1, available at http://www.freepress.net/sites/
default/files/fp-legacy/ATT-TMobile.pdf.
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    The Twin Bells are not content merely holding a dominant position 
in the wireless marketplace; they have also abused their dominance by 
blocking competitors' access to key inputs that are necessary for a 
competitive market to exist. For instance, AT&T and Verizon each 
continue to aggregate massive amounts of wireless spectrum--which the 
FCC calls ``the lifeblood of the wireless industry''--by using their 
vast resources to purchase large swaths of spectrum. Since the start of 
2012, these two carriers have filed to gain access to almost 800 
licenses in bands used to offer mobile services, including nearly 300 
licenses in bands below 1 GHz. Some of the most significant wireless 
deals in recent memory have been spectrum-only transactions, such as 
Verizon's 2012 acquisition of AWS-1 licenses from the four largest 
cable companies, AT&T's 2012 acquisition of NextWave Wireless and its 
substantial WCS and AWS spectrum holdings, and AT&T's 2011 acquisition 
of Qualcomm's nationwide licenses in the Lower 700 MHz band. The Twin 
Bells' spectrum holdings below 1 GHz--``beachfront'' spectrum in bands 
ideally suited for new entrants and smaller carriers seeking to expand 
their coverage--are particularly extensive. The FCC estimates that 
Verizon holds 45 percent of the spectrum in the two major bands below 1 
GHz, while AT&T holds 39 percent of the spectrum in those bands.\5\ The 
more of this spectrum the Twin Bells stockpile for themselves, the less 
is available to competitive carriers. And as they continue to tighten 
their stranglehold on spectrum and other key inputs--like access to 
networks for roaming and interconnection, and access to cutting-edge, 
interoperable devices--the wireless industry today looks more and more 
like the duopoly of a generation ago.
---------------------------------------------------------------------------
    \5\ 16th Mobile Wireless Competition Report  129.
---------------------------------------------------------------------------
    The industry thus stands at a crossroads, with two possible paths 
forward. One option would be to do nothing, and allow AT&T and Verizon 
to continue swallowing their competitors, aggregating spectrum, and 
thwarting access to other critical inputs. Eventually, the Twin Bells' 
control over the marketplace would become so absolute, and competition 
would be so severely damaged, that a return to heavy-handed, utility-
style regulation might be necessary to ensure reasonable prices and 
quality service. Most policymakers would not welcome this outcome, nor 
would CCA and its members. But the increasing dominance of a duopoly 
will compel a regulatory response if competition is not available to 
discipline prices, ensure responsive service, and deliver other 
benefits to consumers.
    The other path--and in CCA's view, the far better option--would be 
to promote increased competition by preventing further consolidation by 
the Twin Bells and adopting rules to encourage a competitive framework 
and preserve access to key inputs. CCA has advanced concrete proposals 
for such reforms before the FCC and Congress. In particular, and as I 
will discuss in greater detail, the FCC should adopt rules to safeguard 
competitive carriers' access to spectrum--both by updating the 
``spectrum screen'' used to evaluate wireless acquisitions, and by 
structuring spectrum auctions in a way that encourages and rewards 
participation by a range of competitive carriers. The FCC should also 
ensure that its rules preserve competitive carriers' access to 
networks, by enforcing roaming requirements and by reaffirming 
interconnection obligations. And the FCC should facilitate access to 
devices by restoring interoperability and by working with the Copyright 
Office to reinstate consumers' ability to unlock their handsets. Such 
measures, if adopted and implemented promptly, may well be what the 
industry needs to avert a true duopoly and to restore competition in 
this once vibrant marketplace.

Access to Spectrum
    The FCC should start by ensuring that spectrum is allocated 
efficiently, and in a way that enables wireless competition to 
flourish. The FCC has made clear time and again that access to spectrum 
is a ``precondition to the provision of mobile wireless services'' and 
is ``critical for promoting the competition that drives innovation and 
investment.'' \6\ The Department of Justice (``DOJ'') echoed this 
sentiment in a recent submission to the FCC, where it stated that 
soaring demand for mobile broadband in recent years has ``made spectrum 
a critically scarce resource'' for wireless carriers.\7\ Both agencies 
also have recognized that access to low-frequency spectrum--which can 
provide ``the same geographic coverage, at a lower cost, than higher-
frequency bands'' \8\--is especially important for new entrants and 
smaller carriers. In this vein, DOJ has urged the FCC to adopt rules 
ensuring that competitive carriers have the opportunity to acquire 
spectrum, particularly in low-frequency bands--a measure DOJ says would 
``improve the competitive dynamic'' in the industry and ``benefit 
consumers.'' \9\ CCA agrees entirely with the DOJ's assessment, and has 
proposed a slate of reforms to advance the procompetitive goals that I 
know both agencies share.
---------------------------------------------------------------------------
    \6\ Policies Regarding Mobile Spectrum Holdings, Notice of Proposed 
Rulemaking, 27 FCC Rcd 11710  4 (2012).
    \7\ Ex Parte Submission of the U.S. Dep't of Justice, WT Docket No. 
12-269, at 9 (filed Apr. 11, 2013) (``DOJ Ex Parte Submission'').
    \8\ 16th Mobile Wireless Competition Report  122.
    \9\ DOJ Ex Parte Submission at 1.
---------------------------------------------------------------------------
    In particular, CCA has urged the FCC to overhaul its ``spectrum 
screen''--the tool the agency uses to identify spectrum acquisitions, 
in the secondary market or at auction, which may give an entity control 
over too much spectrum in a given area. For years, the screen has 
played a key role in the FCC's efforts to evaluate the effects of 
proposed transactions and auction design choices. But the screen, first 
adopted in 2003, is a poor fit for today's marketplace. Among other 
things, the current screen fails to account for important differences 
between high and low frequency spectrum bands. And the screen largely 
ignores competitive effects at the national level, despite the FCC's 
recognition that those effects are vital in today's marketplace. The 
FCC must complete the Mobile Spectrum Holdings Rulemaking, currently in 
process, before the upcoming broadcast incentive auction rules can be 
established.
    In light of these deficiencies, CCA has proposed targeted reforms--
the FCC needs to adopt two additional screens. First, the FCC should 
adopt a separate screen for low-frequency spectrum as a supplement to 
the existing screen, which looks to all forms of spectrum held by an 
entity in a local area. Second, the FCC should apply a nationwide 
screen in addition to its analysis of local holdings. There should be a 
clear and predictable mechanism for adding or removing spectrum from 
the analysis. And finally, the FCC should apply a heightened level of 
scrutiny for transactions exceeding any applicable screen threshold. 
Such reforms not only would strengthen the screen as a tool for 
evaluating spectrum transactions, but also would provide the necessary 
certainty to entities contemplating spectrum acquisitions. The FCC 
should adopt these reforms as soon as possible--by the end of 2013 at 
the latest, and in all events before the new incentive auction for 
repurposed broadcast spectrum is underway.
    The upcoming incentive auction offers one of the few near-term 
opportunities to allocate low-frequency spectrum for mobile broadband, 
and so presents an excellent opportunity to stoke the embers of 
wireless competition. As Chairman Pryor noted about the 700 MHz auction 
in 2008, ``[h]istory will show that the way the FCC structured the 
auction basically helped the two big wireless companies to the 
detriment of competition in this country.'' \10\ With the upcoming 
incentive auctions, the FCC has the authority, as recently reaffirmed 
by Congress, to ``adopt and enforce rules of general applicability, 
including rules concerning spectrum aggregation that promote 
competition.''
---------------------------------------------------------------------------
    \10\ John Eggerton, Pryor: FCC `Fouled Up' Spectrum Auction, 
Broadcasting & Cable, Feb. 26, 2008, available at http://
www.broadcastingcable.com/article/112604-Pryor_FCC_Fouled_
Up_Spectrum_Auction.php.
---------------------------------------------------------------------------
    CCA thus has urged the FCC to design its rules for the upcoming 
incentive auction in a manner that gives carriers of all sizes a 
meaningful opportunity to acquire spectrum where needed. The FCC must 
adopt a spectrum auction process which ensures that all carriers have a 
meaningful opportunity to participate. All carriers, including smaller 
carriers, must have an opportunity to bid, win, and integrate needed 
spectrum into their existing network. In particular, consistent with 
last year's Spectrum Act, the FCC should adopt eligibility rules for 
the auction that would prevent excessive spectrum aggregation by the 
Twin Bells. CCA also supports the use of bidding credits and related 
mechanisms that would promote participation by rural, mid-size, and 
regional carriers. The FCC must make spectrum available in small 
geographic areas, such as Cellular Market Area (CMAs), that can be used 
by competitive carriers, and must not include blind and package or 
combinatorial bidding practices that may prevent smaller carriers from 
accessing spectrum even if licensed in small geographic sizes. These 
measures will be vital to the success of the auction, and by extension 
to the advancement of competition in the wireless industry. This will 
also increase potential revenue from the auction by encouraging 
participation from the maximum number of bidders, while also providing 
carriers with much needed spectrum to compete in a data hungry market.
    Additionally, policymakers should consider new ways of encouraging 
full spectrum usage in rural areas. For example, the Rural Spectrum 
Accessibility Act introduced last Congress by Senators Snowe and 
Klobuchar would encourage carriers to partition or disaggregate 
spectrum not currently being used in areas to make it available for use 
by competitive carriers wishing to serve those rural markets. While 
additional spectrum is needed to allow the industry to keep up with 
consumers' demands, it is important for policymakers to consider all 
opportunities to make full utilization of spectrum currently allocated 
for mobile broadband.
    A close look at current spectrum utilization is not complete 
without careful consideration of the Federal government's use of 
spectrum. I commend the work of those on this Committee, in Congress, 
and at the FCC and NTIA who continue to ensure efficient spectrum use 
by Federal users. Congress should ensure the appropriate incentives are 
in place to encourage efficient Federal use and to encourage 
reallocation of spectrum for mobile broadband use where necessary. 
Doing so allows taxpayers the maximum usage and return for a finite, 
taxpayer-owned resource. In particular, I praise the FCC's work to 
clear the 1695 MHz--1710 MHz band and the 1755 MHz--1780 MHz band to 
auction paired with the 2155 MHz--2180 MHz band. This allocation would 
yield readily usable spectrum already in an LTE ecosystem and 
internationally harmonized, encouraging investment in mobile broadband 
networks and maximizing the revenue of the required auction of the 2155 
MHz--2180 MHz band.

Access to Networks
    Competitive carriers also need access to other providers' networks 
to offer a nationwide, interconnected service to consumers. The FCC 
should make it clear that the technology neutral interconnection 
requirements of the 1996 Telecommunications Act to provide wholesale 
connectivity to other facilities-based carriers remains intact. Most 
competitive carriers lack a national footprint, so their customers must 
roam on other compatible networks to receive service when outside their 
provider's service area. Moreover, in order to complete calls to the 
customers of other providers, carriers must be able to interconnect 
with those other providers' networks. AT&T and Verizon control (or are 
affiliated with) ubiquitous wireless and wireline networks, and 
naturally play a dominant role in the market for voice and data 
roaming, as well as in the provision of interconnection. Preserving 
access to these key network-related inputs is critical to competition, 
as it enables competitive carriers to provide a service of similar 
scale and functionality to the service offered by AT&T and Verizon, 
regardless of the type of technology used to transmit traffic.
    On the roaming front, CCA and its members were pleased by the FCC's 
adoption of rules requiring wireless carriers to offer data roaming on 
fair and reasonable terms, and by the D.C. Circuit's decision to uphold 
those rules against a challenge by Verizon. But as the FCC's latest 
competition report acknowledges, ``the ability to negotiate data 
roaming agreements on non-discriminatory terms and at reasonable rates 
remains a concern.'' \11\ Our members have found it particularly 
difficult to negotiate for roaming when they cannot discern whether the 
terms and conditions offered by the Twin Bells are in line with those 
offered to other carriers. The FCC must continue to address whether 
roaming agreements offered in the market are fair and economically 
sustainable and continue efforts to encourage access to roaming for 
competitive carriers and consumers who expect their call to always go 
through.
---------------------------------------------------------------------------
    \11\ 16th Wireless Competition Report  210.
---------------------------------------------------------------------------
    The FCC also should protect the ability of competitive carriers to 
interconnect with the wireline networks of the large landline 
incumbents. As the FCC said in its National Broadband Plan, ``[b]asic 
interconnection regulations. . .have been a central tenet of 
telecommunications regulatory policy for over a century,'' and ``[f]or 
competition to thrive, the principle of interconnection. . .needs to be 
maintained.'' \12\ AT&T, however, apparently does not share this view. 
Its wireline affiliate recently asked the FCC to waive statutory 
interconnection obligations in areas where the carrier upgrades to 
Internet Protocol (or ``IP'') technology. But there is no basis to 
abandon these bedrock competitive protections just because of a change 
in technology. Quite the contrary--the interconnection mandates in 
Section 251 are technology-neutral, as the FCC has repeatedly stated. 
The FCC should reaffirm this broadly supported principle as the 
industry transitions to IP, and enable competitive carriers to 
interconnect with these next-generation telecommunications networks.
---------------------------------------------------------------------------
    \12\ Connecting America: The National Broadband Plan, at 49 (2010), 
available at http://download.broadband.gov/plan/national-broadband-
plan.pdf.
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Access to Devices
    Another critical input for competitive carriers is access to the 
handsets and other devices. The FCC has recognized that ``[h]andsets 
and devices are a central part of consumers' mobile wireless 
experience, and a key way by which providers differentiate their 
offerings.'' \13\ For years, the largest carriers used exclusivity 
agreements with major device manufacturers to gain an edge over 
competitive carriers. AT&T was particularly successful at securing 
exclusive rights over popular handsets, most notably the iPhone. Only 
after DOJ opened an investigation into handset exclusivity agreements--
with the AT&T/iPhone arrangement reportedly ``at the center'' of the 
inquiry \14\--did Verizon begrudgingly allow other carriers to offer 
these formerly exclusive handsets. So, more recently, the Twin Bells 
have pursued other strategies to frustrate competitive carriers' access 
to devices.
---------------------------------------------------------------------------
    \13\ 16th Wireless Competition Report  2.
    \14\ See Andrew Ross Sorkin, Justice Department Said to Weigh 
Telecom Inquiry, N.Y. Times, Jul. 7, 2009, available at http://
dealbook.nytimes.com/2009/07/07/justice-deptartment-eyeing-telecom-
probe-report-says/.
---------------------------------------------------------------------------
    For example, AT&T has prevented the development of interoperable 
devices in the Lower 700 MHz band--that is, devices that operate in the 
B Block and C Block held by AT&T, as well as in the Lower A Block held 
by CCA's members. Post auction, private band plans were created that 
were not contemplated or included in the band plan presented the FCC 
leading up to the auction. Device interoperability is a prerequisite to 
a well-functioning wireless marketplace; it encourages innovation, 
gives consumers more choices, and reduces costs to end users. 
Interoperability also makes roaming technologically possible; non-
interoperable devices simply cannot roam on other carriers' networks. 
But AT&T's efforts to bifurcate the Lower 700 MHz band--and to force 
manufacturers to develop devices that operate only on its portion of 
the band--have stymied device interoperability. Without a device 
ecosystem for the Lower A Block, 12 MHz of broadband-capable spectrum 
has been orphaned, the nearly $2 billion dollar investment made by 
CCA's members in that spectrum is in many respects stranded, and 
competitive carriers must wait on the sidelines while the two largest 
carriers enjoy a head start on deploying 4G LTE on 700 MHz spectrum 
throughout the country. CCA has urged the FCC to address these issues 
by restoring interoperability in the Lower 700 MHz band--just as has 
been the practice in every other spectrum band designated for wireless 
telecommunications services since the early 1980s. Thorough economic 
analysis demonstrates the low costs and great rewards of 
interoperability, and real world technical tests have shown no impact 
on customer experience by moving to an interoperable Lower 700 MHz 
band. The FCC must take action on this matter in the near future to 
avoid further damage to wireless competition.
    Not only will a clear pathway to 4G using 700 MHz spectrum expand 
mobile services, it will also provide critical partnership 
opportunities for the forthcoming First Responder Network Authority 
(FirstNet) public safety broadband network. The same rural and regional 
carriers that have struggled to gain access to the interoperable 
devices needed to deploy 4G LTE mobile broadband networks are the 
carriers that currently provide service in rural and remote areas. 
Restoring interoperability and unlocking deployment in these areas 
creates new opportunities for FirstNet to leverage private investment 
and expand services for first responders throughout the nation--
particularly in rural areas.
    The largest carriers have also tried to frustrate device access by 
selling ``locked'' handsets that cannot be used once a subscriber has 
changed providers. While these handsets can be ``unlocked,'' the 
Copyright Office recently permitted the unlocking exemption under the 
Digital Millennium Copyright Act to expire. This exemption allowed 
subscribers to unlock their devices without fear of violating copyright 
law. The decision was hugely unpopular with consumers, including over 
100,000 of whom petitioned the White House in an effort to reinstate 
the exemption. The White House responded with a sharp rebuke for the 
Copyright Office's decision, explaining that ``consumers should be able 
to unlock their cell phones without risking criminal or other 
penalties,'' and that unlocking is ``important for ensuring we continue 
to have the vibrant, competitive wireless market that delivers 
innovative products and solid service to meet consumers' needs.'' \15\ 
FCC Chairman Genachowski likewise recognized that a ban on unlocking 
``raises serious competition and innovation concerns.'' \16\ I commend 
Members of Congress, including Members of this Committee, who have led 
the charge for legislation to allow consumers to unlock devices, and 
urge you to swiftly advance and enact such legislation.
---------------------------------------------------------------------------
    \15\ White House, ``It's Time to Legalize Cell Phone Unlocking,'' 
Mar. 4, 2013, available at https://petitions.whitehouse.gov/petition/
make-unlocking-cell-phones-legal/1g9KhZG7.
    \16\ FCC, ``Statement from FCC Chairman Julius Genachowski on the 
Copyright Office of the Library of Congress Position on DMCA and 
Unlocking New Cell Phones,'' Mar. 4, 2013, available at http://
transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0304/DOC-
319250A1.pdf.
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Universal Service Fund
    It should also be noted that despite years of expansion of mobile 
services in rural America through access to the Universal Service Fund, 
as well as consumers' clear preference for mobility, the FCC, in its 
recent reform Order, dramatically reduced the amount of funding for 
mobile broadband. While wireless carriers' contributions make up a 
significant portion of the Fund, only a small portion is used to deploy 
mobile broadband networks in rural parts of the country. As a result of 
this short-sighted policy decision, your rural constituents may not 
have access to the latest mobile broadband networks they desire. Future 
oversight should truly modernize the Fund by supporting consumer 
preferences and technologically-neutral and cost-efficient solutions. 
The FCC, through its administration of the Universal Service Fund, 
should not choose winners and losers among technologies and businesses.

Conclusion
    In the end, policymakers have a fundamental choice to make. You can 
either act now to create a competitive framework in the marketplace to 
restore competition and all its benefits to the wireless industry, or 
act later, once the Twin Bells have solidified their duopoly, 
attempting to replicate those benefits through utility-style 
regulation. I submit that the first approach is the far better one, not 
just for competitive carriers, but consumers, job creation, innovation, 
and economic growth as well. Prompt action to preserve access to key 
inputs like spectrum, networks, and devices will allow wireless 
competition to flourish, leading to more choices for consumers, lower 
retail prices, better service, and greater innovation.
    Thank you again for the opportunity to testify today, and I welcome 
your questions.

    Senator Pryor. Thank you.
    Mr. Webster.

  STATEMENT OF DOUG WEBSTER, VICE PRESIDENT, SERVICE PROVIDER 
   ROUTING, MOBILITY AND VIDEO MARKETING, CISCO SYSTEMS, INC.

    Mr. Webster. Good afternoon, and thank you for the 
opportunity to appear before you today. Mr. Chairman and 
members of the Committee, we are in the midst of an absolute 
avalanche of mobile data.
    I'm here representing Cisco Systems, the world leading 
networking company, which has unparalleled insight to network 
data traffic. Every year, we, at Cisco, comb through the data, 
looking for emerging trends, and share our forecast and 
predictions through our annual Visual and Networking Index, or 
VNI.
    In our latest forecast, Cisco predicts that, in 2017, 
mobile data in the United States will be 687 times greater than 
it was in 2007. Think of that: 687 times the volume of mobile 
data traffic, compared to just 6 years ago. And the growth 
shows no sign of abating.
    Five years from now, there will be nine times as much 
mobile data traffic in the U.S. than there is today. More e-
mail, more apps, and especially more video, which, by 2017, 
will represent two-thirds of all the mobile data traffic.
    The question is, are we prepared for this avalanche? Can 
our current network infrastructure handle the massive growth 
that is coming? And the answer, of course, is no.
    Imagine the Washington Beltway at rush hour. That's, 
basically, the wireless networks today. Sometimes open road, 
but frequently congested, especially at peak hours. Now imagine 
adding 50 percent more traffic to the Beltway each year for the 
next 5 years, a ninefold increase. You would get grinding 
gridlock with major delays, frustration, anger, and a major 
loss of productivity. Mr. Chairman, that's precisely what will 
happen if Congress and the FCC don't act to address the looming 
spectrum crunch.
    Now, how did we get to this point? Just a few years ago, 
mobile data traffic was at relatively low levels, the product 
of a handful of text messages, mostly by our teenagers. Fast 
forward to a few years later, however, each of us has multiple 
mobile devices continuously wirelessly connected to the 
Internet: smartphones, tablets, laptops, video streaming 
devices, smart TVs, and gaming consoles, to name just a few. 
And the devices will continue to proliferate. In just a few 
years, we forecast that there will be eight devices for every 
American. Not only do we send e-mail and text messages 
constantly, but we're watching massive amounts of video, from 
our children's first steps to entire feature-length movies on 
hand-held devices.
    Last week, Cisco released our latest VNI forecast, and the 
hard data show there is simply no stopping the growth. We've 
become attached to our mobile devices and have integrated them 
into our daily lives.
    So, what should policymakers do now to ensure that we have 
the infrastructure and investment in place to meet this demand? 
Put simply, more licensed and unlicensed spectrum must be 
allocated for broadband access. To return to our Beltway 
metaphor, adding spectrum will add more lanes for traffic, 
widen lanes that, today, are too narrow, and create more on-
ramp/off-ramps and feeder roads to reduce bottlenecks. 
Congress's authorization of voluntary incentive spectrum 
auctions in 2010 was a critical first step on the licensed side 
of the equation. And, on behalf of Cisco, I want to thank you 
for taking that meaningful action.
    Now, thanks to this committee, the FCC is setting potential 
expansion of Wi-Fi in the 5 gigahertz band. The FCC is 
conducting an analysis of whether additional sharing for 
commercial purposes is technically feasible. We hope that this 
analysis can be completed as quickly and thoroughly as possible 
to help increase broadband speed and adoption. This is 
increasingly important, given that approximately 50 percent of 
all data moves over Wi-Fi or mobile networks, and given that 
Wi-Fi helps alleviate the pressure on the licensed cellular 
networks.
    The bottom line is this. The mobile revolution is here. 
It's changing the way we communicate, the way we analyze data, 
the way healthcare, education, government, and public-safety 
services are delivered, and it's creating new American jobs and 
economic growth every day.
    As if you need more reason to act, studies show that 
doubling mobile data results in a half-a-percent increase in 
the Nation's gross domestic product, growth which is necessary 
now more than ever. It's imperative that we address the looming 
spectrum crunch here in the United States and allow providers 
to invest private dollars in network infrastructure. This will 
help ensure that the United States remains at the cutting edge 
and continues to be a global leader when it comes to mobile 
technologies.
    Thank you again for the opportunity to appear today, and I 
look forward to your questions.
    [The prepared statement of Mr. Webster follows:]

 Prepared Statement of Doug Webster, Vice President, Service Provider 
       Routing, Mobility and Video Marketing, Cisco Systems, Inc.

    Just a few years ago, mobile data traffic was at relatively small 
levels, the product a handful of text messages, mostly by our 
teenagers, some e-mail, and rudimentary web browsing. Fast forward a 
few years later, however, and the mobile landscape has changed, 
dramatically.
    Many of us have multiple mobile devices--whether smartphones, 
tablets, or laptops, not to mention the increasing number of machine-
to-machine mobile devices that work in the background of our daily 
lives. Not only do we send e-mail and text messages constantly, but 
we're watching large amounts of video--from short clips of our 
children's first steps to entire feature-length movies to real time 
video calling and video conferencing.
    Taken as a whole, this change has transformed mobile traffic, with 
profound implications for policy.
    At Cisco--the worldwide leader in networking technology for the 
Internet--we've been measuring these changes since 2006 through our 
Visual Networking Index. Our forecasts have been used by government, 
analysts, the media, academics, and providers to analyze the use and 
growth of Internet Protocol--or IP--networks worldwide. Last week, 
Cisco released its annual Visual Networking Index Forecast, 
encompassing the mobile traffic forecast that we published in February 
as well as a look at traffic growth for all types of IP traffic. While 
the findings may seem eye-popping, if history is a guide, they may very 
well be conservative. Cisco's VNI has consistently under-projected 
actual traffic levels by around 10 percent.
    When you look at the numbers, it is readily apparent that mobile 
data has become an indispensable part of our lives, as evidenced by the 
findings of the Cisco Visual Networking Index:

   In 2012, U.S. mobile data traffic grew 62 percent in a 
        single year.

   Looking forward, from 2012 to 2017, U.S. mobile data traffic 
        will grow nearly nine times, from 2.4 exabytes to 23.2 exabytes 
        annually. To get to those volumes, traffic will have to grow an 
        average of 56 percent each year of the five year forecast. If 
        the term ``exabyte'' is not familiar to you, 23.2 exabytes is 
        the equivalent of nearly 6 billion DVD movies transmitted 
        across mobile networks.

   The incremental growth in mobile data traffic added to the 
        network in a single year from 2014 to 2015 will be larger than 
        all the traffic that was carried on U.S. mobile networks in 
        2012.

   By 2017, Americans will use 1.1 billion mobile and portable 
        devices, all employing licensed or unlicensed radio spectrum, 
        and will use those devices to generate 70 percent of U.S. 
        Internet traffic. The Internet has gone mobile.
    Four factors are driving this rapid growth of mobile traffic on the 
Internet:

    (1)  The number of users and connections to mobile networks is 
            dramatically increasing. There will be 726 million mobile 
            connections in the U.S. in 2017, up from 439 million in 
            2012, nearly 2-fold growth. That device total means there 
            will be 2.3 devices in use for every person in the US. In 
            addition, to multiple devices per person, mobile broadband 
            will also support machine to machine connections--
            connecting not just people, but things. These machine to 
            machine connections will be deployed into a wide variety of 
            sectors--from energy supporting smart home energy meters as 
            well as transmission and distribution networks, public 
            safety supporting sensor networks and mobile video imaging, 
            to healthcare such as home healthcare services. The number 
            of these M2M connections will grow 4.6-fold between 2012 
            and 2017, reaching 323 million. And there will be more 
            users. There will be 286 million mobile users in 2017, 50 
            million more than in 2012.

    (2)  The types of devices being used to connect is advancing with 
            the rising adoption of ever more powerful smartphones and 
            tablets that consume more data. We are entering the era of 
            smartphones, which dominate the device types that consumers 
            will use. A smartphone generates 28x more mobile data 
            traffic per month than a basic handset and by 2017, 
            smartphones will be 52 percent of total mobile data 
            traffic. The average smartphone today uses nearly 600 
            megabits of traffic per month. By 2017, the device 
            manufacturers will be selling even more powerful 4G 
            smartphones that we project will generate over 5 gigabits 
            per month. They will be smarter, faster, more fun, and 
            there will be many more things that consumers do with their 
            smartphones than we do today.

    (3)  Mobile data networks themselves are getting faster due to 
            investment and new technology--the average mobile 
            connection speed in the U.S. will grow 6-fold between 2012 
            and 2017, reaching 14.4 Mbps in 2017. While 3G connections 
            remain the dominant way in which most of us connect to the 
            mobile data networks, faster 4G networks will represent 
            almost one-third of mobile connections by 2017. 
            Significantly, that one-third of 4G connections will be 
            responsible for generating almost two-thirds of the mobile 
            data traffic.

    (4)  Video in many forms will represent two-thirds of all mobile 
            traffic by 2017. From YouTube, to video embedded in 
            advertisements, to viewing video programming, to video 
            ``calls,'' the consumption of video on mobile networks is 
            skyrocketing. Mobile video traffic will grow 11-fold from 
            2012 to 2017, a compound annual growth rate of 63 percent. 
            That amount of video has an enormous impact on data traffic 
            volume, as it takes a lot of data to generate a moving, 
            full color, crystal clear image on a screen. In 2012, the 
            average user was generating 763 megabits of mobile data per 
            month, which meant the average user last year consumed 
            about 2 hours of video and made 2 video calls per month. By 
            2017, the average user will be consuming 6 gigabits a 
            month--nearly eight times the 2012 levels. To generate that 
            demand, we forecast that the average user will be using 
            about 18 hours of video and making 10 video calls per 
            month.

    Meeting the challenges created by this massive demand requires at 
least two simultaneous approaches.
    One obvious policy initiative is to find more spectrum. Congress 
led the way last year with adoption of HR 3630, creating for the first 
time voluntary incentive auction authority that will allow the Federal 
Communications Commission (FCC) to repurpose part of the television 
broadcast spectrum for mobile broadband. The bill also extended the 
FCC's regular auction authority and made important improvements to the 
Commercial Spectrum Enhancement Act governing the transition of Federal 
spectrum to commercial use. Congress now needs to ensure that the FCC 
follows through on its grant of auction authority by conducting the 
voluntary incentive auction for broadcast spectrum as soon as possible.
    The National Telecommunications and Information Administration 
(NTIA) is also continuing its efforts to identify Federal spectrum that 
can be repurposed to commercial use, with particular emphasis on the 
1755-1850 MHz band that, in many countries of the world, is in use for 
cellular systems. Your attention to the NTIA process and progress in 
its talks with industry is important.
    In addition, Congress has also asked the FCC to take a look at 
whether additional spectrum for Wi-Fi could be made available at 5 GHz. 
This is a very important initiative because, in addition to the 
exploding use of Wi-Fi, Wi-Fi networks are increasingly being used by 
carriers and consumers to offload mobile traffic. Our VNI report this 
year indicates the trend is increasing, as carriers will increasingly 
embrace a solution to push their customers to Wi-Fi where possible to 
avoid congestion on macrocell networks. By 2017, two thirds of mobile 
traffic will be offloaded to small cell networks, predominantly Wi-Fi. 
That compares to about half the traffic today.
    We appreciate this committee's interest in, and attention to, the 
profound changes now taking place in the mobile broadband industry. Our 
nation is the leader in mobile broadband. The wireless revolution spurs 
the construction of new high speed wireless networks. It drives the 
manufacturing of chips, routers, network equipment, and mobile devices 
such as smartphones, laptops, and tablets. It creates business and 
consumer software, the development of app stores, and substantial 
growth in electronic commerce.
    Mobility has been an important driver of jobs and economic growth, 
and it has the potential to generate hundreds of thousands more jobs if 
the Federal government acts promptly to ensure that additional spectrum 
is made available to fuel future mobile broadband growth. It's 
important that the Congress understand the dynamic growth occurring in 
this industry, and why public policy is critical to that growth. This 
Committee provides an excellent platform for making these connections 
more obvious to all.
    We thank you for your attention to this highly dynamic and 
important industry, which continues to be a particularly bright spot in 
the Nation's economy. We invite you to access the latest Cisco data for 
the U.S. and the world anytime at www.cisco.com/go/vni.

    Senator Pryor. Thank you.
    Mr. Nagel.

 STATEMENT OF THOMAS F. NAGEL, SENIOR VICE PRESIDENT, COMCAST 
                          CORPORATION

    Mr. Nagel. Mr. Chairman, members of the Subcommittee, thank 
you for the opportunity to testify today.
    I've been at Comcast for over 10 years, and one of my 
primary responsibilities has been the strategic development of 
Comcast's wireless efforts. During that time, unlicensed 
services, such as Wi-Fi, have grown from an in-home extension 
of a wired broadband to a central component of the wireless 
ecosystem and an important means of communication during 
emergencies.
    I am pleased to talk about the many benefits of Wi-Fi as 
well as the policy steps needed to ensure that unlicensed 
services continue to serve as a platform for innovation, 
investment, and economic growth.
    Comcast operates a Wi-Fi network that has expanded 
elevenfold in 18 months, from 5,000 access points last year to 
over 55,000 access points today. We also have partnered with 
other cable operators to build one of the country's largest Wi-
Fi networks, with over 150,000 access points, and many more to 
come.
    Because of these efforts, our customers can use any Wi-Fi-
equipped device to enjoy, at high speed, wireless Internet 
services in many locations throughout the country. Our 
experience with Wi-Fi confirms the important role unlicensed 
services play in the wireless ecosystem. Consumers increasingly 
use Wi-Fi networks for cost-effective and robust wireless 
access to the Internet, making unlicensed spectrum a key 
complement to licensed wireless technologies. In fact, the CEO 
of Cisco recently stated that Wi-Fi will eventually carry 80 to 
90 percent of the growth of cellular networks, and various 
studies confirm that unlicensed services contribute tens of 
billions of dollars in economic value each and every year.
    Importantly, our Wi-Fi network has also proven to be 
particularly valuable during times of emergency. In the 
aftermath of Hurricane Sandy and Winter Storm Nemo and the 
tragic attack at the Boston Marathon, commercial mobile 
wireless networks were temporarily overloaded or, at times, 
down completely. In each instance, Comcast was able to open its 
Wi-Fi network and provide free access to anyone with a Wi-Fi-
enabled device so that people could receive urgent information 
and establish communications with loved ones. Because of the 
rapid expansion of Wi-Fi-enabled devices, Wi-Fi networks like 
the one we operate are invaluable. They allow consumers to 
communicate and stay connected during emergencies, regardless 
of their wireless carrier. In a sense, Wi-Fi has become the 
interoperable communications standard for consumers.
    Looking ahead, we must ensure that there is sufficient 
unlicensed spectrum to meet the growing consumer demand. The 
spectrum used to deliver Wi-Fi today has become severely 
congested, especially in densely populated areas. The result is 
significantly reduced Wi-Fi performance. If we fail to provide 
more spectrum for unlicensed services, we risk falling behind 
other nations that are preparing for next-generation Wi-Fi, 
often called ``gigabit Wi-Fi'' because of its potential to 
offer dramatically improved speeds.
    To address these challenges, policymakers should begin by 
removing unnecessary regulatory barriers that prevent more 
efficient spectrum-sharing in the 5 gigahertz band. The current 
operating rules undermine the ability to fully utilize the 
spectrum to deliver robust unlicensed services and next-
generation Wi-Fi.
    Congress, the administration, and the FCC already have 
taken several concrete steps toward ensuring that unlicensed 
services continue to thrive. In particular, Comcast commends 
Congress for passing the landmark Spectrum Act of 2012, which 
took significant steps toward addressing the challenges facing 
both licensed and unlicensed services, including provisions 
that pave the way for identifying new spectrum that unlicensed 
services can share with existing users. Additionally, we 
support the FCC's efforts in the recently initiated 5 gigahertz 
proceeding. This proceeding will be critical to the development 
of next-generation Wi-Fi. The 5 gigahertz band presents the 
best chance for the FCC to advance the administration's 
spectrum-sharing policies. Under the proposal set forth by the 
FCC, unlicensed services will be able to share the spectrum 
without causing harmful interference to existing users, 
maximizing the value of spectrum for all Americans.
    As Congress considers the state of the wireless ecosystem, 
it must ensure that this nation has a balanced spectrum policy 
that promotes both licensed and unlicensed uses of spectrum. 
Unlicensed services offer enormous economic and social 
benefits, and Comcast is prepared to continue to invest to help 
America enjoy those benefits. We are committed to working with 
Congress, the administration, the FCC, and other stakeholders 
to reach solutions that will maximize the value of unlicensed 
services to this Nation.
    Thank you for the opportunity to testify today. I look 
forward to answering your questions.
    [The prepared statement of Mr. Nagel follows:]

     Prepared Statement of Thomas F. Nagel, Senior Vice President, 
                          Comcast Corporation

    Mr. Chairman and Members of the Subcommittee:

    Thank you for inviting me to testify today on the state of wireless 
communications. I am the Senior Vice President of Business Development 
and Strategy for Communications and Data Services at Comcast 
Corporation (``Comcast''), where I have worked since 2002. In my 
current role, I am responsible for leading the strategic development of 
Comcast's wireless services.
    I welcome the opportunity to discuss the enormous potential for the 
continued growth of wireless services, and in particular unlicensed 
services such as Wi-Fi. At Comcast, we believe unlicensed spectrum is 
an essential input to technological innovation, investment, and 
economic growth. Only with access to enough unlicensed spectrum will 
industry be able to meet consumer demand for wireless data services. In 
addition, the importance of robust, widely available unlicensed 
networks has been made abundantly clear over the past 12 months, when 
Wi-Fi networks played an important role in facilitating communications 
in the aftermath of Hurricane Sandy, Winter Storm Nemo, and the 
horrific attack at the Boston Marathon. We commend Congress, the 
Administration, and the Federal Communications Commission (``FCC'') for 
already taking several concrete steps toward developing solutions that 
would ensure unlicensed services will continue to thrive as an 
essential part of the wireless ecosystem, and we are committed to 
working with policymakers to achieve these solutions. I want to 
emphasize, however, that time is of the essence. Without action in the 
near term, Wi-Fi networks will not have access to the spectrum they 
need to provide the kind of services that consumers have come to 
expect.
    Comcast has been active in the wireless marketplace for many years. 
We have long recognized that a robust wireless complement to our 
existing broadband services would enable us to extend our network and 
offer more value, more flexibility, and more options to our customers. 
Over the years, we have explored a variety of approaches to effectively 
integrate wireless services into our business model.
    Today, I would like to discuss our innovative strategy to provide 
broadband services to our customers outside the home using our Wi-Fi 
network to deliver wireless services that operate over unlicensed 
spectrum bands. For over a decade, our residential and business 
customers have used Wi-Fi routers to extend high-speed Internet access 
throughout their homes and offices. Recently, we have deployed a 
network of tens of thousands of Xfinity WiFi access points throughout 
many portions of our footprint, accessible for no additional charge to 
qualified Comcast residential and business broadband customers via any 
Wi-Fi-enabled device. And we are partnering with other cable companies 
to build one of the country's largest networks of Wi-Fi access points, 
which in less than two years already includes over 150,000 access 
points around the country. This substantial investment allows us to 
successfully extend our existing network in ways that make it more 
flexible, more interoperable, and more convenient for our customers. 
But it all depends on access to adequate unlicensed spectrum resources.
    Our experience confirms that unlicensed technologies: (1) are a 
central component of the wireless ecosystem; (2) are among the most 
popular methods used by consumers to access the Internet; (3) 
contribute tens of billions of dollars of value to the Nation's economy 
every year; and (4) can serve as critical sources of connectivity in 
times of crisis, when licensed wireless networks often cannot support 
heavy traffic loads or are otherwise unavailable. Americans' demand for 
data services continues to grow, regardless of whether they are at home 
or on the go, and unlicensed services like Wi-Fi play a key role in 
meeting that demand. Our nation's spectrum policy must reflect this 
reality by taking a balanced approach that focuses not only on spectrum 
for licensed services, but also on taking the necessary steps to 
address the current and future challenges to the continued growth of 
unlicensed services.
    A core challenge is that the primary Wi-Fi spectrum band--the 2.4 
GHz band--has become highly congested, especially in densely populated 
urban areas, making it harder to deliver the wireless broadband 
services that consumers and businesses expect. Solving this problem 
requires a balanced approach whereby the FCC allocates additional 
spectrum across a number of different bands for unlicensed use and 
removes regulatory roadblocks that limit the efficient use of 
unlicensed spectrum, such as unnecessary indoor-only restrictions, 
power limitations, and other technical requirements and restrictions.
    As policymakers work toward this goal, it is important to recognize 
that supporting unlicensed technologies does not mean undermining 
licensed technologies. Quite the opposite is true. Licensed and 
unlicensed services have co-existed and complemented each other for 
many years. In fact, allocating additional spectrum for unlicensed use 
will substantially enhance the value of licensed wireless services by 
helping to address the challenges associated with increased data 
traffic on licensed mobile networks.
    Congress embraced a balanced spectrum policy and took a significant 
step toward addressing the challenges facing both licensed and 
unlicensed wireless services when it passed the Middle Class Tax Relief 
and Job Creation Act of 2012, which included several provisions that 
paved the way for unlicensed services to share new spectrum bands with 
existing users in a way that maximizes the efficient use of spectrum 
and enhances the value of spectrum for all consumers. Comcast applauds 
Congress for passing this landmark legislation. We also appreciate the 
efforts of the FCC, which already has initiated multiple proceedings to 
implement Congress's directives. In particular, the FCC in its 5 GHz 
proceeding proposes a number of essential improvements that would 
facilitate more efficient sharing of the 5 GHz spectrum band, thereby 
enabling the development of the next generation of unlicensed 
technologies and encouraging the deployment of robust unlicensed 
services.

I. Unlicensed Spectrum Provides a Platform for Investment, Innovation, 
        and Economic Growth
    Consumers today expect access to content and information anytime, 
anywhere, and via any device, and unlicensed spectrum has been a key 
catalyst to this revolution. The explosive growth of services and 
devices using unlicensed spectrum, including Wi-Fi, Bluetooth, RFID, 
and smart grid applications, among many others, has been remarkable. 
These services have greatly benefitted consumers, created billions of 
dollars of economic value, supported millions of jobs, and provided a 
platform for even more innovation and investment.\1\ Wi-Fi in 
particular is now an integral part of daily life and a service upon 
which consumers and businesses--including mobile network operators--
increasingly rely for cost-effective and robust wireless broadband 
access to the Internet. In light of the extremely positive economic and 
societal effects of unlicensed services, it is no surprise that there 
is widespread consensus among policymakers,\2\ industry,\3\ and other 
interested parties \4\ that unlicensed services must continue to be a 
component of wired and wireless broadband Internet access services. 
Comcast has first-hand experience with the tremendous value these 
services offer to consumers.
---------------------------------------------------------------------------
    \1\ The unlicensed model reduces regulatory and economic barriers 
to use of the spectrum, thereby ``encouraging a deluge of technological 
and business model innovation'' and turning unlicensed spectrum ``into 
the most economically productive radio spectrum in the world.'' Richard 
Thanki, The Power of the Unlicensed Economy, AllThingsD, July 10, 2012, 
available at http://allthingsd.com/20120710/the-power-of-the-
unlicensed-economy/ (``Thanki 2012 Paper'').
    \2\ See, e.g., Presidential Memorandum: Unleashing the Wireless 
Broadband Revolution (June 28, 2010) (ordering the Secretary of 
Commerce to make spectrum available for, inter alia, ``shared access by 
commercial and Government users in order to enable licensed or 
unlicensed wireless broadband technologies to be deployed.'') (emphasis 
added), available at http://www.whitehouse.gov/the-press-office/
presidential-memorandum-unleashing-wireless-broadband-revolution; Press 
Release, Energy & Commerce Comm., U.S. House of Representatives, 
Walden, Latta Welcome Progress on Efforts to Increase Unlicensed 
Spectrum (Jan. 10, 2013), available at http://energycommerce.house.gov/
press-release/walden-latta-welcome-progress-efforts-increase
-unlicensed-spectrum; Press Release, FCC, Statement from FCC Chairman 
Julius Genachowski on House Passage of Voluntary Incentive Auction 
Legislation (Dec. 13, 2011) (``Unlicensed spectrum stimulates 
innovation, investment, and job creation in many ways, including by 
providing start-ups with quick access to a testbed for spectrum that is 
used by millions, bringing new technologies to consumers in a rapid 
fashion.''); Unlicensed Operation in the TV Broadcast Bands, Second 
Report and Order and Memorandum Opinion and Order, 23 FCC Rcd. 16807 
(2008) (Statement of Commissioner Robert McDowell) (``Robust unlicensed 
use of white spaces will give nimble entrepreneurs the freedom to 
disrupt the market in positive and constructive ways that will force 
incumbents to keep pace with this new revolution.'').
    \3\ See, e.g., Comments of Motorola Solutions, Inc., ET Docket No. 
13-49, at 8 (May 28, 2013) (``There is a well-documented need for 
additional wireless broadband spectrum, and unlicensed spectrum in 
particular is a key driver of innovation and economic development.''); 
Comments of Time Warner Cable, Inc., ET Docket No. 13-49, at 4 (May 28, 
2013) (``TWC believes that a robust Wi-Fi capability provides an 
important complement to its existing wireline broadband network to 
enable its subscribers to access the Internet anywhere, anytime, on any 
device.''); Reply Comments of Sprint Nextel Corp., WT Docket No. 12-4, 
at 10 (Mar. 26, 2012) (``Wi-Fi networks that are easily--even 
seamlessly--accessible by customers of wireless carriers can provide 
users with advantages of higher-speed connections without wireless data 
limits.''); Joint Comments of Google, Inc. & Microsoft, Inc., GN Docket 
No. 12-268, at 1 (Jan. 25, 2013) (``[B]usinesses depend on access to 
robust licensed services as well as access to robust unlicensed 
spectrum resources. One without the other simply will not allow U.S. 
businesses to meet accelerating consumer demand for wireless products 
and services.'').
    \4\ See, e.g., Mark Cooper, Efficiency Gains and Consumer Benefits 
of Unlicensed Access to the Public Airwaves 7 (Jan. 2012), available at 
www.markcooperresearch.com/SharedSpectrum
Analysis.pdf (``The unlicensed model has succeeded in supporting a 
large amount of economic activity in the wireless broadband space by 
bringing new and unique services to the market, increasing the value of 
broadband service by extending it to additional devices, and providing 
a lower cost, more efficient avenue to deliver data to consumers.'').
---------------------------------------------------------------------------
A. Comcast's Xfinity WiFi Service Uses Unlicensed Spectrum to Deliver 
        Fast, 
        Reliable Wireless Broadband Access
    Comcast's residential and business customers have long used Wi-Fi 
routers in their homes and businesses to enhance the value of their 
wired high-speed Internet service. Over the last few years, Comcast has 
invested significant time, energy, and human and capital resources to 
bring that experience outside the home by deploying a robust Wi-Fi 
network that enables our customers to enjoy wireless Internet access on 
the go. Today, Comcast makes Xfinity WiFi available in several cities 
throughout the country for any consumer to access on a pay-per-use 
basis, and access is included for no additional charge for qualifying 
customers who have an Xfinity Internet or Comcast Business Internet 
subscription.
    Comcast's efforts are really only beginning. In 2012, we expanded 
the Xfinity WiFi network from approximately 5,000 access points to more 
than 25,000 access points. So far this year, that number has increased 
to over 55,000 access points as we have ramped up the deployment of our 
network, enhancing the service in existing areas and expanding into 
several new regions. In fact, in the last two weeks we have expanded 
the Xfinity WiFi network to include hundreds of new access points in 
Chicago and Atlanta. And through our CableWiFi partnership with other 
cable operators, our customers have access to over 150,000 Wi-Fi access 
points throughout the country for no additional charge.\5\
---------------------------------------------------------------------------
    \5\ See generally CableWiFiTM,  http://
www.cablewifi.com/ (last visited May 31, 2013).
---------------------------------------------------------------------------
    We install these access points in a variety of locations that we 
determine will best serve our customers' needs. In addition to 
deploying Wi-Fi networks in retail locations, Comcast is building an 
extensive outdoor network to provide wireless broadband service in 
high-traffic areas, such as main street districts, commuter rail 
stations, parks, and other public areas. Xfinity WiFi deployments also 
serve large, high-traffic venues, such as malls, transportation 
centers, and sports stadiums. For example, Comcast recently made 
Xfinity WiFi available at Citizens Bank Park in Philadelphia as an 
amenity for no additional fee to any guest with a Wi-Fi-enabled 
device.\6\
---------------------------------------------------------------------------
    \6\ Press Release, Comcast Corp., Xfinity WiFi Now at Citizens Bank 
Park, (Mar. 18, 2013), http://corporate.comcast.com/comcast-voices/
xfinity-wifi-now-at-citizens-bank-park.
---------------------------------------------------------------------------
    Usage of Xfinity WiFi has grown dramatically as we have expanded 
its footprint. There are now more users of the Xfinity WiFi service 
than ever before, and they are doing more, more often, with more 
devices, for longer. Comcast now records as many Wi-Fi user sessions in 
one month as it did in the first two-and-a-half years of the Xfinity 
WiFi project.

B. Unlicensed Services Create Significant Value, Including to Mobile 
        and Fixed Broadband Services
    Comcast's experience is consistent with the growing body of data 
showing that unlicensed services create huge benefits both for 
broadband providers and their customers, and support significant growth 
in the economy as a whole.
    According to a 2012 study, ``a variety of approaches all point 
toward economic benefits [from unlicensed technologies] at least in the 
tens of billions of dollars a year.'' \7\ Additionally, a 2009 study 
that used consumer survey data to derive the incremental demand for 
broadband services attributable to Wi-Fi estimated that ``Wi-Fi usage 
in the home, for only the purpose of broadband extension, may be 
generating anywhere between $4.3 and $12.6 billion in annual economic 
value for consumers in the United States.'' \8\ And the value of in-
home Wi-Fi, hospital Wi-Fi, and RFID tags ``together may generate $16-
37 billion per year in economic value for the U.S. economy over the 
next 15 years.'' \9\ By some accounts, unlicensed services contribute 
upwards of $50 billion in annual economic growth.\10\
---------------------------------------------------------------------------
    \7\ Paul Milgrom et al., The Case for Unlicensed Spectrum  42 
(Oct. 12, 2011), available at www.stanford.edu/jdlevin/Papers/
UnlicensedSpectrum.pdf.
    \8\ Richard Thanki, The Economic Value Generated by Current and 
Future Allocations of Unlicensed Spectrum, Final Report, Perspective 
Associates 35 (Sept. 28, 2009), available at http://spectrumbridge.com/
Libraries/White_Space_Primer/whitespaces-microsoft-study.sflb.ashx.
    \9\ Id. at 42.
    \10\ See, e.g., Revision of Part 15 of the Commission's Rules to 
Permit Unlicensed National Information Infrastructure (U-NII) Devices 
in the 5 GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 
(2013) (Statement of Commissioner Mignon Clyburn).
---------------------------------------------------------------------------
    Unlicensed spectrum also adds value as a key complement to licensed 
wireless technologies, particularly as part of the solution to the 
rising demand for licensed spectrum caused by increased mobile wireless 
broadband traffic. According to Cisco, traffic on licensed mobile 
wireless networks increased 70 percent last year, rising from 520 
petabytes per month in 2011 to over 885 petabytes per month in 
2012.\11\ Cisco expects that tremendous rate of annual growth to 
continue for at least the next four years.\12\ Many mobile wireless 
broadband providers have come to recognize that, to keep up with this 
increasing level of demand, they will need to rely on unlicensed 
services to carry some of the load. As Sprint has explained,''[o]ne of 
the most effective methods of increasing the capacity of wireless data 
systems is moving data traffic, whenever possible, from the licensed 
spectrum of commercial mobile carriers to unlicensed spectrum, such as 
that now used for Wi-Fi.'' \13\
---------------------------------------------------------------------------
    \11\ See Cisco, Cisco Visual Networking Index: Global Mobile Data 
Traffic Forecast Update, 2012-2017, at 1 (Feb. 6, 2013) (``2013 Cisco 
Forecast''), http://www.cisco.com/en/US/solutions/collateral/ns341/
ns525/ns537/ns705/ns827/white_paper_c11-520862.pdf.
    \12\ See id. at 3.
    \13\ Comments of Sprint Nextel Corp., WT Docket No. 12-4, at 5 
(Feb. 21, 2012); see also Comments of Ericsson, ET Docket No. 13-49, at 
2 (May 28, 2013) (discussing importance of technologies that ``enable 
mobile operators to deliver supplemental small cell or stand-alone Wi-
Fi'' using unlicensed technologies).
---------------------------------------------------------------------------
    The beneficial impact on licensed wireless providers and their 
customers resulting from Wi-Fi is staggering. The amount of mobile data 
offloaded to Wi-Fi networks is projected to reach 21 exabytes (or 21 
billion gigabytes) by 2017.\14\ One study concluded that, ``[i]n the 
absence of Wi-Fi, cellular operators would need to construct up to 
450,000 new radio base stations to serve increased smartphone data 
traffic. This could cost $93 billion--subjecting smartphone and tablet 
users to significantly higher network charges or greatly diminished 
service.'' \15\
---------------------------------------------------------------------------
    \14\ See 2013 Cisco Forecast at 3.
    \15\ Thanki 2012 Paper (emphasis added).
---------------------------------------------------------------------------
    There are also positive societal benefits associated with Wi-Fi 
services that are not as easily quantified, but are readily apparent. 
This was convincingly demonstrated by Comcast's experience during the 
chaotic aftermath of Hurricane Sandy and Winter Storm Nemo, and after 
the tragic events at the Boston Marathon. In February, I spoke about 
Comcast's experience in these situations at an FCC field hearing on 
network reliability. Following Sandy, mobile wireless service was 
unavailable for large portions of the affected areas.\16\ In the 
aftermath of the storm, Comcast made approximately 20,000 Xfinity WiFi 
access points in ten hard-hit states and the District of Columbia 
available to anyone who needed them to communicate with family or 
friends, or otherwise to get important recovery information. Comcast 
recorded more than 250,000 individual sessions during that period, 
supporting tens of thousands of unique users while also adding a 
special functionality to permit non-Comcast subscribers to maintain 
their connection without having to refresh their credentials. Comcast 
took similar steps following Winter Storm Nemo, which caused widespread 
utility outages throughout New England and the eastern United States, 
and during the week after that storm, we carried almost 7 terabytes of 
data traffic more than we do in a normal week. Likewise, in the 
immediate aftermath of the attacks at the Boston Marathon, commercial 
mobile wireless networks were overloaded,\17\ but Comcast opened its 
network to anyone--including non-Comcast subscribers--with a Wi-Fi-
enabled device to establish communications with loved ones, leading to 
significantly increased usage of our Xfinity WiFi network in Boston and 
the surrounding communities. In each instance, we opened our Wi-Fi 
network in full cooperation with federal, state, and local officials as 
they looked for ways to ease the burdens on affected individuals and 
public safety officials.
---------------------------------------------------------------------------
    \16\ See, e.g., Brendan Sasso, FCC Says Hurricane Sandy Knocked Out 
25 Percent of Cell Towers in Its Path, The Hill (Oct. 30, 2012), 
available at http://thehill.com/blogs/hillicon-valley/technology/
264915-fcc-hurricane-sandy-knocked-out-25-percent-of-cell-towers.
    \17\ See, e.g., Chloe Albanesius, FCC Probes Post-Bombing Cell 
Phone Congestion in Boston, PC Magazine (Apr. 17, 2013), available at 
http://www.pcmag.com/article2/0,2817,2417891,00.asp.
---------------------------------------------------------------------------
    Comcast has opened its Xfinity WiFi network during non-emergencies 
as well. For example, during the 2012 Summer Olympics, Comcast offered 
promotional access to thousands of indoor and outdoor access points in 
the greater Philadelphia area, allowing anyone with a Wi-Fi-enabled 
device to follow the Olympic programming from London.\18\ Comcast also 
is currently offering, and has offered in the past, promotional access 
at Xfinity WiFi access points along the New Jersey shore, enabling 
consumers to conveniently surf the Web, share photos, access social 
media, and stream music, TV, and movies.\19\
---------------------------------------------------------------------------
    \18\ See J.T. Ramsay, Comcast Voices Blog, Comcast Celebrates Live 
Streaming of the 2012 Olympics Games Through NBCOlympics.com, Offers 
Free Access to Xfinity WiFi Hot Spots (Jul. 25, 2012), http://
corporate.comcast.com/comcast-voices/comcast-celebrates-live-streaming-
of-the-2012-olympic-games-through-nbcolympicscom-offers-free-acces.
    \19\ See Joshua Palau, Comcast Voices Blog, Comcast Creates Lasting 
Memories this Memorial Day (May 22, 2013), http://
corporate.comcast.com/comcast-voices/12542; J.T. Ramsay, Comcast Voices 
Blog, Surfing at the Shore Just Got Easier (Jul. 1, 2011), http://
corporate.comcast.com/comcast-voices/surfing-at-the-shore-just-got-
easier.
---------------------------------------------------------------------------
    During emergencies and non-emergencies alike, Wi-Fi networks offer 
a unique opportunity for consumers to communicate and stay connected 
because of the accessible nature of unlicensed spectrum and unlicensed 
services. Almost every mobile device is now equipped with a Wi-Fi 
radio, so almost everyone can access a Wi-Fi network, regardless of the 
identity of their underlying licensed mobile carrier. Mobile wireless 
providers simply cannot offer access to everyone, even if they wanted 
to, because of the closed nature of their networks and the licensed 
spectrum regime. In a sense, Wi-Fi has become the interoperable 
communications standard for consumers.

II. Sound Spectrum Policy Must Be Designed to Encourage the Continued 
        Growth of Unlicensed Services by Making Additional Spectrum 
        Available for Unlicensed Use and by Removing Unnecessary 
        Regulatory Barriers
    To meet the ever-increasing consumer demand and expectations for 
robust Wi-Fi services, all critical stakeholders must commit to address 
the remaining obstacles in a timely manner. While the benefits and 
importance of unlicensed services like Wi-Fi are clear, there are 
significant challenges that threaten to impair the growth and 
development of such services.
    Comcast has identified two primary objectives that policymakers 
must achieve to overcome the barriers that stand in the way of further 
growth and innovation in unlicensed services. First, the government 
must ensure that access to unlicensed spectrum grows. Second, the 
government must remove unnecessary regulatory barriers that impede the 
efficient and intensive use of existing unlicensed spectrum resources. 
We believe these are common sense, straightforward approaches that will 
facilitate the continued growth and vitality of the unlicensed sector 
and will return to the public significant benefits in the form of 
innovation, investment, and economic growth.

A. A Shortage of Usable Spectrum Hampers the Growth of Unlicensed 
        Services
    Comcast's experience shows that there are several pressing issues 
that must be addressed to facilitate ongoing growth and innovation in 
the provision of unlicensed services. Chief among these concerns is the 
congestion of existing unlicensed bands. Because of this congestion, 
the core unlicensed spectrum band is already heavily saturated in many 
densely populated communities. Simply put, congestion in the 2.4 GHz 
band will make it harder and harder for providers to deliver the kinds 
and quality of service that consumers have come to expect.\20\
---------------------------------------------------------------------------
    \20\ ``WiFi congestion will only accelerate as the number of 
wireless devices continues to grow. Without additional spectrum, 
wireless consumers are likely to experience reduced performance, 
threatening the future of the wireless ecosystem.'' Dirk Grunwald & 
Kenneth Baker, FCC Broadcast Incentive Auction: A Band Plan Framework 
for Maximizing Spectrum Utility 11 (2013) (attached to Reply Comments 
of Nat'l Cable and Telecomms. Ass'n, GN Docket No. 12-268 (Mar. 12, 
2013)); see also Dynamic Spectrum Management, InterDigital 8 (Oct. 
2012), available at http://www.interdigital.com/wp-content/uploads/
2012/10/InterDigital-DSM-White-Paper_Oct2012.pdf (``Wi-Fi currently 
operates in the unlicensed bands 2.4 and 5.0 GHz. . . . Wi-Fi bands are 
often congested, particularly in high traffic public areas.'').
---------------------------------------------------------------------------
    The congestion problems in the 2.4 GHz band are well documented. 
Acting Chairwoman Mignon Clyburn has pointed out that the 2.4 GHz band 
is particularly congested in major cities.\21\ Former FCC Chairman 
Julius Genachowski observed that ``Wi-Fi congestion is a very real and 
growing problem.'' \22\ Furthermore, former Commissioner McDowell 
noted, ``The spectrum that is used for unlicensed Wi-Fi is also 
experiencing congestion, which will only increase in the coming years 
if we do not make appropriate bands, like the 5 GHz band, more 
attractive for investment and innovation.'' \23\ A paper recently 
published by CableLabs detailed the spectrum shortage issues: ``[A]ny 
reasonable extrapolation of known trends leads to the conclusion that 
WiFi spectrum exhaust is a matter of `when,' not `if '. . . . In the 
absence of new WiFi spectrum, it is likely that wireless broadband 
consumers will experience reduced performance. This poses a risk to 
continued growth of the wireless broadband ecosystem, a central element 
of technology and economic policy in the United States.'' \24\ 
Essentially, there are so many devices using unlicensed spectrum in the 
2.4 GHz band in certain locations that the result is significantly 
reduced Wi-Fi performance.\25\ Further growth in data consumption via 
unlicensed technologies simply cannot occur unless service providers 
have access to more unlicensed spectrum.
---------------------------------------------------------------------------
    \21\ Revision of Part 15 of the Commission's Rules to Permit 
Unlicensed National Information Infrastructure (U-NII) Devices in the 5 
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013) 
(Statement of Commissioner Mignon Clyburn).
    \22\ Revision of Part 15 of the Commission's Rules to Permit 
Unlicensed National Information Infrastructure (U-NII) Devices in the 5 
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013) 
(Statement of Chairman Julius Genachowski).
    \23\ Revision of Part 15 of the Commission's Rules to Permit 
Unlicensed National Information Infrastructure (U-NII) Devices in the 5 
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013) 
(Statement of Commissioner Robert McDowell).
    \24\ See Rob Alderfer, CableLabs, WiFi Spectrum: Exhaust Looms 5 
(May 28, 2013) (included as Attachment A to Comments of Nat'l Cable & 
Telecomms. Ass'n, ET Docket No. 13-49 (May 28, 2013)) (``WiFi Spectrum: 
Exhaust Looms'').
    \25\ See, e.g., John Cox, Wi-Fi Devices Crowd 2.4 GHz Band; IT 
Looks to 5 GHz Band, Network World (Oct. 24, 2011), http://
www.networkworld.com/news/2011/102411-wifi-unbalanced-252237.html (`` 
`The 2.4 GHz band is congested, a symptom of the number of devices that 
only operate on that band, and the limitation of its [only] three non-
overlapping channels.' '').
---------------------------------------------------------------------------
B. The FCC Must Remove Regulatory Impediments to Address the Unlicensed 

        Spectrum Crunch
    Perhaps the most important unlicensed spectrum-related proceeding 
currently underway at the FCC focuses on the 5 GHz band. The Spectrum 
Act directed the FCC to launch a proceeding to modify Part 15 of the 
FCC's rules to allow Unlicensed National Information Infrastructure 
(``U-NII'') devices to operate in the 5.350-5.450 GHz band, and 
directed the National Telecommunications and Information Administration 
(``NTIA'') to begin the process of allowing more intense sharing of the 
5.350-5.450 GHz and 5.850-5.925 GHz bands between incumbent users and 
unlicensed services like Wi-Fi.\26\ On February 20, 2013, the FCC 
issued a Notice of Proposed Rulemaking that would allow unlicensed 
devices to share these bands with existing users, and, critically, 
would update and improve the rules that govern the existing 5 GHz 
unlicensed bands.\27\ Comcast commends Congress, NTIA, and the FCC for 
taking the necessary and significant first steps toward ensuring the 
availability of sufficient spectrum to encourage the continued growth, 
development, and proliferation of unlicensed wireless services.
---------------------------------------------------------------------------
    \26\ See Middle Class Tax Relief and Job Creation Act of 2012, Pub. 
L. No 112-96, Sec. 6406, 126 Stat. 156, 231 (2012) (codified at 47 
U.S.C. Sec. 1453). U-NII devices are designed to provide short-range, 
high-speed wireless networking capability.
    \27\ See Revision of Part 15 of the Commission's Rules to Permit 
Unlicensed National Information Infrastructure (U-NII) Devices in the 5 
GHz Band, Notice of Proposed Rulemaking, 28 FCC Rcd. 1769 (2013) (``FCC 
5 GHz Notice'').
---------------------------------------------------------------------------
    As Comcast explained in our comments to the FCC, the 5 GHz band 
represents a crucial resource as the FCC works to alleviate the 
dramatic shortage in spectrum available for unlicensed services.\28\ 
The 5 GHz band is the only band available for unlicensed services that 
can accommodate sufficiently wide channels to allow providers like 
Comcast to take advantage of the next generation of Wi-Fi--a new 
standard called 802.11ac. This standard will allow dramatically faster 
broadband speeds, potentially up to or in excess of one gigabit per 
second.\29\ In contrast to networks using prior standards, Wi-Fi 
networks operating on the 802.11ac standard will support multiple data-
intensive uses, such as several users simultaneously streaming HD 
videos, without any appreciable degradation in quality.\30\ To realize 
its full potential, however, this standard requires 160 megahertz-wide 
channels, far wider than channels currently available in any of the 
spectrum bands used for unlicensed use.
---------------------------------------------------------------------------
    \28\ See Comments of Comcast Corp., ET Docket No. 13-49 at 14-17 
(May 28, 2013) (``Comcast 5 GHz Comments'').
    \29\ See Cisco, 801.11ac: The Fifth Generation of Wi-Fi Technical 
White Paper, 3 (Aug. 2012), available at http://www.cisco.com/en/US/
prod/collateral/wireless/ps5678/ps11983/white_
paper_c11-713103.pdf.
    \30\ See id. at 4.
---------------------------------------------------------------------------
    The rules that currently govern the 5 GHz band significantly 
undermine investment today and prevent us from realizing the wide-band 
channels we will need to support 802.11ac.\31\ Specifically, power 
levels are prohibitively low in some parts of the band. Rules 
unnecessarily prevent any outdoor use of a large part of the band where 
there are no government incumbents. And government operations in 
another part of the band result in rules that require the use of 
cumbersome ``listen-before-talk'' technologies (also called Dynamic 
Frequency Selection, or ``DFS''). As a result, there is only a fraction 
of the current 5 GHz band that providers can use for Wi-Fi networks.
---------------------------------------------------------------------------
    \31\ See WiFi Spectrum: Exhaust Looms at 21 (noting that ``the full 
benefit of 802.11ac cannot be realized under the current terms of 
access to 5 GHz [spectrum]'').
---------------------------------------------------------------------------
    Fortunately, the FCC has proposed changes to its 5 GHz rules that 
would make the band far more attractive to investment and build-out of 
unlicensed services without causing harmful interference to incumbent 
users.\32\ In the comments we filed with the FCC last week, Comcast 
supported the FCC's proposals to: (1) harmonize the 5 GHz U-NII-1 and 
U-NII-2 bands by removing an indoor-only restriction and increasing 
allowable power levels in the U-NII-1 band; (2) harmonize the U-NII-3 
and the new U-NII-4 bands by setting the technical rules in U-NII-4 to 
match those of U-NII-3; and (3) update technical protections for 
government operations in the U-NII-2 bands but not extend DFS to either 
the U-NII-1 or U-NII-4 bands.\33\ Devices operating in the 5 GHz bands 
would continue to be subject to the FCC's rules prohibiting U-NII 
devices from creating harmful interference to existing users.
---------------------------------------------------------------------------
    \32\ See FCC 5 GHz Notice para. 26-28.
    \33\ See Comcast 5 GHz Comments at 21-22 (May 28, 2013) (setting 
forth the five principles that the FCC should adopt as it moves forward 
with the 5 GHz proceeding).
---------------------------------------------------------------------------
    These proposals have received widespread support from a broad range 
of interests, including both industry and public interest groups, 
because they enable more effective spectrum sharing in the 5 GHz 
band.\34\ As the Administration has recognized, spectrum sharing, where 
technically feasible, maximizes the efficient use of spectrum and 
permits the simultaneous delivery of multiple services that provide 
significant public benefits.\35\ The 5 GHz band is an ideal band to 
implement this approach: the changes the FCC has proposed will 
facilitate significant innovation and investment in unlicensed 
technologies, even while existing users may continue to use this 
spectrum to develop more experimental technologies that may come to 
fruition at some point in the future, such as the Dedicated Short-Range 
Communications (``DSRC'') service, which enables vehicle-to-vehicle and 
vehicle-to-infrastructure communications-based automotive safety 
applications.\36\ Notwithstanding the recent testimony by certain 
representatives of the auto industry before this Committee supporting 
the continued exclusive use of this valuable spectrum,\37\ Comcast 
agrees with those in the technology and auto sectors who believe that 
sharing of this spectrum is possible, and that doing so would be 
solidly in the public interest. We urge all relevant stakeholders to 
pursue in good faith a spectrum sharing outcome for the 5 GHz band that 
will serve the public interest by protecting incumbents and unleashing 
a new wave of innovation and investment.
---------------------------------------------------------------------------
    \34\ See, e.g., Comments of Nat'l Cable & Telecomms. Ass'n, ET 
Docket No. 13-49, at 12-23 (May 28, 2013); Comments of Wireless 
Internet Serv. Providers Ass'n, ET Docket No. 13-49, at 6-12 (May 28, 
2013); Comments of Consumer Elecs. Ass'n, ET Docket No. 13-49, at 12-14 
(May 28, 2013); Comments of Cisco Systems, Inc., ET Docket No.13-49, at 
41-56 (May 28, 2013).
    \35\ See Executive Office of the President, President's Council of 
Advisors on Science and Technology, Report to the President: Realizing 
the Full Potential of Government-Held Spectrum to Spur Economic Growth 
at vi (July 2012) (``The essential element of this new Federal spectrum 
architecture is that the norm for spectrum use should be sharing, not 
exclusivity.'').
    \36\ See generally DSRC: The Future of Safer Driving Fact Sheet, 
Research & Innovative Tech. Admin., Dep't of Transp., http://
www.its.dot.gov/factsheets/dsrc_factsheet.htm (last visited May 31, 
2013) (describing DSRC technology and ongoing experimental research 
projects that ``may have the potential to significantly reduce'' the 
frequency of dangerous accidents in the future).
    \37\ See The Road Ahead: Advanced Vehicle Technology and its 
Implications: Hearing Before the S. Comm. on Commerce, Sci., and 
Transp., 113th Cong. 6 (2013) (statement of Mitch Bainwol, President & 
CEO, Alliance of Automobile Manufacturers) (arguing that policymakers 
should ``ensur[e] that the radio frequency spectrum now dedicated to V-
to-V and V-to-I--the 5.9 GHz band--remains solely dedicated to auto 
communications technologies.''). Although Comcast appreciates the 
important safety benefits that such applications may someday bring, we 
believe that spectrum exclusivity in this band is both unreasonable and 
unnecessary.
---------------------------------------------------------------------------
    We look forward to working with Congress, the FCC, NTIA, and other 
stakeholders to make this vision a reality as quickly as possible.

III. Conclusion
    The future of wireless is bright, and Comcast is very excited to be 
a part of that future. Consumer demand for wireless services--licensed 
and unlicensed--continues to grow at unprecedented rates, creating new 
opportunities to provide innovative technological solutions and drive 
economic growth. Unlicensed wireless services in particular have proven 
to be an invaluable part of the wireless ecosystem, dramatically 
enhancing the value of licensed wireless and fixed broadband services.
    All indications are that the trends toward heavier reliance on 
unlicensed services will continue well into the future. Congress and 
the FCC have made important strides by addressing the substantial 
policy challenges raised by this rapid technological development. 
Continued growth in this area will require more spectrum to address the 
critical shortages that are already occurring in many locations around 
the country. It will also require a reevaluation of the regulations 
that govern unlicensed operations, especially in the 5 GHz band. The 
FCC's current 5 GHz-related proceeding is a welcome development, but 
there is more work to be done.
    Comcast is firmly committed to engaging with Congress, the 
Administration, and the FCC as they continue to evaluate our Nation's 
spectrum policy and to implement solutions that will produce even 
greater economic and technological growth and benefits for consumers.
    Thank you for the opportunity to testify today.

    Senator Pryor. Thank you.
    Mr. Ford.

 STATEMENT OF GEORGE S. FORD, Ph.D., CHIEF ECONOMIST, PHOENIX 
  CENTER FOR ADVANCED LEGAL AND ECONOMIC PUBLIC POLICY STUDIES

    Mr. Ford. Thank you, Mr. Chairman, for the invitation.
    The wireless industry has an institutionalized complaint 
box at the FCC, so there's always a lively debate about various 
issues going on. I think, by far, the most important today is 
the lack of spectrum, the lack of sufficient spectrum to 
satisfy the demand for data over mobile wireless networks and 
Wi-Fi networks is--as well. I've written a lot about the 
spectrum issue, and I'll summarize my testimony, which covers 
those issues in more detail.
    There are three major questions related to spectrum. One 
is, how much does the industry need? And I think it's suffice 
to say ``a lot.'' At 500 megahertz, which is what the FCC 
recommended, that's twice what the mobile wireless industry has 
today, so that's a very significant increase in spectrum. It 
would be interesting to see if we can get near that number in 
the next couple of decades.
    The next question is given the lack of fallow spectrum, 
where you're going to get it. And I think the answer there is, 
after some initial low hanging fruit, you will pry it from its 
present owners' hands; in some cases, from their cold, dead 
hands, I suspect.
    There are three ways in which we can get some spectrum. We 
have secondary markets, in which the industry engages in 
transactions. That doesn't necessarily increase the amount of 
spectrum for wireless service, but just shifts it around into a 
more efficient configuration.
    There are two things the FCC could do to improve the 
secondary market--at least two--which doesn't function all that 
well today. One is to increase the flexibility of use of 
spectrum. I think the NTIA would need to be involved with that, 
as well, and that way we could move spectrum around without 
constraints or limits on how it can be used, within the bounds 
of reason and technology. And, second, for the FCC to quickly 
approve transfers that do not have demonstrably anticompetitive 
effects. In some cases, these transfers are used to fund pet 
projects, right or wrong, in the form of voluntary conditions.
    The other source of spectrum is government. There has been 
a huge discussion of that lately. Most of the reports I've seen 
on it are not promising in that regard. I think that Congress 
will eventually have to be involved in that process. One recent 
report by some advisors to the President said, ``We will 
not''--or did not recommend ever again giving government 
spectrum to the private sector through auctions. That's a 
pretty bold statement, I think.
    The other is the incentive auction, which is underway. It 
will be interesting to see how that works out. It's a very 
complicated process, with many, many constraints and 
objectives. But, we do have some very smart people working on 
it, so there is hope.
    The major question, I think, is who gets it. There's going 
to be too little, I think, spectrum to satisfy everyone, so 
there's going to be a fight over who has it, who keeps it, and 
who gets it. We're going to have debates over licensed and 
unlicensed spectrum. I think that debate can be solved 
relatively easily. Unlicensed spectrum, or low-powered devices, 
can use spectrum more flexibly than can the broadband 
networks--mobile broadband networks that need higher quality 
spectrum under an exclusive license.
    The other question is how spectrum gets distributed among 
firms. We have the calls today for spectrum caps, participation 
limits by AT&T and Verizon. In the upcoming auctions, of 
course, people will use the government process to advantage 
themselves when they can, although I do think people also 
believe that there are valid reasons to do this.
    In this regard, I think what I would say is, we need to 
make a decision, I think, in this country, as to whether or not 
we're going to use auctions, to allocate spectrum, in which the 
highest bidder wins the spectrum, and that's how we do things, 
which is how we do things in most markets, or we adopt a 
comparative hearing approach, where the Government chooses who 
gets it, in an effort to control what the industry looks like, 
to control market structure, control market shares, that sort 
of thing. And it's just a question of honesty, because, as an 
analyst, you kind of want to know what the objective is before 
you start designing rules and analyzing various policies. If we 
pretend to hold auctions among preselected winners, it's--it 
makes it difficult to really understand what it is that we're 
doing. Making that decision is above my pay grade, but I'm just 
suggesting that we have some honesty brought to the process in 
that regard. The--and in that capacity, economic theory is very 
important. When you introduce spectrum exhaust, which is what 
everybody's talking about right now in wireless, it radically 
changes the way competition works. And one of the papers--it's 
summarized in my testimony--is a paper entitled ``Wireless 
Competition and Spectrum Exhaust.'' And what you find when an 
industry faces the exhaust of spectrum, that competition, in 
the way we normally think of it, which is a headcount of firms, 
is no longer a valid way to think about the industry, because 
if there's a constraint on capacity, you can't increase output, 
the role of competition is to increase output, so competition 
is essentially made impotent in that regard. And if you include 
the assumption of an economy of scale in the use of spectrum, 
so that capacity rises faster than the amount of spectrum that 
you get, which is an assumption that's widely accepted, you 
could actually have a case where having few firms in the 
industry has lower prices and better-quality services than more 
firms in the industry.
    That's a very important addition to the analysis, so we 
can't simply think of it in the way we normally think of 
competition, which is inaccurate in itself, but, in this case, 
it's profoundly inaccurate.
    The spectrum caps, in the past, have largely been intended 
to increase the number of firms, to expand the base of 
competitors, to add new people to the game. I don't think 
that's going to happen. We've had people outside the industry 
win spectrum. They end up going back to the industry to try to 
use that spectrum--the DISH/Sprint deal, SpectrumCo selling it 
to Verizon, and other cases.
    Additional entry is probably unlikely in--under current 
conditions, so we can't be thinking of having a fifth 
nationwide provider, for example. We need to be more worried, 
probably, about going from four to three, at this point, given 
the financial condition of some of the wireless carriers.
    So, that purpose of a spectrum cap is no longer valid, and 
the spectrum cap, theoretically, has, to my knowledge, never 
been contemplated as a way to shift market share among various 
players. I'm probably going over--no, the clock's still 
running.
    The other question on spectrum caps or bidding restrictions 
relates to revenue. This is a--this auction is intended to 
raise a lot of revenues for specific purposes. I think the 
argument that ``eliminating those with very high demands for 
spectrum will increase revenue'' is not really plausible. The 
theory really doesn't support it. And, in fact, the theory 
that's cited to support that would say you should exclude all 
incumbents from the auction, not just the major incumbents. And 
history has shown that non-incumbents have pretty high demand 
for spectrum, and some have made significant profits buying it 
and reselling it.
    There are some other issues--I know I'm probably--I don't 
think that started on time, and people are looking at me 
funny--there are some other issues--you know, unlocking 
interoperability, those sorts of things--that are covered in my 
report, if you care to read it, or if you have any questions 
about those issues.
    Thank you.
    [The prepared statement of Mr. Ford follows:]

 Prepared Statement of George S. Ford, Ph.D., Chief Economist, Phoenix 
      Center for Advanced Legal and Economic Public Policy Studies

                                                Table of Contents
 
 
 
I.   Introduction and Summary of Testimony   35
 
II.  Overview of the State of Wireless Communications  35
 
III. The Problem that Won't Go Away: Spectrum Exhaust  36
 
IV.  How Much Additional Spectrum Should be Allocated to Commercial Use? 37
 
V.   Where Does New Spectrum Come From?  38
 
     A. Secondary Market Transactions  38
 
     B. Repurposing Government Spectrum   39
 
     C. Voluntary Incentive Auctions  39
 
VI.  Who Gets It? The Allocation of Additional Spectrum in the Mobile  40
     Wireless Industry
 
     A. Understanding Equilibrium Industry Structure  41
 
     B. Wireless Competition Under Spectrum Exhaust   42
 
     C. Allocating Finite Spectrum Resources  43
 
     D. More Spectrum DOES NOT Mean More Competitors  44
 
     E. The Department of Justice's Ex Parte Filing  46
 
     F. Incumbent Exclusion Rules May Have a Potential Adverse Impact on  47
        Auction Revenue
 
VII. Other Factors Impacting the Wireless Ecosystem 48
 
VIII. Conclusion  49
 

                                 ______
                                 
I. Introduction and Summary of Testimony
    Chairman Pryor, Ranking Member Wicker, and members of the 
Subcommittee, good afternoon and thank you for inviting me to testify 
before the Committee today.
    My name is Dr. George S. Ford, and I am the Chief Economist of the 
Phoenix Center for Advanced Legal and Economic Public Policy Studies. I 
hold a Ph.D. in Economics from Auburn University, and the economics of 
the communications industry has been the focus of my career. Prior to 
joining the Phoenix Center full-time, I worked at the Federal 
Communications Commission as well as for several companies in the 
telecommunications industry, and I also serve as an Adjunct Professor 
at Samford University. I have written numerous research studies that 
explore the various complex issues facing the industry, and many of 
these studies were subsequently published in peer-reviewed academic 
journals, books and other academic outlets. Given the rapid growth of 
the wireless sector, a significant portion of my research has focused 
on understanding the underlying economics of the wireless 
communications industry, with a particular focus on public policy in 
this critical sector of the U.S. economy.
    By means of introduction, the Phoenix Center is a non-profit 
501(c)(3) organization that studies broad public policy issues related 
to governance, social and economic conditions, with a particular 
emphasis on publishing academic-quality research about the law and 
economics of regulated industries. Among other activities, the Phoenix 
Center publishes a Public Policy Paper Series, a Policy Bulletin 
Series, a Policy Perspectives Series, and our blog @lawandeconomics, 
where we provide real-time comment on current events, as well as to 
highlight market examples of the relevancy of our research. Since the 
Phoenix Center's founding, we have published over 100 scholarly papers, 
with over a third of these papers published in scholarly academic 
journals (all of which may be downloaded free from our webpage or the 
Social Science Research Network). We also sponsor Congressional 
briefings, Policy Roundtables, educational retreats, as well as our 
Annual U.S. Telecoms Symposium. The Phoenix Center makes it a policy 
not to endorse or support any particular piece of Federal or state 
legislation or proposed rule. Our primary mission is not to tell you 
what to think about an issue but how to think about it. As such, our 
contributions to communications policy are decidedly more analytical 
than most, and we refuse to ignore the institutional realities and 
economic constraints of the communications business and related 
sectors.

II. Overview of the State of Wireless Communications
    Across the globe the mobile communications revolution is well 
underway. From advanced economies such as the U.S., to developing 
economies like India, mobile telecommunications, in both voice and data 
forms, is quickly becoming the communications technology of choice. In 
the U.S., it took less than fifteen years for wireless telephones to 
move from a thinly consumed service to effective ubiquity.\1\ At the 
end of 2012, there were 326.5 million mobile wireless connections in 
the United States, which translates to roughly 1.24 accounts for every 
citizen ten years of age or older.\2\ My own forecast suggests there 
will be about 50 million connections added to this count in the next 
five years.\3\ While the demand for mobile service continues to 
skyrocket, average revenue per connection remains stable, a testament 
to the significant increases in industry productivity and pricing 
innovation.\4\
---------------------------------------------------------------------------
    \1\ CTIA Semi-Annual Wireless Industry Survey, CTIA: The Wireless 
Association (2012) (available at: http://www.ctia.org/advocacy/
research/index.cfm/AID/10316) (hereinafter ``CTIA Survey'').
    \2\ Id. Population data provided by the U.S. Census Bureau 
(available at: http://www
.census.gov/popest/national/asrh/NC-EST2009-sa.html).
    \3\ Forecasts based on extrapolating a fitted Gompertz curve to the 
CTIA Survey data, supra n. 1.
    \4\ Industry productivity, measured crudely as connections per 
employee, is rising about 10 percent per year. CTIA Survey, id.
---------------------------------------------------------------------------
    This rapid growth has its victims. Increasingly, the mobile phone 
is displacing more traditional land-line voice services. In each 
quarterly financial statement, publicly traded local telephone 
companies report persistent fixed-line losses. In 2012, 39 percent of 
households were wireless only, and that number is expected to grow by 
10 percent this year.\5\ Mobile wireless has all but killed the 
payphone industry, and the mobile platform over time will take down and 
build up many other industries and industry segments. In fact, in the 
not so distant future, it is expected that mobile appliances--like the 
tablet computer--will replace traditional computers and even television 
for many consumers, thereby impacting the laptop and television 
markets. For many individuals and households, mobile broadband may be 
the Internet connection of choice, particularly as new technologies are 
deployed offering speeds commensurate with that of wireline 
connections--but with the added bonus of mobility and near universal 
availability. While mobile wireless services will likely never cover 
every nook and cranny of the U.S.--there's neither a private nor public 
business case for it \6\--recent statistics show that 99.9 percent of 
the Nation's population and 95.3 percent of the Nation's road miles are 
covered by at least one mobile wireless carrier, and 99.3 percent of 
the population has access to two or more carriers.\7\ Coverage 
continues to grow as new technologies and spectrum are brought to 
market. Last year, the industry invested a record $30 billion in their 
networks, which is $92 of capital expenditures per connection (the 
equivalent of two month's revenue).
---------------------------------------------------------------------------
    \5\ L. Hettick, Report: Wireless Substitution, VoIP Overtake ILEC 
Landline Dominance, Network World (April 19, 2013) (available at: 
http://www.networkworld.com/newsletters/converg/2013/
042213convergence1.html).
    \6\ See, e.g., G.S. Ford and L.J. Spiwak, Justifying the Ends: 
Section 706 and the Regulation of Broadband, Phoenix Center Policy 
Perspective No. 12-04 (August 13, 2011) (available at: http://
www.phoenix-center.org/perspectives/Perspective12-04Final.pdf).
    \7\ In the Matter of Implementation of Section 6002(b) of the 
Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis of 
Competitive Market Conditions With Respect to Mobile Wireless, 
Including Commercial Mobile Services, FCC 13-34, Sixteenth Report (rel. 
March 21, 2013) at Table 4 (hereinafter ``Sixteenth CMRS Report'').
---------------------------------------------------------------------------
    In recent years, it's been trendy to be down on the state of the 
U.S. communications industry, a grumbling motivated largely by the 
desire to expand regulation in the sector so as to favor one industry 
segment over another.\8\ Yet, even among the ``woe is me'' crowd, a 
negative sentiment is hard to embrace for the mobile wireless industry. 
Indeed, now-former FCC Chairman Julius Genachowski recently observed, 
``the U.S. is now the envy of the world in advanced wireless networks, 
devices, applications, among other areas,'' a claim based on the 
following anecdotes: (a) the U.S. is the first country deploying 4G LTE 
networks at scale, and in late 2012 the U.S. had as many LTE 
subscribers as the rest of the world combined, making the United States 
the global test bed for LTE apps and services; (b) annual investment in 
U.S. wireless networks grew more than 40 percent between 2009 and 2012, 
from $21 billion to $30 billion while investment in European wireless 
networks has been flat since 2009 and wireless investment in Asia, 
including China, is up only 4 percent during that time; (c) more than 
90 percent of smartphones sold globally in 2012 run operating systems 
developed by U.S. companies, up from 25 percent three years ago; (d) 
the new mobile apps economy is a ``made in the U.S.A.'' phenomenon that 
has created more than 500,000 U.S. jobs; and, finally (e) investments 
in wireless broadband infrastructure created more than 1.6 million U.S. 
jobs since 2007.\9\ The industry is performing well by almost all 
meaningful standards.
---------------------------------------------------------------------------
    \8\ See, e.g., S. Crawford, Captive Audience: The Telecom Industry 
and Monopoly Power in the New Gilded Age (Yale University Press 2013), 
Chapter 8; G.S. Ford, Fabricating a Broadband Crisis? More Evidence on 
the Misleading Inferences from OECD Rankings, Phoenix Center 
Perspective No. 10-05 (July 7, 2010) (available at: http://www.phoenix-
center.org/perspectives/Perspective10-05Final.pdf).
    \9\ Significant FCC Actions and Key Developments in the Broadband 
Economy, Federal Communications Commission (March 22, 2013) (available 
at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-
319728A1.pdf).
---------------------------------------------------------------------------
III. The Problem that Won't Go Away: Spectrum Exhaust
    The explosive growth of the U.S. wireless sector is a mixed 
blessing. On the one hand, it provides an enormous economic boon to 
consumers, business, and providers, but on the other hand it is 
beginning to test the capacity of service providers offering such 
services. Data hungry services and devices strain the existing capacity 
of wireless networks, where the capacity is directly related to the 
amount of spectrum available to the firms.\10\ Spectrum is an essential 
input for providers of mobile wireless voice and data service. Indeed, 
without spectrum, there can be no service at all. The more spectrum 
that a provider has, the better are the services it can provide and the 
cheaper it can do so.\11\ Unfortunately, as Americans liberally consume 
data with their smartphones and tablets, the U.S. is rapidly exhausting 
the capacity available from the existing supply of commercial spectrum. 
Increasingly, rationing capacity through price and non-price methods is 
necessary to maintain an acceptable quality of service.
---------------------------------------------------------------------------
    \10\ A description of the capacity limitation of mobile broadband 
network is provided in Connecting America: The National Broadband Plan, 
Federal Communications Commission (March 16, 2010) at Ch. 5 (available 
at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296935A1.pdf) 
(hereinafter the National Broadband Plan) and The Broadband 
Availability Gap, OBI Technical Paper No. 1, Federal Communications 
Commission (April 2010) at Ch. 4 (available at: http://
www.broadband.gov/plan/broadband-working-reports-technical-papers
.html) (hereinafter ``Broadband Availability Gap'').
    \11\ T. R. Beard, G. S. Ford, L. J. Spiwak & M. Stern, A Policy 
Framework for Spectrum Allocation in Mobile Communications, 63 Fed. 
Comm. L.J. 639, 642 (2011) (http://www.phoenix-center.org/papers/
FCLJSpectrum.pdf).
---------------------------------------------------------------------------
    A looming ``spectrum crunch'' is now well established. The National 
Broadband Plan concluded that the present inventory of commercial 
spectrum represents ``just a fraction of the amount that will be 
necessary to match growing demand,'' \12\ and proposed to make 500 
Megahertz (``MHz'') of additional spectrum available by 2020 for the 
provision of mobile broadband services, with ideally 300 MHz of that 
spectrum being made available by 2015 specifically for mobile broadband 
services,\13\ a vision which President Obama formally endorsed by 
Presidential Memorandum.\14\ Without action, former Federal 
Communications Commission (``FCC'') Chairman Julius Genachowski 
cautioned, ``network congestion will grow, and consumer frustration 
will grow with it.'' \15\ The White House is also concerned, concluding 
that there is a ``spectrum crunch that will hinder future innovation.'' 
\16\ A recent technical study comparing the capabilities of 4G LTE 
wireless technology to meet the rapidly growing demand for mobile data 
concluded that ``without significantly increased allocations of 
spectrum, wireless capacity expansion will be wholly inadequate to 
accommodate expected demand growth.'' \17\ Allocating more spectrum to 
advanced mobile services is widely viewed as a sensible, if not a 
necessary, public policy.\18\
---------------------------------------------------------------------------
    \12\ National Broadband Plan, supra n. 10 at 1, 10.
    \13\ Id. at 26.
    \14\ See Remarks by Lawrence H. Summers, Technical Opportunities, 
Job Creation and Economic Growth (June 28, 2010) (available at: http://
www.whitehouse.gov/administration/
eop/nec/speeches/technological-opportunities-job-creation-economic-
growth).
    \15\ Prepared Remarks of Chairman Julius Genachowski, Federal 
Communications Commission, 2011 International Consumer Electronics 
Show, Las Vegas, NV (January 7, 2011) (available at http://
hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-303984A1.pdf).
    \16\ President Obama Details Plan to Win the Future through 
Expanded Wireless Access, office of the press secretary, the white 
house (February 10, 2011) (available at: http://www.whitehouse.gov/the-
press-office/2011
/02/10/president-obama-details-plan-win-future-through-expanded-
wireless-access).
    \17\ R.N. Clarke, Expanding Mobile Wireless Capacity: The 
Challenges Presented by Technology and Economics (January 4, 2013) 
(available at: http://ssrn.com/abstract=2197416 or http://dx.doi.org/
10.2139/ssrn.2197416).
    \18\ Of course, without additional spectrum, higher prices can be 
used to ration the limited capacity, but many view this outcome as 
least desirable.
---------------------------------------------------------------------------
    However, merely stating that more spectrum is to be allocated to 
commercial mobile services leaves some highly relevant details 
unresolved. There are (at least) three high-level questions that must 
be answered when increasing spectrum availability. They are:

  1.  How much additional spectrum is to be allocated to the commercial 
        sector?

  2.  Where does this spectrum come from?

  3.  Who gets it?

    As I see it, the latter two questions will be the most significant 
policy issues facing wireless communications in the next decade. In the 
following sections of my testimony, I will address each of these 
important questions. Of course, I will continue to study these issues 
in the future, and I would be happy to share my findings with you in 
this or some other forum.

IV. How Much Additional Spectrum Should be Allocated to Commercial Use?
    How much additional spectrum does the commercial sector need? The 
simple answer is ``a lot.'' The mobile wireless industry today runs on 
about 500 MHz of spectrum.\19\ As already stated, the FCC's National 
Broadband Plan recommended the allocation of an additional 500 MHz for 
commercial wireless broadband services, with 300 MHz of that going 
specifically to mobile wireless services. The mobile wireless industry 
asked for 800 MHz, and a recent study sets the figure at nearly 1,064 
MHz.\20\ These are very large numbers, and as discussed next, the 
``where will it come from'' question is likely to be a binding 
constraint on how much, in the end, gets reallocated to commercial use. 
``As much as is possible'' is likely the best answer to the first 
question, and this amount is likely to be too little. Thus, the 
solution to spectrum exhaust will require both additional spectrum, 
significant technological advancement in the use of spectrum, and 
informed public policy.\21\
---------------------------------------------------------------------------
    \19\ FCC Staff Technical Paper, Mobile Broadband: The Benefits of 
Additional Spectrum (Oct. 2010) at 15 (hereinafter ``FCC Technical 
Paper'') (available at http://download.broadband.gov/plan/fcc-staff-
technicalpaper-mobile-broadband-benefits-of-additional-spectrum.pdf) 
(``547 MHz, in total, is currently licensed under flexible use rules, 
which allows for mobile broadband and voice services.'')
    \20\ R.J. Shapiro, The Economic Implications of Restricting 
Spectrum Purchases, Center for Business & Public Policy, Georgetown 
University (April 2013) at Table 3 (available at: http://www.gcbpp.org/
files/Academic_Papers/EconImplicationsSpectrumAuctions.pdf).
    \21\ Of course, the definition of ``commercial use'' lies in the 
beholder, and difficult policy choices must also be made on how to 
balance new spectrum allocations between licensed and unlicensed use by 
low power devices. Both licensed and unlicensed spectrum create value; 
as such, providing spectrum for both uses is a good policy. The FCC is 
already looking at expanding unlicensed use in the 5 GHz band, and low 
power devices may be permissible in the duplex gap of the broadcast 
spectrum band plan. Low power devices are also well suited for spectrum 
sharing, which is a spectrum management approach we may see more of in 
the future. However, it is the services provided over exclusively 
licensed spectrum--that is, the mobile broadband services supported by 
billions in infrastructure investment--where spectrum exhaust is most 
problematic.
---------------------------------------------------------------------------
V. Where Does New Spectrum Come From?
    As for where the spectrum will come from the answer is obvious--it 
will be pried from the hands of those that already have it. The 
National Broadband Plan identified very little spectrum that is 
presently ``fallow'' and could be auctioned without much resistance, so 
satisfying the commercial mobile wireless industry's need for 
additional spectrum will necessarily require a repurposing and 
reallocation of already licensed spectrum. There are three potential 
sources for additional commercial spectrum.

A. Secondary Market Transactions
    One obvious source for additional spectrum lies in the secondary 
market for spectrum. At present, this market is not well functioning, 
but a number of recent transactions show that there are signs of life.
    Secondary market transactions can be beneficial in two ways. First, 
it can shift the spectrum already assigned to commercial wireless 
services into more efficient configurations. That is, the total amount 
of spectrum does not increase, but is merely reallocated among carriers 
in a manner that permits an expansion of capacity.
    Second, secondary market transactions can move spectrum assigned to 
some other purpose into the commercial wireless space. For example, the 
FCC recently permitted mobile satellite spectrum to be used for 
terrestrial mobile broadband service. The broadcast television 
incentive auctions also fall into this category.
    There are a few reasons why the secondary market has been slow to 
develop. One factor is the limited flexibility some licensee's face in 
how their spectrum can be used. Greater flexibility in licenses will 
help the market develop, and the FCC and NTIA should be actively 
pursuing ways to increase flexibility.
    Another hindrance to the development of a secondary market is that 
the regulatory approval process for is, in most cases, far from 
streamlined, as the government, the applicants' competitors, and 
political interests groups regularly use the regulatory process to 
garner concessions that they would not otherwise be able to obtain in 
the normal course of business.\22\ The use of ``voluntary conditions'' 
by the FCC in mergers and other transactions greatly diminishes the 
effectiveness of the secondary market to address spectrum exhaust.
---------------------------------------------------------------------------
    \22\ See T. Koutsky and L. Spiwak, Separating Politics from Policy 
in FCC Merger Reviews: A Basic Legal Primer of The ``Public Interest'' 
Standard, 18 CommLaw Conspectus 329 (2010) (available at: http://
www.phoenix-center.org/papers/CommLawConspectusMergerStandard.pdf).
---------------------------------------------------------------------------
    On this point, I would like to call your attention to a recent 
Policy Paper of the Phoenix Center's entitled Taxation by Condition: 
Spectrum Repurposing at the FCC and the Prolonging of Spectrum 
Exhaust.\23\ In this paper, my co-authors and I modeled the 
implications of the FCC's regulatory process wherein the agency applies 
value-extracting mandatory and voluntary conditions on parties to a 
spectrum exchange. These conditions operate much like a tax on 
secondary market transactions, and in that light the implications of 
the regulatory process are apparent. When you tax something: (1) you 
get less of it; and (2) you will affect what types of transactions you 
get. On the first point, basic economic logic tells us that taxes 
reduce the incentive to make transactions. ``Taxing'' efforts to move 
spectrum to higher-valued uses is a particular bad policy when facing a 
spectrum shortage. On the second point, the conditioning of spectrum 
repurposings can affect the evolution of and efficient functioning of a 
secondary market for commercial spectrum. That is, we may still observe 
many deals, but these deals will be those that attract less attention 
and thus fewer conditions. As such, ``taxation by condition'' may 
discourage the larger scale transactions necessary to resolve spectrum 
exhaust.
---------------------------------------------------------------------------
    \23\ T.R. Beard, G. Ford, L. Spiwak, and M. Stern, Taxation by 
Condition: Spectrum Repurposing at the FCC and the Prolonging of 
Spectrum Exhaust, Phoenix Center Policy Paper No. 44 (September 2012) 
(available at: http://www.phoenix-center.org/pcpp
/PCPP44Final.pdf).
---------------------------------------------------------------------------
    The policy implication of our analysis is clear: If the FCC wants 
to encourage a secondary market, then ``taxing'' efforts to repurpose 
spectrum in the form of license conditions is perhaps the worst of all 
policies. Instead, barring legitimate competitive or interference 
concerns, efforts to repurpose spectrum from low-to high-value uses 
should be expeditiously approved without extraneous conditions.

B. Repurposing Government Spectrum
    One of the largest untapped sources of potential new spectrum lies 
with various Federal agencies which hold exclusive or primarily 
licenses for about half (1,687 MHz) of the ``beachfront'' spectrum 
between 225 MHz and 3.7 GHz.\24\ While Federal agencies use spectrum in 
the performance of their duties, it is acknowledged, both in the U.S. 
and elsewhere, that public-sector users have no incentive to use their 
spectrum allocation efficiently.\25\ Inefficient use implies that the 
government has more spectrum than it really needs, so Federal holdings 
are a likely source for additional spectrum for the private sector.
---------------------------------------------------------------------------
    \24\ Report to the President: Realizing the Full Potential of 
Government-Held Spectrum to Spur Economic Growth, Executive Office of 
the President--President's Council of Advisors on Science and 
Technology (July 2012) (hereinafter ``PCAST Report'') at p. 8 
(available at: http://www.whitehouse.gov/sites/default/files/
microsites/ostp/pcast_spectrum_report_final_
july_20_2012.pdf); see also A. Pai, Too Much Government, Too Little 
Spectrum, Member Diary, RedState (January 3, 2013) (available at: 
http://www.redstate.com/ajitpai/2013/01/03/too-much-government-too-
little-spectrum); J. Gruenwald, Wireless Industry Already Looking Ahead 
for More Spectrum, National Journal, Technology (February 29, 2012) 
(available at: http://www.nationaljournal.com/tech/wireless-industry-
already-looking-ahead-for-more-spectrum-20120229) (quoting Charla Rath, 
Vice President Wireless Policy, Verizon: '' We need to be thinking 
about how we get a continuous supply of spectrum out there for 
commercial mobile wireless. . . . And, frankly, one of the key places 
to look is government spectrum . . .'').
    \25\ PCAST Report, id. at p. 49.
---------------------------------------------------------------------------
    However, I expect significant internal resistance within the 
government to transfer its spectrum to commercial users (we've already 
seen it), and I predict that Congress will eventually have to get 
involved.\26\ Why? First, recent reports from the government do not 
offer much hope for significant reallocations of spectrum any time 
soon.\27\ In fact, one recent government report rejects the whole idea 
of reallocating Federal spectrum to the private sector.\28\ Second, 
while many think of the present focus on government spectrum is a new 
issue, reallocating government spectrum to the private sector and 
improving the efficiency of government spectrum use and management is 
in fact a very old topic. A report by the NTIA released over two-
decades ago outlines what remains to be the state-of-the-art thinking 
on spectrum policy reform with regard to public-sector use. Yet, 
essentially nothing has been done to implement the ideas. Changing a 
Federal license to a commercial license sets up to be a highly 
adversarial process, and I suspect Congress will end up in the role of 
final arbiter.
---------------------------------------------------------------------------
    \26\ Id.
    \27\ Plan and Timetable to Make Available 500 Megahertz of Spectrum 
for Wireless Broadband, U.S. Department of Commerce--National 
Telecommunications and Information Administration (October 10, 2010) 
(available at: http://www.ntia.doc.gov/files/ntia/publications/
tenyearplan
_11152010.pdf); An Assessment of the Near-Term Viability of 
Accommodating Wireless Broadband Systems in the 1675-1710 MHz, 1755-
1780 MHz, 3500-3650 MHz, and 4200-4220 MHz, 4380-4400 MHz Bands, U.S. 
Department of Commerce--National Telecommunications and Information 
Administration (October 10, 2010) (available at: http://
www.ntia.doc.gov/files/ntia/
publications/fasttrackevaluation_11152010.pdf).
    \28\ PCAST Report, supra n. 24.
---------------------------------------------------------------------------
C. Voluntary Incentive Auctions
    A promising mechanism for producing additional spectrum lies in 
voluntary incentive auctions, such as the one mandated by the Middle 
Class Tax Relief and Job Creation Act of 2012 (``Spectrum Act''). The 
present hope is that a large swath of broadcast television spectrum 
(upwards of 120 MHz) can be reallocated to mobile broadband services 
using the voluntary incentive auction, but whether a successful auction 
can be designed and implemented remains an open question. The 
objectives and constraints on the problem are mind boggling, and 
additional objectives and constraints are being proposed every day. 
There are some profoundly intelligent people working on it, so perhaps 
we can hope for the best without being labeled too optimistic.

VI. Who Gets It? The Allocation of Additional Spectrum in the Mobile 
        Wireless Industry
    According to the most recent FCC report on competition in the 
mobile wireless industry, the industry has four nationwide providers 
and an HHI of about 2,873.\29\ In addition to these four nationwide 
providers, there are a number of regional providers serving certain 
markets and successful at doing so. By Merger Guideline's standards, 
the industry is classified as ``highly concentrated'' since its HHI 
exceeds the 2,500 threshold for such classification. This ``highly 
concentrated'' label draws heightened regulatory, antitrust and 
Congressional scrutiny.
---------------------------------------------------------------------------
    \29\ Sixteenth CMRS Report, supra n. 4 at Table 14. Other sources 
suggest this value may be a little high, but it has the virtue of being 
``official'' in some sense. See, e.g., id., at Table 68.
---------------------------------------------------------------------------
    The data also show that AT&T and Verizon are the Nation's most 
successful mobile wireless firms, with each attracting the patronage of 
about one-third of wireless subscriptions, and about the same share of 
industry revenues. While the higher market shares of these two firms 
are simply manifestations of consumer choice, the persistent and 
growing relative success of the two has led some to call for policies 
to handicap the two larger providers in an effort to better equalize 
market shares among wireless providers.
    Efforts to handicap the larger providers continued success and to 
favor the smaller providers are particularly common in current 
discussions about spectrum allocation. In fact, the ``who gets it'' 
question is largely about whether the FCC should allow AT&T and Verizon 
to get more spectrum. The monopolization narrative--that is, the fear 
that giving the larger providers more spectrum will eventually produce 
substantial market power--is now boilerplate in secondary market 
transactions involving AT&T and Verizon and in establishing rules for 
spectrum auctions.
    In fact, when Congress was debating the voluntary incentive auction 
provisions of the Middle Class Tax Relief and Jobs Creation Act, many 
argued--including FCC outgoing Chairman Julius Genachowski \30\--that 
the Commission should have the authority to adopt auction participation 
rules so that it could prevent an ``excessive concentration of 
licenses'' under Section 309(j)(3)(B) of the Communications Act to 
prevent the two largest CMRS providers--namely AT&T and Verizon--from 
participating in the auction. Congress rejected the idea, but did 
provide that ``Nothing . . . affects any authority the Commission has 
to adopt and enforce rules of general applicability, including rules 
concerning spectrum aggregation that promote competition.'' Given these 
Congressional parameters, the FCC has subsequently issued a Notice of 
Proposed Rulemaking to modify and tighten its spectrum screen, a policy 
change that could create de facto spectrum caps and exclude the largest 
CMRS players from the broadcast spectrum incentive auctions.\31\ A 
number of constituencies and the smaller competitors of the large firms 
filed comments in the incentive auction docket for the Commission to 
establish outright bright-line spectrum cap rules.\32\ So did the 
United States Department of Justice, as I will discuss in more detail 
in a moment.\33\
---------------------------------------------------------------------------
    \30\ See, e.g., Remarks of FCC Chairman Julius Genachowski 2012 
Consumer Electronics Show Las Vegas (January 11, 2012) (available at: 
http://hraunfoss.fcc.gov/edocs_ public/attachmatch/DOC-311974A1.pdf).
    \31\ In the Matter of Policies Regarding Mobile Spectrum Holdings, 
FCC 12-119, 27 FCC Rcd 11710, Notice of Proposed Rulemaking (rel. 
September 28, 2012).
    \32\ See, e.g., R. Krause, AT&T, Verizon Invite to TV Airwaves 
Auction Likely, Investor's Business Daily (March 20, 2013) (available 
at: http://news.investors.com/technology/032013
-648699-tmobile-sprint-seek-spectrum-limits-verizon-atandt.htm). 
Significantly, however, a coalition of broadcasters do not support 
incumbent exclusion rules. See, e.g., Reply Comments of The Expanding 
Opportunities For Broadcasters Coalition, FCC Docket No. 12-268 (March 
10, 2013) (available at: http://apps.fcc.gov/ecfs/document/
view?id=7022129556).
    \33\ In the Matter of Policies Regarding Mobile Spectrum Holdings, 
Ex Parte Submission of the United States Department of Justice, WT 
Docket No. 12-269 (April 22, 2013) (available at: http://apps.fcc.gov/
ecfs/document/view?id=7022269624) (hereinafter ``DOJ Ex Parte''). It 
should be noted that senior DOJ officials conceded under oath before 
the Senate Judiciary Committee that the Department made their filing 
after close and ``quiet[]'' cooperation with the Commission. See L. 
Spiwak, It's Time for FCC/DOJ Inter-Agency Cooperation to Come into the 
Sunlight, @lawandeconomics (May 2, 2013) (available at: http://phoenix-
center.org/blog/archives/1356).
---------------------------------------------------------------------------
    The argument for limiting AT&T and Verizon's access to additional 
spectrum is simply an argument for spectrum caps, whether formal or 
informal. The argument for spectrum caps is plain enough: spectrum caps 
can be used to increase the number of wireless competitors by limiting 
how much spectrum any one firm can hold license to.\34\ The idea has 
also been extended to using spectrum caps to more evenly distribute 
market share among established players, but I am unaware of any 
economic model or paper that supports this justification for a spectrum 
cap.
---------------------------------------------------------------------------
    \34\ As stated by Greg Rosston, former FCC Deputy Chief Economist 
and, more recently, Senior Economist for Transitions at the FCC: ``. . 
. the FCC has tools to make facilities-based competition more likely 
and more viable. First and foremost, the FCC should get even more 
spectrum out into the marketplace. And it is probably important that 
the spectrum not continue to go into the hands of the two incumbent 
landline telephone companies that also have by far the most valuable 
wireless spectrum.'' Testimony of Gregory L. Rosston, Federal 
Communications Commission En Banc Hearing on Broadband Network 
Management Practices (April 17, 2008) (available at: http://
transition.fcc.gov/broadband_network_management/041708/rosston.pdf).
---------------------------------------------------------------------------
    The problem with the unqualified support for spectrum caps is that 
the blind acceptance of the idea rest on a number of questionable 
assumptions, including: (1) the number of firms serving the wireless 
industry is determined solely by spectrum holdings; (2) the success of 
firms is determined solely by spectrum holdings; and (3) more equal 
markets shares across firms is good for consumers. None of these 
assumptions is sound or useful for policy. Spectrum is but one input 
into the production of wireless services--giving a firm spectrum does 
not ensure its market or financial success (as we have seen, 
repeatedly). In addition, the support of a spectrum cap assumes that 
having more firms, or more equal market shares, is always better than 
having few firms. Economic theory does not support this idea 
generally.\35\ Also, my research shows that the argument for spectrum 
caps is much weaker when the existing institutional details of the 
wireless sector (spectrum exhaust) are considered. I will attempt to 
summarize that research here.
---------------------------------------------------------------------------
    \35\ See, e.g., P. Cramton, E. Kwerel, G. Rosston, and A. 
Skrzypacz, Using Spectrum Auctions to Enhance Competition in Wireless 
Services, 54 Journal of Law & Economics S167-S188 (2011), at p. S174.
---------------------------------------------------------------------------
A. Understanding Equilibrium Industry Structure
    As a first step, we must recognize that the number of firms 
supplying a market is finite and determined by economic forces, not 
wishful thinking. Building and maintaining a mobile wireless network, 
and building and maintaining a mobile wireless customer base for that 
matter, requires billions in capital expenditures. A carrier must 
secure from its customers sufficient revenues to pay operating expenses 
and support its large fixed costs. As the number of competitors grows, 
prices fall and each carrier's customer base shrinks, reducing profits. 
At some point, there are simply too many competitors, and the losses 
lead to the exit of one or more firms. This exit of firms will continue 
until the remaining firms are profitable--then exit stops. Or, if the 
number of competitors is such that the profits are large enough to 
support an additional firm, then entry occurs, driving down prices and 
profits until further entry is no longer profitable--then entry stops. 
Eventually, when profits are positive but not too large to support 
another firm, both entry and exit stop. When it does, we have what we 
economists refer to as an equilibrium industry structure, a concept 
explained for policymakers in a Phoenix Center paper published in the 
Federal Communications Law Journal entitled Competition After 
Unbundling: Entry, Industry Structure and Convergence.\36\
---------------------------------------------------------------------------
    \36\ G. Ford, T. Koutsky and L. Spiwak, Competition After 
Unbundling: Entry, Industry Structure and Convergence, 59 Federal 
Communications Law Journal 331 (2007) (available at: http://
www.phoenix-center.org/papers/FCLJCompetitionAfterUnbundling.pdf).
---------------------------------------------------------------------------
    In that paper, my co-authors and I observe that the equilibrium 
number of firms in any market will be determined by the intensity of 
price competition (which reflects the behavior of firms and not the 
count of firms), the size of the market, and the amount of fixed and 
sunk costs necessary to participate in the market. Large markets, other 
things constant, support more firms than do small markets. Markets with 
high fixed and sunk costs support fewer firms than do markets with low 
fixed and sunk costs, other things constant. Markets with aggressive 
price competition support fewer firms than markets with soft price 
competition, since lower prices mean lower profits and a diminished 
ability to incur the necessary capital expenditures.
    Mobile wireless networks are capital intensive, and history has 
shown that the supply-side characteristics of the market greatly limit 
the number of firms that can profitably serve the market. There will 
always be relatively few nationwide mobile wireless carriers. This is 
the reality we must deal with.
    The effect of the intensity of price competition on industry 
structure (i.e., the number of firms in this case) is exceedingly 
relevant for public policy as it flies in the face of the typical 
thinking on competition. The old thinking is that the number of 
competitors determines the degree of competition and thus prices and 
profits. Modern economic theory recognizes that the intensity of price 
competition affects the number of competitors, implying a feedback loop 
between structure and performance. Thus, in an industry such as 
telecommunications that requires firms to invest huge sunk and fixed 
costs, high industry concentration may actually be a symptom of intense 
price competition rather than a bellwether of weak competition. 
Similarly, many competitors may be a symptom of collusion, rather than 
competition. It's an admittedly different way to think about industry 
structure and competition, but nevertheless a modern and legitimate 
one, and the National Broadband Plan admits as much.\37\
---------------------------------------------------------------------------
    \37\ National Broadband Plan, supra n. 10.
---------------------------------------------------------------------------
    What's most important about the concept of equilibrium industry 
structure for the policy debate is that the number of competitors in 
the mobile wireless market alone says nothing about the state of 
competition or the performance of the industry. In some cases, the FCC 
recognizes this fact (in others, not so much). For example, the FCC 
observed in its Sixteenth CMRS Report,

        High market concentration is not synonymous with a non-
        competitive market or with market power--the ability to charge 
        prices above the competitive level for a sustained period of 
        time.\38\
---------------------------------------------------------------------------
    \38\ Sixteenth Report, supra n. 7 at  61.

---------------------------------------------------------------------------
    And, in the National Broadband Plan,

        Building broadband networks--especially wireline--requires 
        large fixed and sunk investments. Consequently, the industry 
        will probably always have a relatively small number of 
        facilities-based competitors, at least for wireline service. . 
        . . The lack of a large number of wireline, facilities-based 
        providers does not necessarily mean competition among broadband 
        providers is inadequate. While older economic models of 
        competition emphasized the danger of tacit collusion with a 
        small number of rivals, economists today recognize that 
        coordination is possible but not inevitable under such 
        circumstances. Moreover, modern analyses find that markets with 
        a small number of participants can perform competitively . . . 
        \39\
---------------------------------------------------------------------------
    \39\ National Broadband Plan, supra n. 10 at p. 36.

    Put simply, the Commission has concluded that ``concentration'' 
bears no direct relationship with ``competition.'' This conclusion is 
profoundly significant and absolutely legitimate. This recognition is a 
huge leap forward in the agency's thinking on competition, and an idea 
that needs to incorporated into everyone's economic model of the 
industry. Given the costs of building networks, the industry is likely 
to be somewhat ``concentrated'' for the foreseeable future, but this 
does not imply a lack of competition or that regulation of the industry 
has anything to offer consumers, even in the absence of spectrum 
exhaust. Spectrum exhaust, however, adds an interesting (and 
unfortunately largely ignored) wrinkle to competition policy. Let me 
explain.

B. Wireless Competition Under Spectrum Exhaust
    Despite acknowledging that spectrum exhaust is a real problem, it 
is readily apparent that neither the FCC nor the DOJ have incorporated 
spectrum exhaust into their thinking on competition and spectrum 
policy. In a recent paper also published in the Federal Communications 
Law Journal--Wireless Competition Under Spectrum Exhaust--my co-authors 
and I describe how competition works when firms compete under a 
capacity constraint.\40\ The result is indeed peculiar and in some ways 
counterintuitive, but the result is no less valid for being so.
---------------------------------------------------------------------------
    \40\ T.R. Beard, G. Ford, L. Spiwak and M. Stern, Wireless 
Competition Under Spectrum Exhaust, 65 Federal Communications Law 
Journal 79 (2012) (available at: http://www.phoenix-center.org/
FCLJSpectrumExhaust.pdf).
---------------------------------------------------------------------------
    Our analysis of competition under spectrum exhaust is 
straightforward and based on common and uncontroversial assumptions 
about the industry. First, to sync up with common thought, we assume 
that price and profits fall as the number of competitors increases 
(that is, we adopt the Cournot Model of Competition).\41\ Second, we 
assume that there is a type of scale economy in spectrum. The DOJ 
explicitly accepts this technical assumption, recently stating ``twice 
the spectrum may under certain conditions provide over twice the amount 
of capacity.'' \42\ I have provided a figure below (Figure 1) that 
illustrates the results in a straightforward manner. In the figure, the 
equilibrium price (P*) is on the vertical axis and the number of firms 
(n) is on the horizontal axis.
---------------------------------------------------------------------------
    \41\ More formally, we assume Cournot Competition in Quantities.
    \42\ DOJ Ex Parte, supra n. 33 at p. 15.
---------------------------------------------------------------------------
    Let's start with the simple case where there is no spectrum 
constraint so that we have some type of benchmark for comparison 
purposes. Without a spectrum constraint, the equilibrium price (P*) 
falls as n (the number of firms) increases (along segment XYZ). This is 
the standard result from a common model of competition--price falls as 
the number of firms increases.



    Now, let's impose a binding spectrum constraint such that all 
capacity is used up. In other words, as much service as can be sold is 
sold. Significantly, once quantity is stuck at the constraint, price is 
stuck as well. Each quantity has a unique price associated with it per 
the demand curve. However, under the technical assumption about 
spectrum and capacity, we can get quantity unstuck by reallocating the 
fixed amount of spectrum to fewer firms, expanding output by taking 
advantage of the scale effect. Doing so increases capacity and thus 
output, and therefore lowers price. In the figure, the line segment 
labeled XYW illustrates the equilibrium price when the capacity 
constraint is binding. At the chosen parameter values (an arbitrary 
choice), the capacity constraint is binding at n = 2 (point Y). Thus, 
price falls as the number of firms increases from monopoly to duopoly, 
but then price rises (along segment YW) when the number of firms 
exceeds duopoly and the constraint is binding. So, while the standard 
framework holds that prices are lower with six firms than with two 
firms, under a spectrum constraint this need not be true. Indeed, in 
the figure, the six-firm outcome is essentially the same as the 
monopoly outcome.
    Obviously, this result is significant, because when there is a 
spectrum constraint, the number of competitors and price begin to move 
in the same direction. That is, reducing the number of competitors 
leads to lower prices. Stated another way, in the fact of spectrum 
exhaust, fewer competitors is good for consumers! This result seems 
odd, I know, but it follows from two largely uncontroversial 
assumptions, and merely reflects the intuition that if a finite amount 
spectrum is more efficiently allocated, it can be used to create more 
capacity.
    While I don't mean to suggest that this model is the only way to 
think about competition in the industry, I think most would agree that 
these results are very important for public policy. At a minimum, the 
simplistic arguments about prices and industry concentration must be 
abandoned in favor of a more nuanced economic model of competition. Few 
have done so--yet. Here's how you do it. If you find yourself thinking 
that prices would be lower and quality higher if there were more 
competitors (or a lower HHI) in the mobile wireless industry, or if 
someone is telling you that, then stop and recognize that there is very 
little to support this view and that the exact opposite may actually be 
true.

C. Allocating Finite Spectrum Resources
    Another way to think about allocating a finite amount of spectrum 
among firms is to make the uncontroversial assumption that mobile 
wireless firms can offer higher quality and more innovative services if 
they have more spectrum to work with. We can think of the issue using a 
simple scenario. Say you have a fixed supply of spectrum--500 MHz--and 
you wish to allocate it. You could, theoretically, divide the spectrum 
among 500 firms, giving each 1 MHz, thereby having a large number of 
competitors (and thus low prices under the typical assumption about 
prices and the number of competitors). Of course, the firms could not 
do much if anything with so little spectrum, and even if they could all 
500 would not survive financially given the large capital expenses 
required to build a network over which services are provided. I think 
everyone would agree this allocation choice would not be wise. At the 
other extreme, you could give all 500 MHz to a single firm. By doing 
so, the firm could offer some highly advanced services, but it would do 
so at monopoly prices. I don't like this option any better than the 
other one. The policy question is, therefore, how to divide the 
spectrum up in the intermediate range between these two extremes.\43\
---------------------------------------------------------------------------
    \43\ One approach is to give spectrum to many firms, and then let 
them consolidate to the equilibrium. This approach is pretty much what 
has happened in the United States; it's just that people are getting a 
little uncomfortable with how far the process has gone.
---------------------------------------------------------------------------
    Last year, I published another paper in Federal Communications Law 
Journal--A Policy Framework for Spectrum Allocation in Mobile 
Communications--that addressed this very issue.\44\ Again, there are 
two key assumptions driving the analysis. First, in keeping with the 
widespread beliefs about competition, we again assume that the more 
competitors there are, the lower are prices (the Cournot assumption). 
Second, based on the technology of spectrum, we assume that more 
spectrum permits firms to offer more advanced services due to greater 
capacity and throughput. With the maximization of consumer welfare as 
our measure of good policy, the derived theoretical tradeoff is 
somewhat intuitive: In a setting with many firms with little spectrum, 
there are low prices (by the Cournot assumption) but relatively less 
advanced services (by the technology assumption). Alternately, in a 
setting with fewer firms with larger allotments of spectrum, there may 
be higher prices (by the Cournot assumption) but also more advanced 
services (by the technology assumption). There's a tradeoff, obviously, 
and thus the question about allocating spectrum becomes an empirical 
one.
---------------------------------------------------------------------------
    \44\ See supra n. 11.
---------------------------------------------------------------------------
    Our analysis highlights several key components of the spectrum 
allocation decision. First, an incumbent-exclusion rule is not ``pro-
entry,'' but instead seeks to select one form (price cutting) of entry 
over another (quality improving). Ad nauseam, we are informed that the 
economic benefits of advanced wireless services are likely to be very 
high, but providers need more spectrum to provide such services. If 
mobile providers are going to provide the high-quality broadband 
services many feel are essential for our economic, political and social 
well being, then providers (not the industry) need more spectrum. With 
a fixed supply of spectrum, this obviously means fewer providers.
    Second, with Cournot competition, the effect on price of adding 
more competitors is subject to diminishing marginal returns. That is, 
most of the price reductions from entry occur with the first two or 
three firms. (This fact forms the basis for the HHI thresholds in the 
Merger Guidelines.) When the number of firms exceeds a few, the 
potential for sizeable competitive price effects is low. Given that 
most U.S. consumers have access to four or more providers, the gains 
from additional entry are likely to be relatively small. Even if the 
price effects are moderate, these effects must be weighed against the 
gain in quality and innovation, which could be very large.
    In light of existing conditions (e.g., spectrum exhaust and 
multiple mobile wireless providers), we concluded in this paper that 
keeping incumbent firms out of a spectrum auction (or blocking 
transactions) is unlikely to be helpful, where helpful is measured 
against the standard of consumer welfare. Today, the quality problem is 
likely to be more important than the price problem. In fact, under 
spectrum exhaust, the price issue really isn't an issue at all (as 
discussed above).
    The tradeoff derived in the paper is intuitive. Our particular 
interpretation of the facts is just that--a particular interpretation. 
But, even if one sees the facts differently, the theoretical tradeoff 
remains valid and useful. If incumbent firms are precluded from 
obtaining more spectrum--particularly successful firms serving large 
customer bases--then their quality of service will suffer, and 
consumers will suffer. Under existing conditions that include spectrum 
exhaust, an attempt to pump up the number of competitors through 
incumbent-exclusions rules, even assuming that doing so leads to more 
price competition, may not (and in our view is unlikely to) make 
American consumers better off.

D. More Spectrum DOES NOT Mean More Competitors
    In our Policy Framework for Spectrum Allocation paper,\45\ we make 
another very important point that is typically ignored in the policy 
debate. That is, access to spectrum resources does not necessarily 
convey financial success, as spectrum is but one of many inputs 
necessary to provide service. Policymakers may want more mobile 
providers and may be willing to throw spectrum at new entrants (or 
smaller incumbents) in an effort to make it so. The recent DOJ Ex Parte 
filing on the incentive auction certainly has this mindset. 
Unfortunately, just having access to spectrum does not imply that a 
firm can achieve financial success. Spectrum is but one input into the 
production of wireless services--giving a firm spectrum does not ensure 
its financial success (as we have seen, repeatedly). The construction 
and operation of a mobile wireless network requires billions in capital 
expenditures every year. While the companies spend billions on spectrum 
in auctions and acquisitions, the data indicates that for each $1 spent 
on spectrum wireless carriers spend about $5 on network build out. As 
discussed above, the sizable investments in infrastructure limit the 
number of firms that can serve the market. The construction and 
operation of a nationwide mobile wireless network requires billions in 
capital expenditures, and these investments limit the number of firms 
that can serve the market, even if spectrum was abundant and free.
---------------------------------------------------------------------------
    \45\ Id.
---------------------------------------------------------------------------
    Moreover, history has shown that as spectrum resources have risen, 
the number of competitors has not. Contrary to popular belief, more 
spectrum does not imply more competitors. Figure 2 below illustrates 
the relationship between the market shares of the largest mobile 
telephony firms and the total MHz of spectrum made available by the FCC 
to such firms over the period 1993 through 2009.\46\ Total spectrum is 
shown by the shaded area in the figure and is rising over the entire 
time period. In 1993, there was 50 MHz of spectrum used for mobile 
telephony. Including all auctioned spectrum, this number rose to 361 
MHz by 2009.
---------------------------------------------------------------------------
    \46\ The figure is adapted from our paper A Policy Framework for 
Spectrum Allocation in Mobile Communications, id.



    The Concentration Ratio, CRn, is used to measure industry 
concentration. The Concentration Ratio is computed as the sum of the n 
largest firms in the market. That is, CR2 measures the summed market 
shares of the two largest firms, and CR5 the market share of the five 
largest firms. Both the CR2 and the CR5 are illustrated in the figure. 
Finally, the average revenue per minute for mobile telephony is 
provided. All data is computed at the national level.
    The figure shows clearly the following. First, the amount of 
spectrum has risen, yet industry concentration, as measured by the 
concentration ratio, has not declined. Thus, historical evidence does 
not support the notion that more spectrum means a lower level of 
industry concentration. Second, while concentration has risen over this 
interval, the price of mobile telephony has fallen consistently over 
the period.\47\ Therefore, historical evidence also does not support 
the notion that higher concentration leads to higher prices. The latter 
result has important implications for the theory. If changes in 
concentration (or the number of firms) do not impact market 
performance, then the gains from an incumbent-exclusion rule are likely 
to be small and the net losses large.
---------------------------------------------------------------------------
    \47\ Average revenue per minute data is compiled from the FCC's 
CMRS Reports (various years). The data is adjusted by the Consumer 
Price Index (www.bls.gov).
---------------------------------------------------------------------------
    We note that these data cover many years, and technology has 
evolved over the years. As such, the trends in the figure are merely 
suggestive. Nevertheless, the historical data cannot be ignored and, if 
considered, provide important insights for the economic value of 
incumbent-exclusion policies.

E. The Department of Justice's Ex Parte Filing
    As mentioned above, the FCC has recently opened a Spectrum Screen 
NPRM docket. This docket is expected to influence the upcoming 
incentive auction for the broadcast spectrum, mostly by excluding AT&T 
and Verizon from participating in that auction (or at least limiting 
their participation). As also mentioned above, the Department of 
Justice (``DOJ'')--in full coordination with the FCC--filed an Ex Parte 
in the FCC Spectrum Screen NPRM docket encouraging the FCC to impose 
auction rules that exclude AT&T and Verizon from the auction in order 
to prop up the two smaller nationwide mobile wireless carriers, Sprint 
and T-Mobile.\48\ Specifically, the DOJ states that the broadcast 
television spectrum should be allocated ``to enable smaller or 
additional providers to mount stronger challenges to large wireless 
incumbents.'' \49\ As such, the DOJ's filing is unquestionably an 
attempt to equalize competition among mobile wireless competitors.\50\ 
It is an effort to design a market structure to their liking. Recently, 
Phoenix Center President Lawrence Spiwak and I published a lengthy 
comment on the DOJ's filing entitled Equalizing Competition Among 
Competitors: A Review of the DOJ's Spectrum Screen Ex Parte Filing, and 
I will summarize that work here.\51\
---------------------------------------------------------------------------
    \48\ DOJ Ex Parte, supra n. 33.
    \49\ Id. at p. 11-2.
    \50\ See, e.g., Letter from House Energy & Commerce Committee 
Chairman Fred Upton et al., to the Federal Communications Commission 
(April 19, 2013) at 3 (available at: http://energycommerce.house.gov/
sites/republicans.energycommerce.house.gov/files/letters/20130419
FCC.pdf).
    \51\ G. Ford and L. Spiwak, Equalizing Competition Among 
Competitors: A Review of the DOJ's Spectrum Screen Ex Parte Filing, 
Phoenix Center Policy Bulletin No. 33 (May 2013) (available at: http://
www.phoenix-center.org/PolicyBulletin/PCPB33Final.pdf).
---------------------------------------------------------------------------
    The primary thesis of the DOJ's Ex Parte filing is that Sprint and 
T-Mobile should be pre-selected as the auction's winners because AT&T 
and Verizon may buy the spectrum not to use but simply to keep it out 
of the hands of Sprint and T-Mobile. Specifically, the Department 
encourages the Commission to ``consider the serious potential . . . 
that carriers with large market shares could pursue an input 
foreclosure strategy at auction . . . which harms all consumers of 
wireless services and can have an exclusionary effect on the carrier's 
competitors.'' \52\ There are rules against just sitting on spectrum, 
but let's set that point aside for the moment and focus on this 
foreclosure argument.
---------------------------------------------------------------------------
    \52\ Id. at p. 10.
---------------------------------------------------------------------------
    According to the DOJ, auction bids have two possible sources: (1) 
use value and (2) foreclosure value. The sum of the two is the private 
value to the firm, which is the willingness to pay for the spectrum. 
``Use value'' is the change in profits realized by obtaining the 
spectrum and using it to provide betters services that consumers 
demand, and ``foreclosure value'' as the change in profits realized by 
keeping the spectrum out of the hands of rivals. For clarity, consider 
a numerical example. Say Firm A's current profit is $100. A Block of 
spectrum is up for auction. If Firm A gets the spectrum, then its 
profits rise to $130. If a rival of Firm A gets the spectrum, then Firm 
A's profits fall to $80. The difference between getting the spectrum 
and losing the spectrum is $50, and this is the maximum willingness to 
pay (and maximum bid) of the spectrum in an auction. This private value 
to Firm A can be decomposed into $30 of use value ($130 - $100) and $20 
of foreclosure value ($100 - $20).
    As I describe in detail in the paper, the problem with the DOJ's 
argument, as I see it, is that the efficiency of the auction outcome is 
not dependent on the presence or absence of foreclosure value. 
Foreclosure value merely arises from the scarcity of resources in input 
markets where somewhat specialized goods are sold. All incumbent firms 
in such cases have foreclosure value--they are worse off if their 
rivals get something they do not. So while the DOJ claims to embrace 
auctions as the best way to allocate spectrum, it in fact does so only 
when foreclosure values do not affect bids. Yet, foreclosure value 
affects the bids of all incumbent firms, so the Department's argument 
is, in effect, a call to abandon spectrum auctions in favor of a 
comparative hearing (perhaps thinly veiled as an auction among pre-
selected winners).
    Furthermore, there are good reasons to suspect that the use value 
of the larger carriers is bigger than that of the smaller carriers. 
Economic theory certainly points that way, as do a number of other 
factors, some of which were specifically mentioned by the DOJ. Larger 
firms are usually larger for good reasons (e.g., greater efficiency), 
and they serve larger customer bases by definition. Giving inputs to a 
more efficient firm is a wise policy and not something to be 
discouraged.
    Finally, as I see it, if auctions are to be used, then the 
presumption should be that the highest bidder wins--period. The burden 
of proof falls on those that want to promote a specific outcome by 
manipulating the auction. Auctions not only generate revenue, they 
allocate scarce resources to the highest bidder. The government no 
longer chooses who gets it, the bids do. The DOJ wants to choose the 
winners and craft an industry structure it likes, and to do so it calls 
for the FCC to favor Sprint and T-Mobile ``[a]bsent compelling 
evidence'' that AT&T and Verizon will use what spectrum they win.\53\ I 
respectfully disagree. Absent compelling evidence, do nothing--
especially when basic economic analysis suggests that the use value of 
the bigger firms is larger than for the smaller firms.
---------------------------------------------------------------------------
    \53\ DOJ Ex Parte, supra n. 33, at p. 12.
---------------------------------------------------------------------------
    An auction among pre-selected winners isn't an auction, it's Kabuki 
Theater. If regulators, or the DOJ, want a specific outcome, then it 
should be upfront about it and not pretend to hold an auction. I doubt 
this command-and-control approach would be good for consumers, but at 
least a little honestly would be freshening.

F. Incumbent Exclusion Rules May Have a Potential Adverse Impact on 
        Auction 
        Revenue
    Incumbent exclusion rules may also have an adverse in pact on 
auction revenues. Indeed, when it comes to the upcoming voluntary 
incentive auctions, there are numerous hands out--i.e., from this 
auction, we expect the proceeds to cover: (a) the cost of the auctions, 
the participating broadcasters' cut; (c) re-packing costs; (d) a new, 
interoperable first responders' network; and, oh yes, (e) revenue to 
pay off our spiraling deficit. Obviously, any policy that curbs 
revenues faces a high hurdle. Recognizing this fact, those favoring an 
auction among pre-selected winners have claimed that auction revenues 
may be larger if AT&T and Verizon are excluded. I find the argument 
profoundly weak, and the research typically cited for spectrum caps do 
not present a strong case.
    For example, economist Peter Cramton, a recognized expert in 
auction theory, states the following: ``Typically, spectrum caps lower 
auction revenues.'' \54\ Words like ``typically'' should generally be 
used to establish presumption. Dr. Cramton does suggest one possible 
exception, whereby ``non-incumbents may be unwilling to participate in 
the auction, knowing that the incumbents will ultimately win.'' Yet, 
Sprint and T-Mobile are not ``non-incumbents,'' they are incumbents (as 
are many other firms). As such, they have both use and foreclosure 
value for the spectrum, and it is this private value that encourages 
them to participate in the auction. The decision not to participate is 
irrational. Indeed, the small firms will bid up to their private value 
in an attempt to win and, if not, to keep the big firms from getting 
the spectrum at extremely discounted prices. The bidding is relatively 
costless, but beneficial whether win or lose.
---------------------------------------------------------------------------
    \54\ P. Cramton, Spectrum Auctions, in Handbook of 
Telecommunications Economics (2002).
---------------------------------------------------------------------------
    In another paper often cited in regards to the revenue issue, the 
authors state, ``revenues in unrestricted auctions do not need to be 
strictly higher than those in auctions with spectrum caps or set-
asides.'' \55\ This statement of ``do not need to be'' is obviously not 
very strong support for auction rules excluding large, successful, 
spectrum-hungry wireless carriers. Ambiguity without evidence is not a 
strong motivator. Also, the theory relates only to the behavior of non-
incumbents, not incumbents, and there are numerous incumbents. Also, in 
the same discussion, the author's note other risks, including the 
possibility that spectrum caps ``may prohibit efficient aggregation of 
spectrum.'' \56\ Their point is similar to the one made above regarding 
the tradeoff between a price competition and quality improvements. As 
long as spectrum exhaust is a concern, the way spectrum is allocated 
among existing carriers is critical. Additional entry, thereby dividing 
up a limited amount of spectrum even further, may not be beneficial but 
harmful. Today, new entry into the mobile wireless market seems 
unlikely--the profits aren't there. So policies designed to promote 
additional entry are unlikely to bear much fruit.
---------------------------------------------------------------------------
    \55\ Cramton, et al., supra n. 35.
    \56\ Id., at p. S171.
---------------------------------------------------------------------------
    When theory is ambiguous, the question becomes an empirical one. 
Empirical evidence also provides little support for the argument. In 
the 700 MHz auction, both AT&T and Verizon participated. The reserve 
price for the B block in that auction was $1.37 billion--it sold for 
$9.1 billion. The reserve block for the A block in that auction was 
$1.8 billion, and it sold for $3.96 billion. While the C Block sold for 
just over its reserve price, that block was encumbered with network 
neutrality obligations while the others were not. Notably, in the 700 
MHz auction, there were 101 winning bidders.
    As for non-incumbent participation, we have seen much of it in the 
past, and have good reason to expect it in the future. SpectrumCo, a 
joint venture mainly of cable companies, turned a tidy profit on AWS 
spectrum licenses its acquired for $2.37 billion and sold to Verizon 
for $3.9 billion.\57\ The large incumbents were active participants in 
that auction. T-Mobile also won spectrum in that same auction, but 
didn't get exactly what it wanted because it was outbid on some blocks 
by Verizon (thereby providing motivation for Verizon's exclusion from 
the broadcast incentive auction). Qualcomm won licenses in the 700 MHz 
auction for which it paid $558 million, and later flipped to AT&T for 
$1.93 billion.\58\ Thus, I suspect there will be plenty of bidders even 
if AT&T and Verizon participate.
---------------------------------------------------------------------------
    \57\ Cable Consortium Acquires Spectrum Licenses Covering National 
Footprint (October 5, 2006) (available at: http://
corporate.comcast.com/news-information/news-feed/cable-consortium
-acquires-spectrum-licenses-covering-national-footprint); M. Reardon, 
Regulators OK Verizon's $3.9B bid to Buy Cable Spectrum, CNET (August 
16, 2012) (available at: http://news.cnet.com/
8301-13578_3-57494498-38/regulators-ok-verizons-$3.9b-bid-to-buy-cable-
spectrum).
    \58\ See A. Sharma and A. Schatz, AT&T, Verizon In Airwaves Grab; A 
Win for Google? Wall Street Journal (March 21, 2008) (available at: 
http://online.wsj.com/article/SB12060
3843805652459.html); C. Albanesius, Qualcomm Selling 700MHz Spectrum to 
AT&T for $1.93B, PCMag (December 10, 2010) (available at: http://
www.pcmag.com/article2/0,2817,237
4551,00.asp).
---------------------------------------------------------------------------
VII. Other Factors Impacting the Wireless Ecosystem
    Spectrum is central, but there are other issues affecting wireless 
policy today. The issue of handset unlocking is one that receives a 
great deal of attention, but its import is a mystery to me. While this 
issue has been perking around telecom circles for years, it has come 
back to the forefront as the result of the Librarian of Congress's 
recent decision to deny requests to exempt handset unlocking of new 
phones from the anti-circumvention petitions of the Digital Millennium 
Copyright Act (``DMCA'').\59\
---------------------------------------------------------------------------
    \59\ Library of Congress--Copyright Office, 37 CFR Part 201, Docket 
No. 2011-7, Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, Final Rule, 77 Fed 
Reg. 65,260 (October 26, 2012).
---------------------------------------------------------------------------
    There are a couple of things that, to me, make this issue a non-
issue. First there is a popular misconception that the only thing that 
keeps a mobile phone from working on a competitor's network is the 
locking function. This assumption simply is not true. U.S. mobile 
providers use a variety of different technologies (CDMA, GSM, LTE, 
IDEN, etc.) and, as such, a handset must match the carrier's network 
technology. Stated in practical terms, my AT&T GSM iPhone will not work 
on Verizon's or Sprint's CDMA networks (and vice versa). Equally as 
important, many carriers make network-specific enhancements to take 
advantage of certain device functionalities, so a consumer may not get 
the full benefits of an ``unlocked'' smartphone if he or she tries to 
use it on a different network.\60\
---------------------------------------------------------------------------
    \60\ See, e.g., Associated Press, Verizon Wireless Says iPhone 5 
won't be ``Relocked'' (September 24, 2012) (available at: http://
www.nbcnews.com/technology/verizon-wireless-says-iphone-5-wont-be-
relocked-1B6078242).
---------------------------------------------------------------------------
    Second, under the Librarian's decision, consumers are legally free 
to unlock ``legacy'' phones, so the decision has no impact on a 
secondary market for phones. A simple eBay search reveals that the 
secondary market for handsets is thriving.
    Third, most wireless carriers will unlock your phone for you, and 
some don't even lock them to begin with, even when subsidized.
    Fourth, anyone can walk into a mobile wireless store and purchase a 
brand new unlocked handset. Such a device can also be purchased online, 
say at Amazon.com or Apple.com. Thus, it appears that the debate is not 
about access to an unlocked phone, but about having to pay the full 
price for one.
    Let me put the issue into context by proving you with an example I 
constructed earlier this year. As you know, a state-of-the-art unlocked 
phone can be quite expensive--for example, according to Apple's 
webpage, a new entry-level unlocked iPhone 5 will run you about 
$649.\61\ By signing a two-year contract with AT&T, however, that same 
phone runs you only $199, a $450 discount off the retail price for an 
unlocked phone. Not a bad deal, even considering the early termination 
fee of $325, which declines by $10 per month of the contract and need 
not ever be paid by adhering to the term. Of course, the ability to 
offer consumers heavily-discounted equipment requires the customer to 
stick around long enough to make the arrangement sensible for the 
carrier. As an incentive to adhere to the agreement made between the 
carrier and the customer, wireless providers typically impose early 
termination fees and/or ``lock'' the device to their networks for the 
duration of the contract. So, when a consumer gets a $649 phone for 
$199, is it that unreasonable to expect a little commitment from the 
consumer in return? Most rational adults would think not, particularly 
when customers freely enter into that contractual arrangement. When the 
contract is up, the customer is free to unlock the phone.\62\ (Indeed, 
so long as the phone is out of contract, a simple web search reveals 
that the major U.S. carriers are more than willing to unlock phones 
upon reasonable request.\63\) If a consumer doesn't like the idea of a 
locked phone and being bound by the terms of a service contract, then 
that consumer can spend $649 up-front and get an unlocked phone. But, 
if the carrier hands you a $649 phone for $199, there's obviously and 
reasonably a catch.
---------------------------------------------------------------------------
    \61\ http://store.apple.com/us/buy/home/shop_iphone/family/iphone5.
    \62\ http://www.att.com/esupport/
article.jsp?sid=KB414532&cv=820&title=What%20are%20the
%20eligibility%20requirements%20for%20unlocking%20iPhone%3F#fbid=ImedV_5
M2Y8.
    \63\ http://support.apple.com/kb/ht1937.
---------------------------------------------------------------------------
    When it comes to things like locking, early termination fees, and 
contracts, it is important to keep in mind that the terms and 
conditions under which highly-discounted phones are provided are not 
arbitrary; they have a purpose. In my published paper entitled A Policy 
and Economic Exploration of Wireless Carterfone Regulation,\64\ my co-
authors and I provide a formal economic evaluation of contracts, device 
locking, and other conditions relevant to handsets. Critics are right 
that these terms and conditions are intended to adhere the customer to 
a particular carrier, but the practices are neither anti-competitive 
nor anti-consumer for doing so. They are motivated by a desire to 
better serve the customer. Such practices increase the complementarity 
of the handset and the services, thereby providing stronger incentives 
to subsidize the purchase of handsets. These market behaviors are a 
natural response to the desires of consumers to have the latest and 
greatest technology at very low prices. As such, locking, term 
contracts, early termination fees, and other conditions are fully 
compatible with competitive outcomes and a ban on such arrangements is 
more likely to reduce competition than it is to increase it. Without 
question, a ban will increase the prices for handsets and may do so 
without any offsetting price decrease for wireless network services. 
Eliminating contracts and handset locking, therefore, is likely to be a 
bad deal for consumers, but, in the end, that's for the consumers to 
decide. I am certain that the carriers would love to be out of the 
handset subsidy business--it's a cost driver for them. Yet, they do it, 
not because they want to, but because consumers demand it.
---------------------------------------------------------------------------
    \64\ G. Ford, T. Koutsky and L. Spiwak, A Policy and Economic 
Exploration of Wireless Carterfone Regulation, 25 Santa Clara Computer 
& High Tech. L.J. 647 (2009) (available at: http://www.phoenix-
center.org/papers/SantaClaraCarterfone.pdf).
---------------------------------------------------------------------------
VIII. Conclusion
    Mr. Chairman, thank you again for the invitation to testify today. 
I welcome any questions the Subcommittee may have.

    Senator Pryor. Thank you.
    Ms. Derakhshani.
    Oh, was that over?
    Mr. Ford. I looked right over there and it was zero, I 
promise, and I thought it wasn't working----
    [Laughter.]
    Mr. Ford.--I couldn't be through 5 minutes yet.
    Senator Pryor. Ms. Derakhshani.
    Thank you.

  STATEMENT OF DELARA DERAKHSHANI, POLICY COUNSEL, CONSUMERS 
                             UNION

    Ms. Derakhshani. Chairman Pryor, Ranking Member Wicker, and 
members of the Subcommittee, on behalf of Consumers Union, the 
policy and advocacy arm of Consumer Reports, thank you for the 
opportunity to testify before you today.
    Consumer Reports is the world's largest independent not-
for-profit product testing organization with a mission to 
ensure a fair and just marketplace for consumers. We appreciate 
being included in a conversation about wireless.
    Wireless has become an essential part of consumers' lives. 
A growing portion of the population has chosen to cut the cord 
and replace their landline phones with wireless voice service, 
while many others, including those in rural areas, low-income 
areas, and communities of color, rely on their cell phones as 
their only means of accessing the Internet. In light of the 
growing importance of wireless, we'd like to highlight a number 
of practices that unfairly reach into consumers' pocketbooks 
and limit competition and consumer choice:
    First, we're concerned about charges on consumers' wireless 
bills. We were pleased that the industry and the FCC came to a 
voluntary agreement on bill shock, and that carriers now 
provide free alerts to consumers as they approach their plan 
limits for data, voice, and texting, and before they incur 
international roaming charges. The FCC recently announced that 
all participating carriers are now in compliance with this 
voluntary agreement. At Consumer Reports, we plan to continue 
to monitor carrier performance closely to ensure that these 
alerts work for everyone as intended.
    Unfortunately, we still have concerns about cramming, or 
the placement of unauthorized charges on consumers' wireless 
bills. Several studies have suggested that cramming costs 
consumers billions of dollars each year. And as we have 
explained in Consumer Reports, these charges often go unnoticed 
because they can be as small as 99 cents or described in a way 
that makes them sound like legitimate phone-related charges. We 
were disappointed that last year's FCC landline cramming rules 
did not extend to wireless. Cramming is just as serious a 
problem for wireless consumers, and arguably even more so in 
light of the ease with which it can occur. In the wireless 
context, all a crammer needs in order to initiate an 
unauthorized charge is a customer's active cell phone number. 
We appreciate the Committee's continued active pursuit of this 
concern, including the letters that Chairman Rockefeller 
recently sent to the four major carriers, identifying cramming 
as a growing threat for wireless consumers.
    Third, we're concerned about the new legal barriers to 
unlocking cell phones. Last fall, the Library of Congress 
phased out the long-recognized right of consumers to unlock 
their mobile phones for use on other carriers' networks. As a 
result, what was once legally protected is now potentially 
subject to criminal prosecution. We're pleased that a number of 
members of this committee have introduced or cosponsored bills 
to remedy the issue.
    In our view, consumers should be able to use the mobile 
devices that they have purchased as they see fit, and our 
research indicates that consumers agree. According to a 
nationwide poll by Consumer Reports in 2011, an overwhelming 96 
percent of respondents felt that consumers should be able to 
keep their existing handsets when changing carriers; 88 percent 
believed that handsets should work on any cellular network that 
they choose.
    The FCC began a proceeding last year to promote 
interoperability among wireless devices, and we support efforts 
that allow consumers to use the devices that they have 
purchased on any network of their choice.
    Fourth, we remain concerned about the structure of 
traditional wireless contracts and early termination fees, 
which create artificial barriers to competition and consumer 
choice. These policies lock consumers into their contracts and 
deter new carriers from entering the market. When consumers 
have a hard time switching competitors, carriers are under less 
pressure to respond to consumer demands. Furthermore, when the 
cost of expensive devices are built into carriers' service 
contracts, a consumer who may not necessarily want or need a 
new mobile device is forced to pay for that device over the 
course of a long-term contract. Indeed, Consumer Reports has 
found that customers who are able to shop for the best deal on 
each of these purchases could benefit significantly from lower 
prices. Just recently, in March 2013, we reported, online, that 
consumers who switch from long-term services to no-contract 
services can save hundreds of dollars over a 2-year period.
    Fifth, we'd like to express our continued support for the 
Universal Service Fund's Lifeline program. We believe that the 
program plays a key role in expanding the benefits of 
communications services to those who would otherwise be unable 
to afford it. We remain concerned about any proposals to 
exclude wireless from the Lifeline program, and we support the 
program's expansion to broadband. Any efforts to expand 
broadband access to Americans should not leave behind the 
communities that can benefit from it the most.
    Consumers have much to gain if more spectrum is made 
available for commercial wireless services, but freeing up 
additional spectrum won't be beneficial to consumers unless 
future spectrum auctions actually promote competition in this 
market. The two largest providers of wireless services today 
are positioned to dominate the auctions unless the Government 
puts in place appropriate rules to also give small carriers the 
opportunity to bid on this important limited resource. 
Consumers will also benefit if the Government agrees to set 
aside sufficient spectrum for unlicensed use. These goals need 
to be at the forefront of any future policy decisions in order 
to promote competition and consumer welfare.
    I thank you for the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Ms. Derakhshani follows:]

       Prepared Statement of Delara Derakhshani, Policy Counsel, 
                            Consumers Union

    Chairman Pryor, Ranking Member Wicker, and Members of the 
Subcommittee: on behalf of Consumers Union, the policy and advocacy arm 
of Consumer Reports, thank you for the opportunity to testify before 
you today. Consumer Reports is the world's largest independent, not-
for-profit product testing organization. We rate thousands of products 
and services annually, provide overviews and comparisons, conduct 
customer satisfaction surveys, and publish tips on how consumers can 
save money and protect themselves against abusive practices. We 
appreciate being included in a conversation about wireless in your 
ongoing examination into the state of the telecommunications market.

Introduction
    Wireless service is becoming an evermore essential part of our 
lives. Smartphone penetration levels continue to increase,\1\ and 
innovative new technologies and applications are improving consumers' 
lives in never-before-seen ways. Significantly, a growing portion of 
the population has chosen to ``cut the cord'' and replace landline 
phones with mobile wireless service. According to the FCC, thirty-four 
percent of adults lived in wireless-only households by the second half 
of 2012.\2\ Others--including consumers in rural areas, low-income 
communities, and communities of color--rely on their cell phones as 
their only means of accessing the Internet. In light of the growing 
importance of wireless, we would like to bring attention today to a 
number of practices that delve into consumers' pocketbooks and limit 
competition and consumer choice. Some of the issues are unique to the 
wireless arena, while others are not; but all of them deserve attention 
in light consumers' heavy reliance on wireless technologies.
---------------------------------------------------------------------------
    \1\ See Implementation of Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993, Annual Report and Analysis of Competitive 
Market Conditions With Respect to Mobile Wireless, Including Commercial 
Mobile Services, WT Docket No. 11-186, Sixteenth Report, FCC 13-34 
(rel. Mar. 21, 2013) (``Sixteenth Competition Report'') (noting that 
55.5 percent of mobile wireless consumers owned smartphones as of July 
2012, up 41 percent from the previous year).
    \2\ Sixteenth Competition Report at 26.
---------------------------------------------------------------------------
    Our comments today are guided by three basic principles. First, all 
consumers should have access to quality, affordable wireless services. 
Second, consumers should not be unduly limited in their ability to 
choose among the products, service plans, and carriers that best suit 
their particular needs. Third, carriers should provide the tools and 
information necessary for consumers to make meaningful choices and 
protect themselves against abusive practices.
    With these principles in mind, our comments today will focus on 
wireless bill shock and cramming, the new legal barriers to unlocking 
cell phones, early termination fees, the need to preserve wireless as 
part of the Lifeline program for low-income consumers, and spectrum 
policy.

Bill Shock
    First, bill shock. For years, Consumer Reports received stories 
from consumers who had been hit with hundreds--even thousands--of 
dollars' worth of surprise charges on a single month's bill for 
exceeding plan limits on data, voice, and texting, or for incurring 
international roaming charges.\3\ In our view, the underlying problem 
was that consumers did not have the tools they needed to keep track of 
their plan limits. We supported action by the Federal Communications 
Commission (FCC) to remedy this and filed comments in its proposed 
rulemaking proceeding.
---------------------------------------------------------------------------
    \3\ ``Bill Shock'' Is Common, ConsumerReports.Org, Jan. 2011, 
available at http://www.consumerreports.org/cro/magazine-archive/2011/
january/electronics/best-cell-plans-and-providers/cell-phone-bills/
index.htm (visited May 31, 2013) (finding that one in five respondents 
had received an unexpected charge on a bill over the past twelve 
months).
---------------------------------------------------------------------------
    In October 2011, the FCC and major wireless carriers agreed to a 
voluntary plan under which carriers would begin providing free alerts 
to consumers as they approached their plan limits for data, voice, and 
texting--and before they incurred international roaming charges. 
Consumers Union joined the FCC and CTIA in announcing the agreement in 
2011, and we are pleased that the FCC recently announced in April that 
all participating carriers are in compliance with the agreement, which 
protects 97 percent of the population from bill shock.
    We are glad to have been part of the consumer education and 
advocacy process that resulted in these protections, but we plan to 
continue to closely monitor carrier performance and engage in a 
dialogue with consumers to ensure that these alerts work for everyone 
as intended.

Cramming
    A second issue of concern is cramming, or the placement of 
unauthorized charges by third party services on a consumer's telephone 
bill. Several studies have suggested that cramming costs consumers 
billions of dollars each year. As we've explained in Consumer Reports, 
these charges often go unnoticed by consumers because they can be as 
small as 99 cents or described in a way that makes them sound like 
legitimate phone-related charges.
    We were pleased that the FCC adopted new cramming rules last year 
to better help consumers identify third-party charges in the landline 
context. These rules require carriers to more clearly separate third-
party charges from other charges on a phone bill. The new rules also 
require carriers to notify consumers of the option to block all third-
party charges if the carrier provides that option. However, we were 
disappointed that the FCC did not extend these rules to wireless 
cramming. Cramming is just as serious a problem for wireless 
consumers--and arguably even more so in light of the ease with which it 
can occur. In the wireless context, for example, a crammer needs only 
to confirm that an active cell phone number exists before initiating an 
unauthorized charge.
    Consumer Reports has been alerting readers to the practice of 
cramming and advising them to be extra vigilant in reviewing their 
mobile phone bills for unexplained charges. However, we strongly 
believe more needs to be done to help consumers identify third-party 
charges and to keep unauthorized charges from ending up on their bills 
in the first place.
    We very much appreciate the Committee's active pursuit of this 
concern, including its 2011 investigation into cramming, as well as the 
letters that Chairman Rockefeller recently sent to the four major 
carriers identifying cramming as a growing threat for wireless 
consumers.\4\
---------------------------------------------------------------------------
    \4\ Senate Committee on Commerce, Science, & Transportation, Press 
Release, Rockefeller Vows to Avert Wireless Cramming Scams, Mar. 1, 
2013, available at http://www.commerce.senate
.gov/public/index.cfm?p=PressReleases&ContentRecord_id=cd0edc13-b355-
4d4e-9619-7035329
daa1a (visited May 31, 2013).
---------------------------------------------------------------------------
Unlocking Mobile Devices
    Third, we are concerned about the new legal barriers to unlocking 
mobile phones. Last fall, in its review of the Digital Millennium 
Copyright Act, the Copyright Office extinguished the long-recognized 
right of consumers to unlock their mobile phone for use on other 
carriers' networks. As a result, what had once been legally protected 
is now potentially subject to criminal prosecution.
    Consumers Union recently sent letters to the FCC Commissioners and 
to the Commerce Committee, among others, encouraging efforts to remedy 
the uncertainty created by the Copyright Office's decision. We are 
pleased that President Obama has signaled a willingness to engage on 
this issue and that the FCC is currently looking into the matter. A 
number of bills have been introduced in Congress to restore the legal 
protection removed by the Copyright Office's decision, including bills 
introduced and co-sponsored by members of this committee. We thank you 
for your recognition of this important issue and support your efforts 
to craft an effective solution that benefits consumers.
    In our view, consumers should be able use the mobile devices they 
have purchased as they see fit. For example, they should be permitted, 
where feasible, to adapt their mobile device for use abroad with a 
foreign carrier. They should be permitted to sell or give a mobile 
device they own to someone else for use with the carrier of the new 
owner's choice. And they should be able to obtain an unlocked mobile 
device themselves, and adapt it for use with the carrier of their 
choice. All of these uses make sense for consumers, and all should be 
legal and available.
    In fact, a 2011 nationwide poll conducted by Consumer Reports makes 
it clear that consumers themselves agree. According to our poll, an 
overwhelming ninety-six percent of respondents felt that consumers 
should be able to keep their existing handsets when changing carriers. 
Furthermore, eighty-eight percent of respondents believed that their 
handset should work on any cellular network that they choose, while 
seventy-three percent said that they would support a government rule 
that requires handsets to be compatible with all U.S. cellular 
services.
    For years, our organization has advocated on the related issue of 
interoperability. We were pleased to see the FCC begin a proceeding to 
promote interoperability among wireless devices last year and support 
efforts that allow consumers to use the devices that they have 
purchased on the networks of their choice.

Early Termination Fees and the Traditional Long-Term Contract
    Fourth, we remain concerned about early termination fees and the 
structure of the traditional wireless service contract. This model 
builds in the cost of expensive handsets into the long-term service 
contract, creates artificial barriers to competition and consumer 
choice, and implements early termination fees that dissuade consumers 
from switching among mobile service providers.\5\ Although carriers 
generally prorate these early termination fees, customers who switch 
before their contract expires can still incur charges as high as 
$350.\6\
---------------------------------------------------------------------------
    \5\ Sixteenth Report at para. 308 (noting that churn rates for 
post-paid services are significantly lower than pre-paid contracts, due 
in part to existence of early termination fees).
    \6\ AT&T, Early Termination Fees, available at http://
www.wireless.att.com/learn/articles-resources/early-term-fees.jsp 
(visited May 31, 2013) (listing early termination as high as $325 for 
advanced phones); Verizon Wireless, Customer Agreement and Important 
Information, available at http://youreguide.vzw.com/legal-customer-
agreement/ (visited May 31, 2013) (listing early termination fees as 
high as $350 minus); Sprint, Learn About Early Termination Fee, 
available at http://support.sprint.com/support/article/
Learn_about_early_termination_fee/case-sp06
1027-20110823-171256 (visited May 31, 2013) (listing early termination 
fees as high as $350).
---------------------------------------------------------------------------
    Wireless carriers justify these fees as necessary to recoup the 
cost of providing consumers with mobile devices below their regular 
cost. But in many ways, embedding the cost of a mobile device into a 
contract is a bad deal for consumers. For example, under this 
traditional structure, a consumer is forced to pay for a new mobile 
device over the course of a contract even if the consumer does not want 
or need a new mobile device. Furthermore, early termination fees lock 
consumers into these long-term contracts. Although carriers argue that 
they have strong incentives to keep customers happy, the fact remains 
that if consumers have a harder time switching to a carrier's 
competitor, then carriers are under less pressure to respond to 
customer demands.
    If consumers were able to shop for the best deal on each of these 
purchases separately, they could benefit significantly from the lower 
prices, improved quality, and greater innovation and variety that 
healthy competition would encourage among both mobile device 
manufacturers and wireless service providers. In Europe, for example, 
where LTE wireless service is sold separately from the mobile device, 
one study shows that the cost of the service is only about a third of 
its cost in the United States.\7\
---------------------------------------------------------------------------
    \7\ Kevin J. O'Brien, Americans Paying More for LTE Service, NY 
Times, Oct. 15, 2012, available at http://www.nytimes.com/2012/10/15/
technology/americans-paying-more-for-lte-service
.html?_Kr=0 (visited May 31, 2013) (noting that LTE services in the 
U.S. cost, on average, three times the European average).
---------------------------------------------------------------------------
    We are encouraged to see that wireless carriers are beginning to 
consider offering consumers more innovative choices than the 
traditional long-term contract.\8\ This emerging development certainly 
appears to be catching the attention of consumers, as evidenced by a 
recent grass roots online petition to Verizon that argues against long-
term service contracts and has garnered over 150,000 signatures.\9\
---------------------------------------------------------------------------
    \8\ For example, in January, AT&T CEO Randall Stephenson said he 
would consider allowing consumers to pay for their own smartphones in 
exchange for a lower rate. In March, T-Mobile announced a pricing plan 
that effectively separates the charge for the service from the charge 
for the device. In response, AT&T recently introduced a wireless no-
contract cell service. See http://www.att.com/gen/press-
room?pid=24185&cdvn=news&newsarticleid=36421 (visited May 31, 2013). In 
April, Verizon CEO Lowell McAdam said he would consider ending two-year 
contracts if there were consumer demand for it. See Roger Cheng, 
Verizon CEO Says He's Open To Dropping Contracts, CNET News, Apr. 3, 
2013, available at http://news.cnet.com/8301-1035_3-57577842-94/
verizon-ceo-says-hes-open-to-dropping-contracts/ (visited May 31, 
2013).
    \9\ See Change.org, Petition, Verizon: Get Rid of Contracts for 
Wireless Services, available at https://www.change.org/petitions/
verizon-get-rid-of-contracts-for-wireless-service (visited May 31, 
2013); Brandon Griggs, Thousands Petition Verizon To Nix Wireless 
Contracts, CNN.com, Apr. 17, 2013, http://www.cnn.com/2013/04/16/tech/
mobile/verizon-petition-contracts/index.html (visited May 31, 2013).
---------------------------------------------------------------------------
Protecting the Wireless Lifeline Program
    Finally, we would like to express our continued support for the 
Universal Service Fund's Lifeline program. Fifteen million low-income 
families depend on this program, which we believe plays a key role in 
expanding the benefits of communications services to those who would 
otherwise be unable to afford them.
    We recognize that the FCC recently took steps to appropriately 
address problems of waste, fraud, and abuse. These efforts have already 
resulted in $200 million of savings and will continue to save millions, 
while ensuring that the funds are targeted to consumers who need 
telecommunications services the most.
    Furthermore, we remain concerned about any proposals to exclude 
wireless from the Lifeline program. To do so would be to deprive the 
millions of low-income families who depend on cell phones for basic 
access to vital telecommunications services. The importance of this 
program is especially clear in light of the consumers' increasing shift 
away from landline service. As discussed earlier, many Americans are 
choosing to replace their landline phones with mobile phones, while 
others--including many consumers in rural areas--rely on their cell 
phones as their only means of accessing the Internet.
    We support the FCC in its efforts to get affordable broadband to as 
many people as possible, without leaving behind low-income consumers 
and the groups who need it the most.

Spectrum
    Consumers have much to gain if more spectrum is made available for 
commercial wireless services. But consumers won't be able to realize 
the benefits of this additional available spectrum unless future 
spectrum auctions actually promote competition in this market. The two 
largest providers of wireless services today, AT&T and Verizon, are 
positioned to dominate the auctions unless the government puts in place 
appropriate rules to also give small carriers the opportunity to bid on 
this important limited resource. Consumers also will benefit if the 
government agrees to set aside spectrum for unlicensed uses. These 
goals need to be at the forefront of future spectrum policy decisions.

Conclusion
    These issues highlight some of the ways in which consumers have 
borne the brunt of a wireless marketplace that is not as sufficiently 
competitive and consumer friendly. Wireless technology holds incredible 
promise for all of us, but policymakers and regulators play an 
important role in helping ensure that--as wireless technology becomes 
evermore prevalent in our day-to-day lives--it delivers quality, 
affordability, and choice to consumers. We appreciate the 
Subcommittee's attention to these important issues and I look forward 
to your questions. Thank you.

    Senator Pryor. Thank you.
    Let me, if I may, just start with Mr. Webster. You spent 
some time, in your opening statement, talking about Wi-Fi and 
how important Wi-Fi is. Are you saying that the Wi-Fi space can 
get too crowded?
    Mr. Webster. Well, the Wi-Fi space actually--most certainly 
can get too crowded, Senator. That's why additional spectrum is 
needed in the unlicensed arena just as much as it is in the 
licensed arena. Now, there are, no question, technological 
innovations that can work to minimize some of that crowding, 
but that's not going to be enough. The growth that we are 
having on our networks, across the board, especially in 
mobility, which is really very much inherently tied to 
networking growth, in general, means that we're going to need 
additional spectrum to complement those innovations.
    Senator Pryor. I think that you mentioned the 5 gigahertz 
spectrum----
    Mr. Webster. Yes.
    Senator Pryor.--as a possible----
    Mr. Webster. That's correct.
    Senator Pryor.--alternate place to go. And my 
understanding, though, is--maybe the auto industry is trying to 
use that for the vehicle-to-vehicle communication. Is that 
right? What----
    Mr. Webster. That's correct. In fact, the--both the auto 
industry and the telecommunication industries are key customer 
bases or sectors of Cisco Systems, and we want to work a win-
win situation--first and foremost, based on making sure that 
the use of this spectrum by automobiles is absolutely safe. 
But, if there is under-utilization of spectrum, is there an 
opportunity to have that spectrum shared by other purposes? 
That's something that we very much would like to investigate 
and work with the FCC to see if that is an option--
opportunity--so we can provide that win-win situation to both 
sectors.
    Senator Pryor. OK.
    Mr. Nagel, same questions for you, really. Wi-Fi--you 
mentioned Wi-Fi in your statement. How do we manage this, going 
forward? I mean, it looks like more and more people want to 
utilize Wi-Fi; it seems to be more and more prevalent. And you 
talked about the flexibility of these devices, et cetera, but 
do you think the 5 gigahertz is the way to go?
    Mr. Nagel. Well, I think, you know, it's--when you look at 
what's going on in Wi-Fi, it's really no different across 
whether it's unlicensed or on licensed. The spectrum 
utilization is significantly increasing. And I think even, you 
know, Mr. Webster had said that, between 6 years ago to today, 
the increase has been over 600 percent. And I think what 
happens is, the spectrum availability hasn't really increased. 
And so, you're getting more and more usage in the Wi-Fi space.
    So, the spectrum is really the real estate. If you build 
more and more houses in that real estate, it just gets crammed. 
And I think that's where we are.
    So, the importance of the 5 gigahertz is really twofold. I 
mean, first is, is that we already are using Wi-Fi in the 5 
gigahertz space, on the high end. The second part about the 5 
gigahertz--so, we can easily digest additional spectrum in that 
band--and that the more that we can put in the band next to our 
other existing spectrum, we can do wider channels. Wider 
channels mean faster and faster services. So, part of why the 5 
gigahertz band is important to us is that it makes--it allows 
us to not just add more customers, but to provide more speed to 
those same customers. So, that's one piece.
    The other piece is, when you think about the 5 gigahertz, 
there are very, very few, sort of, greenfield environments 
where you can utilize spectrum and make as much benefit in the 
5 gigahertz you have today. There's about 555, sort of, 
allocated megahertz of spectrum in the 5 gigahertz band, but 
only 100 is utilized for unlicensed Wi-Fi. So, that's less than 
20 percent. And so, what's great about the 5 gigahertz is, it 
is available. Wi-Fi can work in a sharing environment. We 
understand there are incumbents. We have no desire to interfere 
with those incumbents. Wi-Fi, by its very nature, is a 
secondary service. So, it's built so that it can share.
    I think what's really important--you mentioned the vehicle-
to-vehicle--I think what's really important is--there's no 
question, Mr. Webster's right, that we can solve the sharing 
problem with that industry. The challenge is, when you look at, 
sort of, that band, that the timing of how long it will take 
them to develop vehicle-to-vehicle is measured in, really, 
decades, not years, and I think we need to solve some of these 
problems now.
    So, I think bringing us together--I think this committee 
could help, I think the FCC could help--but, to sort of bring 
us together to start solving, engineer-to-engineer, some of 
these basic problems so we can make sharing work.
    Senator Pryor. Mr. Berry, let me ask you. Something that 
you said, sort of midway through your testimony there, you--you 
were talking about spectrum, and you were talking about 
cellular market areas, which are smaller geographical areas, 
but I believe what you said is, you think, if they went to the 
cellular market area approach, that actually it might generate 
more revenue at auction. Could you tell the Subcommittee what 
you mean by that?
    Mr. Berry. Yes, Mr. Chairman, thank you.
    I--the cellular market areas are smaller slices of 
spectrum. For the smaller carriers, they have to be able to bid 
and have some expectation of winning. A good example would be, 
Bluegrass Cellular would have--if they sold only EAs--economic 
areas, which is a large area--they would have to bid on markets 
outside Lexington, Kentucky, all the way down to Nashville, 
Tennessee, in order to get enough spectrum to continue their 
operation. That's just not doable. Making a small carrier bid 
on 5 to 6 million pops of megahertz, when they only need 1.4, 
is another way of putting them out of business.
    And I'll give you a good example. In the 700 megahertz 
block that we were talking about, the C block, which was a 
REAG, which was large nationwide licenses--there was only 12 of 
those--it brought 76 cents per meg per pop. The A block, which 
was paired through EAs--the economic areas--it brought $1.16. 
But, the paired B block, which was in CMAs--cellular market 
areas, 734 of them--brought $2.68. And that's because the small 
carriers could actually bid and win against the largest 
carriers in a small area. And I think that's what we have to do 
if we're going to have multiple competitors in the 700--600 
megahertz spectrum auction.
    Senator Pryor. Thank you.
    We've been joined by Senator Thune, who's the Ranking 
Member of the full Committee.
    And I'm going to recognize you for an opening statement and 
your questions.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thanks, Mr. Chairman. I want to thank you 
and Senator Wicker for having this hearing, and I do want to 
just make a statement for the record, and then perhaps follow 
it up with a quick question, if I might.
    But, I think we all know, from our daily experiences, how 
important this issue is to people all across the country, 
whether it's a farmer in a field checking real-time commodity 
prices, a college student video-chatting with their family back 
home, or an executive on the road dealing with a crisis back at 
headquarters. The ability to communicate with others and to get 
online without being tethered by a cord is no longer a luxury 
for many people; it is a necessity.
    Wireless communications have become an essential part of 
many Americans' day-to-day lives, and I am glad the 
Subcommittee is exploring the issue today. Without enough 
spectrum, the private sector will not be able to keep pace with 
consumer demand, which is growing exponentially. We must make 
it a priority to increase the availability of spectrum for 
commercial use, both licensed and unlicensed, as quickly as 
possible.
    One important block to open up is the 1755-1780 megahertz 
band of Federal spectrum, because, when paired with the AWS-3 
block, there is a global ecosystem of devices and networks that 
our nation can immediately tap into.
    I have been working with Assistant Secretary of Commerce, 
Larry Strickling, the Department of Defense, and industry 
officials to find a commonsense solution that balances the 
needs of wireless consumers and of the Federal Government. It 
is my hope that we can find a way forward soon that allows the 
spectrum to be auctioned and cleared in the near future.
    A recently proposed, quote, ``industry roadmap'' may offer 
us a workable path to achieving that goal. Getting more 
spectrum into the marketplace to the parties that value it most 
is ultimately the best way for Federal policymakers to 
encourage new services and to spur competition. Unfortunately, 
some voices, including the Department of Justice, are calling 
for the Federal Communications Commission to micromanage the 
allocation of spectrum among wireless carriers. I stand with 
Chairman Upton, Chairman Walden, and other of our House 
colleagues who have challenged this perspective in a letter to 
the FCC, back in April. I believe the Commission should not 
pick winners or losers among individual companies, but, 
instead, let all interested participants freely compete against 
one another in the open market.
    The FCC began using spectrum auctions because we recognized 
that the free market is more effective at allocating spectrum 
than relying on the opinions and predictions of unelected 
bureaucrats. And with the U.S. being the global leader in 4G 
LTE connectivity, this approach has clearly been very 
successful.
    The Commission should focus on maximizing participation in 
the upcoming incentive auctions among both broadcasters and 
potential forward bidders. For example, one way to encourage 
more bidder activity in rural areas during the auction is to 
offer licenses in a variety of geographic sizes.
    The FCC should not be distracted by proposals that could 
lead to less spectrum being made available and less auction 
proceeds being realized for national priorities, like deficit 
reduction and FirstNet. American consumers, including those 
farmers, students, and executives I mentioned earlier, are 
driving the mobile economy, and they, not the government, 
should pick who wins in the marketplace.
    And if I might follow that up with a question, I would 
direct this to Dr. Ford. As I mentioned, my ultimate concern is 
for the welfare of the wireless consumers, a concern that I 
think a lot of my fellow members of the Committee share. You 
state very clearly in your opening testimony--and I want to 
quote--``If incumbent firms are precluded from obtaining more 
spectrum, particularly successful firms serving large customer 
bases, then their quality of service will suffer and consumers 
will suffer,'' end quote.
    Could you elaborate on how manipulating spectrum auction 
participation may have unintended consequences?
    Mr. Ford. Sure. Well, there are many ways, but the--what I 
was speaking of there is: spectrum allows firms to provide 
service more cheaply, or more effectively, better quality, or 
whatever it may be, and if you limit firms with--that are 
demonstrably more efficient than others, if you deny them 
access to that resource and keep them from having a lower 
marginal cost, say, of providing service, then you--the 
consumer doesn't realize that benefit. If giving 10 megahertz 
of spectrum allows a large firm to reduce its marginal cost by 
$2, or a small firm by $1, you'd obviously want to give it to 
the large firm, who could have the larger marginal cost 
reduction and pass that on to a significantly larger customer 
base.
    So, it's always the case, in these theoretical models of 
spectrum caps and spectrum allocation, that you have to think 
about the efficiency of who is winning the auction, who gets 
the spectrum. And usually, the most efficient firms will win 
the auction, because of that reason.
    Senator Thune. Mr. Chairman, I thank you. I want to thank 
the panel for their great testimony today, and allow my 
colleagues on this side to ask questions.
    Thank you.
    Senator Pryor. Thank you.
    Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman.
    I thought this would be a good occasion to announce that 
one of our members has been inducted into the Wireless Hall of 
Fame this fall. That would be Senator Warner.
    Senator Pryor. All right.
    Senator Klobuchar. I just thought we should announce that--
--
    Senator Pryor. All right.
    Senator Klobuchar.--for his fine work in the business area.
    [Applause.]
    Senator Klobuchar. I'm sure he really appreciates that I 
brought that up.
    [Laughter.]
    Senator Klobuchar. No, anyway, I had some questions. But, 
as you all know, I've been very involved in the unlocking issue 
and some of the cell phone bill of rights, for many, many 
years, here. And, despite your sitting at, kind of, the kids' 
table at the end, Ms. Derakhshani, I was really appreciative of 
the points that you made on behalf of consumers everywhere. And 
could you talk about how this locking of the cell phone and 
service--you consider it a detriment to competition--how it can 
hurt consumers? I just see this as a great possibility, and 
I'm--of course, I'm on the bill to fix the Library of Congress 
decision, but I see that more as a Band Aid. And Senator Lee 
and Senator Blumenthal and I have a bill called the Wireless 
Consumer Choice Act, which goes a step farther, to ask the FCC 
to take action to ensure that consumers can unlock their 
oftentimes very expensive phones when they switch carriers. 
Could you talk about that, from a consumer standpoint?
    Ms. Derakhshani. Absolutely. We really appreciate all of 
the efforts of the members of this committee, and we support 
the Commerce Committee's approach to fix the problem through 
the FCC.
    As you mentioned before, some of these devices are 
extremely expensive. We feel that, if consumers have to pay for 
these extremely expensive devices, then they should be able to 
use them in the ways that they wish. And that's really what it 
comes down to: giving consumers more choice.
    Oftentimes, I believe that the wireless industry touts the 
diverse number of devices and choices available to the 
consumer, but that doesn't really matter if a consumer isn't 
able to make a meaningful choice and is not able to do that on 
the carrier that they wish.
    Senator Klobuchar. And, Mr. Largent, I know that the CTIA 
argued in favor of the decision by the Library of Congress, 
even though many of your members actually do voluntarily unlock 
their phones for consumers. Can you explain this stance?
    Mr. Largent. Well, I was just going to say that there's a--
there are over 600 devices that are for sale to consumers 
today. Many of those are sold with--not by carriers. So, they--
a person can go buy an unlocked phone, today, at Best Buy, and 
put that on a carrier of choice. So, that ability, we support. 
And even the idea that a consumer can unlock their phone that 
they've gotten from an AT&T or Verizon or whoever, we support 
that, as well.
    But, the reason there's an ETF is because those phones are 
typically sold for $99, $199, and they're $700 phones. So, 
there has to be an opportunity for the carrier to recoup the 
cost that they have of the phone. And then, once that cost is 
recovered, then they will freely allow their consumers to 
unlock their phone. And that's the policy of most of our 
carriers, if not all our carriers, today.
    Senator Klobuchar. I just know, Mr. Berry, that--and you 
want to respond to this a little bit--in other countries, that 
they unlock phones quicker and allow the service to be 
decoupled from the phone. And do you want to talk about how 
this could affect rural consumers if they are--get stuck with a 
certain phone and a certain carrier, more likely, and then they 
move and--I know this, from just driving, this week, in rural 
Minnesota, that certain carriers work in certain areas, and 
others don't.
    Mr. Berry. Yes, Senator, thank you. And thank you for the 
question. And thank you for all the good work you've done on 
unlocking.
    As you know, I testified in favor of continuing the 
exemption for unlocking phones at the Library of Congress. And 
I felt that, not only was it a good pro-consumer issue to do--
to focus on, but many of the rural carriers really don't have 
access to the iconic phones. Getting smartphones and handsets 
that--state-of-the-art--are very difficult for small and rural 
carriers. And it's one way of a rural carrier distinguishing 
themselves in the marketplace, and attracting a customer.
    Matter of fact, one of our carriers, T-Mobile, at the time 
I testified, had over 2 million iPhones on their network, and 
they didn't sell an iPhone--they didn't have permission to sell 
the iPhone.
    So, we think it brings consumer choice, and especially in 
the--a consumer that's in a urban/suburban area that moves to a 
rural area; they ought to be able to, not only take their 
iPhone, but all the content that is in that, or whatever other 
phone they may have--a Galaxy or Android--and bring it to the 
network, and utilize it. And we think that that was the right 
policy decision to make.
    Senator Klobuchar. Thank you.
    Ms. Derakhshani, I'll just end with you, with just--if you 
want to respond to me about--I appreciate your work on cramming 
and bill shock, and also the important issue you raised in your 
testimony on wireless service transparency. Senator Blumenthal 
and I are working on a bill, which we introduced the last 
Congress, that would require wireless carriers to give 
consumers more complete and accurate information. Do you want 
to comment either in response to the comments that were made 
here and then also a little bit on transparency?
    Ms. Derakhshani. Sure. With regard to transparency, we 
really feel that it is the duty of carriers to provide 
consumers with the tools that they need to make meaningful 
choices. All too often, this does not happen; and consumers 
have told us this.
    Senator Klobuchar. Do you want to respond at all to the 
comments about the expense of the devices and the importance of 
unlocking?
    Ms. Derakhshani. Well, as I mentioned, the Honorable Mr. 
Largent said that----
    Senator Klobuchar. But, has he been inducted into the 
Wireless Hall of Fame?
    [Laughter.]
    Ms. Derakhshani. I don't think he----
    Senator Klobuchar. OK, I just--I just wanted to point that 
out.
    Ms. Derakhshani. That wasn't pointed out earlier.
    Senator Cantwell. I can assure you, he has been inducted 
into a Hall of Fame, and we all appreciate that.
    [Laughter and applause.]
    Senator Klobuchar. All right, if you could, please.
    Ms. Derakhshani. I will just reiterate that time and time 
again, I feel that the wireless industry does tout the fact 
that there are, as Mr. Largent mentioned, 600 different devices 
out there. But, what difference does that make if consumers 
don't have a meaningful choice among those devices? So, that's 
where I'll leave it.
    Senator Klobuchar. OK, thank you.
    Ms. Derakhshani. Sure.
    Senator Pryor. Thank you.
    Our next three Senators will be Senator Heller, Senator 
Warner, and Senator Fischer.
    Senator Heller.

                STATEMENT OF HON. DEAN HELLER, 
                    U.S. SENATOR FROM NEVADA

    Senator Heller. Thank you very much, Mr. Chairman. And 
thanks for the opportunity to discuss this issue that I think 
is critically important for our economy.
    And I want to thank the witnesses for taking time and 
spending some time with us today, and for everybody that's in 
the hearing who's expressed and shown their concern for this 
issue, also.
    I was appreciative of your testimony, Mr. Webster, as you 
went through some of the statistics and the growth that we're 
going to see in these areas, especially in data traffic and 
also the mobile devices that we're going to see by 2017, which, 
of course, underscores the need and the understanding that we 
need more spectrum, and that it'll all go in the hands of these 
wireless providers.
    We all know, here, the FCC is working on a complex spectrum 
option right now, and we're hopeful that we can incentivize 
enough broadcasters to voluntarily sell their spectrum so the 
Government can then auction it for wireless services to the 
highest bidder. Hopefully, that revenue will be enough to cover 
and accomplish several goals. One is--of course, is enough to 
purchase the spectrum from the broadcasters themselves to fund 
FirstNet, and, hopefully there will be enough left to provide 
money to reduce the deficit. I mean, those are pretty 
aggressive goals. And, obviously, maximizing the revenue in an 
auction like this is key.
    So, to you, Congressman Largent--and I think all of us have 
kind of touched about the--you know, from the Chairman to the 
Ranking Member, most of us are talking about revenues from this 
auction. And if the Government intervened, as suggested by Mr. 
Berry, to set up rules that limited some in the markets from 
entry to this auction, would that reduce the amount of revenue 
available?
    Mr. Largent. Undoubtedly, it would reduce the amount of 
revenue that would go to the Treasury.
    Senator Heller. Are there any reasons, in your opinion, 
that there should be conditions set on the spectrum auction?
    Mr. Largent. I, personally, feel like the fewer conditions 
that are set on the auction, the more robust and the more money 
you'll get from the auction. We have seen, in the 700 megahertz 
auction that was very complicated and just created a lot of 
hoops for companies to jump through in order to bid on that 
spectrum, what the outcomes were. We're still wrestling with 
the 700 megahertz A block, that Steve mentioned, because of 
that. And so, I just think that if you just have a clean 
auction with a lot of spectrum, and you let people bid on it, 
that you'll have the best outcome, in terms of money to the 
Treasury, funding FirstNet, being able to pay for the 
broadcasters to relocate and compensate them for their spectrum 
that they give up.
    Senator Heller. I'm kind of trying to keep an eye on this 
reverse auction portion of this. And if we don't provide the 
right incentives for broadcasters to sell their spectrum, we're 
jeopardizing the whole goal of paying----
    Mr. Largent. Absolutely.
    Senator Heller.--for FirstNet and for bringing more 
meaningful spectrum to the market. In your opinion, is the FCC 
getting the reverse auction right?
    Mr. Largent. I think that's yet to be seen. I'm hopeful, 
I'm optimistic. I've talked to people at the FCC, and, you 
know, there has been a lot of changes at the FCC over the last 
month or two, so it--that's a question yet to be answered. But, 
I am optimistic. I am hopeful. They understand the concerns 
that we have, and I think they're trying to address them.
    At the end of the day, I don't--I can't give you an 
affirmative answer, but I'm hopeful.
    Senator Heller. Mr. Berry, I'll give you a chance to 
respond.
    And, to myself and my constituents, I think it's important 
that we enjoy a robust, competitive wireless market. I believe 
that leads to innovation. And I also think it lowers the price 
point for expensive--some of these expensive devices.
    And, in your testimony, you argue for a robust spectrum 
screen that limits the amount of spectrum a company could own, 
and for rules that ensure competitive carriers, that you 
represent, that would be able to bid on this spectrum. Can you 
give me some idea of what those rules would look like?
    Mr. Berry. Yes, sir, and thank you very much. I would say 
that the 700 megahertz spectrum auction is a--somewhat a good 
reference. The--well, the fewest dollars amount--fewest amount 
of dollars brought in by that spectrum was the largest sized 
spectrum. Only the largest carriers could bid on it. And it's 
sort of a--playing a bluff game. I don't think that we should 
do that.
    The Charles River and Associates Study, which was provided 
last year, showed that unrestricted auctions actually can limit 
the total bidder participation and actually reduce auction 
revenue. As I said in my comments, I want AT&T and Verizon in 
the same ecosystem as our carriers, because if they do that, 
then our carriers were going to bid because they know they have 
an ecosystem that they can participate in. They're not going to 
get fooled again, like they were in the lower 700 megahertz, 
and ended up not having the ecosystem that they could grow and 
build and have access to devices. If you don't have--every 
auction that's been conducted has had some type of rules and 
restrictions. And I'm really afraid that if you have an auction 
without any recognition that the one or two largest carriers 
should not walk away with the pie, then your auction rules is 
going to be, essentially, equivalent to, ``Let the big dog eat, 
and let him eat all he wants.'' And I don't think that will 
bring in the most revenue to the U.S.
    The 700 auction showed: CMAs brought in almost twice the 
amount of revenue per pop per meg as did the large aggregated, 
REAG areas. And I think we're going to see that again, and I 
think the FCC should have a device to bring certainty to the 
marketplace. That's what--all these carriers want certainty. 
And if you can have certainty on knowing what you're expected 
to be able to walk away with, you're going to bid more, and I 
think the American taxpayer will benefit from it.
    Senator Heller. Mr. Berry, thank you. And, to all the 
witnesses, thank you very much.
    Thanks, Chairman.
    Senator Pryor. Thank you.
    Senator Warner.

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Mr. Chairman.
    Thank you, Senator Klobuchar, for that revelation you made 
earlier. I--it's only because I've been--I got in the wireless 
industry 31 years ago, and I will remind the panel--or, more my 
colleagues, I guess--when it started, 31 years ago, everybody 
in the industry, everybody on Wall Street, thought it would 
take us 30 years to build out a wireless network, and, at the 
end of that 30 years, you'd have 5 percent market penetration. 
I made a lot of money, because they were wrong.
    [Laughter.]
    Senator Warner. But, one point I would make--and I want to 
kind of play off some of my colleagues' comments, because, you 
know, a business guy, I want to have the more--most efficient 
allocation, and, lord knows, we need the revenues. But, I do 
have to tell you, history has showed--and it was a fairly blunt 
instrument, what the FCC did, 31 years ago, in breaking in--the 
wireless block into A band and B band, wireline/non-wireline, 
and there was lots of consolidation. But, I can assure you, 
particularly in rural communities, there were large incumbent 
carriers that did not build out at--nearly as quickly as some 
of the startup or smaller companies. And there were a whole 
host of innovations, in terms of marketing plans, in terms of 
billing plans and other things, that really moved the industry 
along. If it had just been left to the Bell guys, the old Bell 
companies, I'm not sure--those original projections might have 
been--might have been correct.
    I also make the appeal to my colleagues--and I'm going to 
get to a question in a moment, but I want to take this moment 
with folks here--that, you know, if there's one common theme as 
we--we need a lot more spectrum. And I think Mr. Ford made a 
comment that some folks in government say, you know, ``I would 
not agree with the President's''--and everybody who's saying 
that, ``Never should we allow any government spectrum to be 
commercially used.'' I mean, one of the things we have tried--
with, actually, Senator Snowe and I, for some time--just to get 
a spectrum inventory. And I would urge any of my colleagues who 
want to join me in this--again, we don't even know--because the 
Government has a disproportionate amount of spectrum--how it's 
being used, and how efficiently it's being used. I mean, we've 
gone off and done things like public safety allocations of 
additional spectrum, without any take-back opportunities from 
spectrum that may not be fully utilized to its best effect. 
And, you know, we need at least a roadmap of where the spectrum 
is. And that gets us into areas with DOD and Intel and others, 
but a host of other public functions that, if we're going to 
reinforce--whether it's public safety or others--having some 
skin in the game, in terms of some of their spectrum, would be, 
I believe, a criterion.
    I guess--I want to go to--Steve, to you, to put--I know 
where, kind of, everybody else falls down. I'm trying to put 
you a little more in the box, here, because I do think one 
potential way to try to maximize revenues, but also maximize 
players without some undue restriction, because we've got the 
big two, but then we've got the next two, and then we've got a 
lot of small players. How do we not just make it--if you 
exclude the top two, something that just defaults to, you know, 
T-Mobile and Sprint? But it--has CTIA taken a position on the 
EAs versus the CMAs?
    The one thing about the CMA, as Mr. Berry has made comment, 
is that smaller carriers who are targeted in a market that 
might be able to provide better customer service, better 
quality service, and quicker delivery of that service than an 
incumbent that might otherwise warehouse the spectrum, might be 
a way to--you know, to kind of get at this.
    And then, I would be interested to hear Mr. Ford and Ms. 
Derakhshani's comments on this, in terms of----
    Mr. Largent. Well, I would say, Senator, that--first of 
all, congratulations on your award. Second of all----
    Senator Warner. Not as cool as yours, and I don't get it 
until----
    Mr. Largent. Yes.
    Senator Warner.--the fall.
    [Laughter.]
    Mr. Largent. But, second of all, I think that what you're 
talking about is--number one, we don't get involved in the size 
of the licenses, because we have a lot of Mr. Berry's members 
as our members, we have the big carriers as members. So, we 
don't get involved in that debate. But, I would tell you that 
the more spectrum that you bring to the market, the fewer 
debates, like we're having today, will exist, because 
everybody's going to get a chance to supplement their spectrum 
holdings. And that's what's--that's what we have always pushed, 
is, get as much spectrum as possible to the market as soon as 
you can, and then a lot of these debates that we have between 
Steve and myself or our carriers have among one another, those 
go away, because----
    Senator Warner. And should there be any distinction between 
that spectrum below 1 gigahertz and that spectrum above?
    Mr. Largent. Yes. I--and I think--I would draw the line at 
3 gigahertz and below. That's the spectrum we're particularly 
targeting for auction for wireless carriers.
    Now, we support the other folks that want to have Wi-Fi and 
other services. We support that. But, in particular, the 
spectrum that's below 3 gigahertz, that's what we're really 
looking at for wireless----
    Senator Warner. I'm going to--my time's run out, I won't 
ask the others. I'd only make one other comment, to my 
colleagues.
    I know this debate about unlocking phones is important, but 
if you don't have interoperability, it doesn't matter if you 
unlock, because if you--that phone can't be used across 
systems. And one of the things that I hope we can get more 
growing consensus on is not lose track of the fact that--we 
would not have a wireless system in America, but for the 
requirement the FCC made, 35 years ago now, on 
interoperability.
    Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Fischer.

                STATEMENT OF HON. DEB FISCHER, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Fischer. Thank you, Mr. Chairman.
    We seem to be having a focus, here, in our conversation on 
how the Government's going to get the most revenue out of this 
spectrum auction. And I guess I would open this up to Mr. 
Webster and Dr. Ford. And I'm interested in your opinion, as 
well. But, first, I'd like to inject this into the 
conversation:
    Do you think that wireless service is a right of every 
citizen of this country? If you do, do you believe that smaller 
companies that service people in areas that have difficulty in 
receiving service or receiving timely upgrades--should the 
Government somehow recognize that right, if it exists, and how 
should it be addressed?
    So, I would ask Mr. Webster, first, and then Dr. Ford.
    Mr. Webster. Senator, at Cisco, we believe broadband is a 
great enabler for societies, for education, for business, for 
productivity of the economy, for telemedicine, for public 
safety, for, simply, better quality of life and all that can be 
done that can help foster even greater broadband penetration. 
Higher quality broadband and faster broadband is something that 
should very much be pursued.
    Mr. Ford. Well, I think if you want to maximize the auction 
revenue, you need to sell one license. Monopolies will pay the 
most. So, that's really not what we're trying to do, I don't 
think. We use that. We're--I mean, I think Senator Warner 
mentioned ``maximize revenues and maximize the number of people 
that get it.'' It is this playoff between the two.
    As far as the rural markets, I think it's--it's interesting 
to think about that problem. And I don't know if I have a 
specific answer for you, but I have been thinking about that as 
this interoperability issue and roaming issue comes up.
    If you take roaming, for example, the argument for roaming 
is, you need--we have to force these larger carriers, that are 
everywhere--nationwide networks--to permit--smaller companies 
don't have nationwide networks--to use their networks, because, 
if they don't, there's no demand for the service, which is 
essentially saying there's no demand for local mobile wireless 
service. It's a national market.
    So, to some extent is--if we keep forcing--imposing these 
rules, we are creating entities that really don't fit into what 
the market really may be. OK? So, that's an interesting 
problem.
    It's sort of that way with interoperability, as well. If 
being--having a certain market share or operating in certain 
places is what drives the equipment market--if you're not in 
that space or you're not big enough, then are you the right 
type of firm to serve this market? Can you serve the market 
efficiently?
    And I guess, as someone who was--worked for a unbundled 
element, CLEC, I'm a little bit worried about business plans 
that hinge on government promises and rules rather than the 
underlying fundamental economics of the business. And I think 
we're getting into that area a little bit. But, I can 
understand why people would say, ``Well, they're not going to 
get served,'' or something like that. But, I think that's sort 
of a secondary market problem. If the larger carriers don't 
want to serve the rural markets, then why wouldn't they allow 
someone else to use their spectrum? And I think there are 
some--we need to study, carefully, what it is about the 
secondary market that is keeping firms out of it to address 
many of these problems.
    Senator Fischer. Mr. Berry, do you think some of those 
ideas that we just heard from Dr. Ford are going to help with 
access, then, to rural areas? Or do you have other suggestions 
on how we can improve that access?
    Mr. Berry. Yes, I--I don't agree with much of anything of 
what Mr. Ford just said. If you're in rural America and you 
want access to wireless, I think--whether you consider it a 
right or not, I think there are competitors out there that 
would like to provide it. And what we've seen is, the smaller 
carriers are willing to build out that most difficult-to-reach, 
most costly buildout, and service those few customers, because 
that's their business model. The larger carriers, it's barely a 
decimal on their profit sheets. And it would be the last place 
that they would build out, unless there were buildout 
requirements.
    In Germany, you know, they actually did a reverse buildout. 
You had to build out the rural areas first. Of course, Germany, 
there's not a whole lot of rural areas, compared to the United 
States. But, there are countries in the world that have 
addressed that. Canada has addressed it in their latest 700 
megahertz. Build out to rural areas first, before you get to 
the metropolitan areas.
    I don't know that's what we would do, but there are ways, 
with government suggestions, that you can ensure that every 
consumer has access to broadband.
    And we did a study, a year or so--a year and half ago, that 
showed that, in rural America alone, out of the 14 states--19 
states--that had less than 90 percent penetration, if you were 
to build out mobile high-speed broadband, you would actually 
increase the median income of every family in that state by as 
much as 5 percent. Now, that's the type of growth in rural 
America we'd like to see, and that's the type of job 
promotion--over 100-and-some--110,000 jobs created, just in 
rural America--with the mobile broadband buildout. Those are 
the types of economies of scale that may not show up in a flat 
economic study about what we should or shouldn't do.
    Senator Fischer. Thank you.
    Mr. Largent. Senator, could I add just one thing to that?
    Senator Fischer. My time's up. If----
    Mr. Largent. Well, I was just going to say--today, LTE is 
the 4G technology that wireless is providing, and today, 90 
percent of people in this country are covered by that LTE 
network. Today. So, we're talking about another 10 percent. And 
this is technology that's just been around for, you know, less 
than 18 months. So, we're rapidly covering the country. It's 
the 10 percent that we're talking about now that I think will 
be covered in the near term.
    Senator Fischer. Thank you.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    So, our next two Senators would be Senator Johnson and 
Senator Nelson.
    Senator Johnson.

                STATEMENT OF HON. RON JOHNSON, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Thank you, Mr. Chairman.
    I love it when people agree on things. And it looks like 
we're all agreeing on: we need more spectrum. So, kind of going 
down the line--anybody that wants to chime in, starting with 
Congressman Largent--what is the greatest roadblock? What's the 
number one stumbling block to creating more spectrum?
    Mr. Largent. Well, I'd answer--two things. One is on the 
auction that's immediately scheduled to occur in 2014. One, we 
have to keep it on schedule. And that's going to be a 
challenge, with the vacancies at the FCC today. Second, the 
additional spectrum that we need, beyond broadcaster spectrum, 
it--well, even with it--going back to the broadcaster spectrum, 
it's--there's no way to assure how much spectrum is going to be 
available, because they may not buy into it.
    Now, we're working--our companies are working with the 
broadcasters, trying to erase as many difficulties as we 
possibly can to try to free up 120 megahertz of spectrum, if we 
can. I don't know if that's going to be possible. You know, put 
that one on hold, and watch and see.
    In addition to that, though, we're going to need--if we get 
to the 500 megahertz of spectrum that was called for in the 
National Broadband Plan, then we have a lot of work left to do, 
and the Government is not always willing to part with the 
spectrum that they have.
    Of all the usable spectrum that there is, the Government 
owns 70 percent of it. So, 30 percent, we have--or, Wi-Fi has, 
or somebody else has, other than the Government; 70 percent, 
they have. So, we have to find a mechanism to coerce the 
Government to give up some of their spectrum. And that's hard 
to do, because they're sitting on spectrum that, you know, they 
were given, and there's no reason that they have to give it up, 
because they don't get the----
    Senator Johnson. But, don't----
    Mr. Largent.--they don't get the auction proceeds--now. We 
think they should. But, they don't get the auction proceeds, so 
why voluntarily give up spectrum that you have? So, that's 
going to be an issue for us, going forward.
    Senator Johnson. So, the short answer is: government.
    Mr. Largent. The Government has a lot of spectrum. We need 
to try to figure out a way to free it up.
    Senator Johnson. Yes. And government's not that easy to 
coerce.
    [Laughter.]
    Senator Johnson. Mr. Berry.
    Mr. Berry. I agree with Steve, that there are two areas to 
look at. You know, you go where the vast majority of it is. And 
one is, government owns exceedingly amounts--large amount of 
spectrum. And they do need to be much more efficient, and we do 
need to find a way that we can move them out, where they're 
compensated. And, actually, when you think about it, we get--
they get new devices, they get new technology. LTE networks are 
five times more efficient than the 3G networks that are out 
there now. If government thought that way, they might say, 
``Well, maybe I could get five times more efficiency out of 
spectrum--less spectrum.''
    And the other is the broadcasters. You know, 120 megahertz 
would be nice. I mean, you've got to ask yourselves--the 
broadcasters, for all the good they have done, 90 percent of 
the American people listen to their broadcasts over some other 
wireline capability, either a dish, a satellite, or cable. And 
10 percent--8 percent of the American people listen to it over 
the air. What is the economic justification for those two 
imbalances? When $166 billion is estimated, of new growth in 
the economy if we added 500 megahertz of spectrum, I think we 
know where we have to go get it.
    Senator Johnson. OK.
    Mr. Berry. It's a tough decision.
    Senator Johnson. Mr. Webster?
    Mr. Webster. Senator, in addition to the comments from the 
previous two witnesses, I think there is a burden--or a hurdle 
will be a lack of urgency. This is not necessarily a problem 
that is just going to be coming in the future; it is starting 
to get to be immediate issue now, and is going to require 
action to get as much spectrum as quickly as possible out into 
the marketplace.
    The second issue, especially in terms of the voluntary 
incentive auction, is going to be--the education needs to be 
driven by the FCC to the broadcasters, themselves, especially 
in the major metropolitan areas, where they have the biggest--
the biggest need for the spectrum. We can't necessarily expert 
a broadcaster to understand all the nuances of the 
telecommunication world, and that's a big area that the FCC 
could strongly contribute in to help make that auction a 
success.
    Senator Johnson. OK.
    Mr. Nagel.
    Mr. Nagel. I think one of the things is, sort of, the 
concept of incumbency in some of these spectrum bands. If you 
look at--look at the 5, you know, gigahertz band, which is 
probably the most promising, from the standpoint of making 
large channels to drive really, really fast Wi-Fi. It's the 
idea that, sort of, ``I own it.'' And I think that what we--
what we need to do is sort of have a new view, which is 
spectrum sharing. You know, there are people in almost all 
spectrum now. And so, we have to really develop this concept 
of, how do we share amongst ourselves, develop the rules so 
that things like Wi-Fi, which is a secondary service, work 
with, sort of, licensed and other incumbents?
    Senator Johnson. Mr. Ford.
    Mr. Ford. Entitlement to what you have licensed, which is 
what everybody said. I've been thinking about the Government 
issue a lot lately, and I think the problem is, we have a 
command-and-control management of spectrum in this country, and 
we need to inject the market, not in fiddling with the 
incentives of the Government, but inject the market into the 
management of spectrum, itself. Because these problems--when 
you can start moving money around, people get interested in 
talking to you. But, now we've got to deal with the FCC and the 
NTIA and maybe Congress, and try to get all these things done, 
and it's just--and mainly so--I mean, I don't know if the 
broadcasters are taking money from the Government in the 
spectrum auction, or the Government is taking money from the 
broadcasters in the spectrum auction, but if you can get the 
market involved in the management of spectrum, then I think 
it'll move a lot quicker than it is.
    Senator Johnson. Ms. Derakhshani, I know I'm over time, but 
I hate to not give you the opportunity.
    Ms. Derakhshani. Very quickly? Great, thank you.
    So, we would say, beyond the problem, freeing up spectrum 
and getting it to market, it also must be built upon quickly. 
Consumers won't be able to benefit from this additional 
spectrum unless it's built out upon. And, for that reason, I 
would say that we disagree with Dr. Ford's analysis that 
consumers will benefit from spectrum going to the largest 
carriers. Economic theory, as useful as it may be, doesn't 
necessarily serve as a proper metric for consumer welfare.
    Senator Johnson. Thank you.
    Well, Mr. Chairman, I think, to--just to summarize, it's 
going to require urgency from the Federal Government, and I 
certainly appreciate your holding this hearing, because we've 
got to create that sense of urgency, that type of leadership.
    Thank you.
    Senator Pryor. Thank you.
    Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Well, what happens if we don't release a 
lot of spectrum? So, Mr. Largent, what I'd like to ask is, To 
what degree can you make equipment and systems more effective 
if that were the scenario to play out?
    Mr. Largent. Yes. Well, I would rely on the experts on 
that. And so, I'd look to a company like Qualcomm, which builds 
efficiency into wireless networks. And their CEO said, at our 
show, not this year but last year, that we are fast approaching 
the time where we've gotten all of the efficiency out of the 
market that's available, that they don't have any new tricks up 
their sleeve to develop more efficient systems to take 
advantage of the spectrum that we have today--that we're going 
to have to have more spectrum, is the bottom line.
    And what are the results if we don't get more spectrum? I 
can tell you that it--what you will see happen--my guess--I've 
never been told this, but my guess is, you'll see higher 
prices, because when--that's how a carrier or a manufacturer 
deals with inefficiency in the marketplace and a lack of new 
materials or new spectrum, is by raising the prices. So, that's 
the only way that you can monitor or control the usage that's 
on your system that you have today. And that's not--that's not 
the world that we want to see.
    Senator Nelson. The way Congress is operating is not the 
world that I want to see, either. And yet, we find that it 
often doesn't work.
    Anybody else want to comment on that?
    Mr. Ford. Higher prices and lower quality, that's what'll 
happen. And you'll find innovative new business plans. Comcast 
building out its Wi-Fi network--people will start using that 
kind of model, but it won't be, really, what people want; it'll 
be an imitation of what people want.
    Senator Nelson. Mr. Webster?
    Mr. Webster. Yes. Just to use my Beltway analogy, Senator, 
from opening comments, if there's nine times more traffic on 
the Beltway in 5 years, there's going to be a great loss of 
productivity, a great loss of quality of life. It would affect 
the economy and actually make for a thoroughly unpleasant 
experience for us all.
    I think the way to solve this, no question, is going to get 
more licensed spectrum available, more unlicensed spectrum. 
There is a requirement, on technology innovation, to continue 
to improve the efficiencies, as we've seen with the difference 
between 3G and 4G. And there also is going to be a need to have 
network management that is appropriate to actually direct the 
proper supply to the demand when it's actually going to be 
necessary to optimize the experience for all. It's a 
combination of all four of those. It's not an either/or but a 
both/and scenario.
    Senator Nelson. So, Cisco can do all of it to make it a lot 
more efficient.
    Mr. Webster. Senator, I wish I could tell you that were the 
case. But, we definitely can advance on the technology 
innovation, and we can be ardent advocates to help promote 
national broadband for the betterment of this country and all 
others around the world.
    Senator Pryor. Thank you, Senator Nelson.
    Mr. Berry, did you have a comment on that last comment?
    Mr. Berry. Oh, I was just going to--thank you--I was just 
going to say that we are going to have to get better on the 
technological side. I'd say 90 percent of our capacity has been 
through technological innovation, not increasing spectrum. 
And--over the last 20 years--we are getting to that point, that 
there has to be significant breakthroughs. And whether it's 
software-defined antennas and radio--frequency skipping radios, 
we're always looking. But, they're 5 or 10 years away, and 
we're on an immediate head-on collision.
    There's other things that we can do right now to--
especially in some areas--to enhance and--the efficiencies of 
the spectrum that's currently there. I know that, last year, 
Senator Klobuchar and Senator Snowe introduced the legislation 
that would actually put some real flexibility in utilizing 
unused spectrum in those rural and regional markets. And 
hopefully, we'll start looking at innovative ways to do that. 
It won't stave off the draconian impact, but it will allow us 
to survive a few more years.
    Thank you.
    Senator Pryor. Mr. Webster, let me ask you a quick 
question--I see that we're being joined by another colleague, 
here, but let me ask you a quick question about spectrum.
    We've all talked about how we need more spectrum, but is it 
fair to say that not every area of the country needs more 
spectrum, that, for a lot of areas of the country, it's just 
really an infrastructure limitation more than, truly, a 
spectrum limitation? Although there are clearly some urban 
areas and congested, kind of, metropolitan areas that 
definitely need more spectrum. Is that fair to say?
    Mr. Webster. In our experience, every major operator in the 
developed world is in need of spectrum, one way or another. 
Certain developing nations don't necessarily feel the pinch, 
but, very much in the United States, there are going to be 
requirements of both licensed and unlicensed. We are seeing--to 
your point, Senator--definite need in the very dense 
metropolitan areas, right now, where there's just a very high 
concentration of people and devices looking to take advantage 
of the benefits of that. That's why any and all spectrum that 
can be made available for use would be helpful.
    Senator Pryor. And let me just follow up on that, if I 
could. And that is, are there ways that we could offload the 
need for spectrum with some of our wireless devices? For 
example--I'll just give you a couple--where a wireless device 
could pick up, just, over-the-air broadcast television and 
radio. Does that move the needle much, in terms of the need for 
spectrum?
    Mr. Webster. Sir, in terms of the overall demand of 
offload, you very much are accurate, in that there is going to 
be a need to offload from the more tightly constrained licensed 
radio spectrum, or cellular radio, off to the unlicensed radio 
spectrum, largely through Wi-Fi. And the key is going to have--
to be those two technologies working together as seamlessly as 
possible to have a very smooth mobile experience. In terms of 
broadcasting over the air, that is one option to consider; 
however, the vast majority of demand now is on-demand, where 
broadcasting to many doesn't necessarily work.
    Senator Pryor. I see.
    Senator Rubio.

                STATEMENT OF HON. MARCO RUBIO, 
                   U.S. SENATOR FROM FLORIDA

    Senator Rubio. Thank you.
    My first question--either Dr. Ford or Mr. Largent could 
help answer this--is about secondary spectrum markets. And 
considering the growing spectrum demand that we have, and the 
amount of time it takes to get spectrum from auction or 
clearing it to the marketplace, secondary market transactions 
become that much more important and necessary in order for 
carriers to acquire spectrum. So, should FCC approval of these 
transactions be streamlined, particularly for smaller 
transactions? Do you have any thoughts on how we should do 
that?
    Mr. Ford. Well, I recently wrote a paper on that, at least 
certain aspects of it. I think, certainly, if you've got a 
capacity problem, a spectrum problem, and somebody has some 
that they don't need, and somebody does, you make a transfer. 
But, always, these transfers get bound up in the politics of 
the deal, and people see opportunities to, you know, impose 
voluntary conditions and things of that nature. I think a lot 
of the smaller deals do go through. It's when you start 
getting--as we've been talking about here today, when you start 
getting AT&T and Verizon involved, then you run into problems, 
where people are saying there's too much spectrum 
concentration.
    But--the FCC has been a little slow, but they've actually 
approved deals recently without too many conditions on them, so 
there's some help there. But, there are many--that secondary 
market issue needs to be figured out and resolved, and I'm--I 
don't know all the problems with it, but it's not working as 
well as it should.
    Mr. Berry. You raised the issue of the secondary market. 
The secondary market is not actually working for the smaller 
carriers right now, because they're always being outbid by the 
largest carriers, because spectrum is at a premium need. And if 
you look, in the last 2 years, there were a little less than 
1,200 license transfers, 800 license transfers went to AT&T and 
Verizon. In the last year, 300 license transfers went to AT&T 
and Verizon with under 1 gig in the spectrum. What we haven't 
talked about here today is the efficiency of the spectrum 
itself, and how much more efficient certain sizes--certain 
spectrum and propagation values are over a higher gigahertz 
spectrum.
    So, that the secondary market hasn't worked, I'd like to 
see ways to enhance it. And I think Senator Klobuchar's bill, 
last year, would help open up some of those secondary markets 
for the smaller carriers. It's something I think we should 
still be exploring.
    Senator Rubio. My second question--and again, anyone can 
help answer this; I think I know the answer, but I want to make 
sure--is that I know the industry is really focused on the 25 
megahertz from 1755 to 1780, but do we have a cost estimate for 
clearing Federal users from that 25 megahertz? And if we don't, 
I guess the question is, why not? And doesn't that really hurt 
the chances of clearing it?
    Mr. Largent. The industry's actually done a study on that, 
and they've used government figures to come up with this 
result. But, the result was, it was going to cost about $4.6 
billion to move the Federal users.
    Mr. Berry. I should note that--Steve is exactly correct, 
but if you pair that with the 2155 to 2180, the entire value of 
those two pairings--and you have to sell 2155 to 2180 by 2015, 
according to the direction of Congress--the value of those two 
paired spectrum would be $12 billion. So, there's an 
opportunity, here, for us to act, and act now, and I totally 
agree with Steve on that.
    Senator Rubio. OK. And my last question is based off the 
testimony of Mr. Webster. You stated--this is a quote--that 
``Mobility has the potential to generate hundreds of thousands 
of more jobs if the Federal Government acts promptly to ensure 
that additional spectrum is made available to fuel future 
mobile broadband growth,'' end quote.
    My question is, what happens if we don't? What happens if 
we don't act promptly in that regard? What are the implications 
for our economy? Maybe the FCC and the NTIA don't work together 
to make more spectrum available.
    Mr. Webster. Senator, I believe the implications are that 
we're going to stall a very growing, thriving sector of our 
economy. We're going to be minimizing productivity gains of all 
different users, and impeding communications in our economy. 
And, frankly, it will start to put us behind on the global 
landscape. If we can't have strong mobile broadband, there are 
going to be a number of sectors that will--very well may choose 
to reside elsewhere. They will go someplace where they can 
actually get the bandwidth they need to operate their global 
businesses.
    Senator Rubio. Thank you.
    Senator Pryor. Thank you.
    Senator Blumenthal.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman.
    Thank you all for being here today. And I have a couple of 
questions. I hope I won't cover ground that has been covered 
already, from what I've followed.
    Let me sort of pick up on a point that Mr. Berry was making 
about the differences in spectrum--not all spectrum is created 
equal, so to speak. And the Department of Justice recently 
wrote to the FCC, as you know, to ask that the FCC weigh in on 
exactly this issue, on how the Commission can structure its 
spectrum policy to encourage competition and promote consumer 
benefits. And the DOJ noted that, just like in real estate, 
some spectrum is the equivalent of beachfront policy; and 
others, less desirable.
    So, since the beachfront property, so to speak, is already 
heavily concentrated--I think 78 percent of the spectrum below 
1 gigahertz belongs to--or, is controlled by AT&T and Verizon. 
Let me ask both Mr. Berry and Mr. Largent, what can be done to 
put more sensible limits on spectrum consolidation before 
reviewing mergers? Do you think that there ought to be limits, 
in reviewing mergers or conducting auctions? On approving other 
spectrum license transfers, should the FCC account for the 
differences in the quality of spectrum, particularly in low- 
and high-frequency spectrum, in making those kinds of 
judgments?
    Mr. Largent. Well--yes, I--Senator, the ideal situation for 
a carrier is to have both high-band and low-band spectrum. One 
is better for when you're dealing with concentrated users, and 
the other--and another type of spectrum is better to cover 
broad areas in rural communities. So, ideally, carriers want to 
have spectrum both below 1 gigahertz and above 1 gigahertz. So, 
that's ideally.
    But, I would say we have carriers on both sides of this, 
and so it's kind of--it's an issue that we don't deal with at 
CTIA, because there's not a unified position within the 
industry about the direction that we should go.
    Senator Blumenthal. Mr. Berry?
    Mr. Berry. Senator, I'd--I have a chart here that you might 
want to look at, if you can get a clerk to provide you. It's 
actually a coverage comparison on the value of spectrum. And 
the--and courtesy goes to Verizon for putting this together. I 
think they did this for one of their stockholder meetings.
    But, it shows that there is a significant difference in the 
value of low-band spectrum and high-band spectrum. Matter of 
fact, the build is four to five times as many towers to cover 
the same amount of spectrum if you have high-band versus low-
band.
    And this 600 megahertz spectrum that's coming available is 
absolutely prime real estate. And that's why I think that the 
FCC should do two things. One, they should finish the spectrum 
aggregation proceeding that they currently have, and identify 
what is a spectrum amount that is acceptable in every market. 
And then they should put a trigger--a double trigger in there 
that says, ``If you're in a market where you're exceeding or 
about to exceed the spectrum trigger, then you ought to be able 
to justify whether or not you need the spectrum, or not.'' I 
think that those two things put in place for the auction would 
probably end up limiting certain markets that AT&T and Verizon 
could accumulate over a certain amount of spectrum--and that 
would go a long way to making sure that smaller- and 
intermediate-sized regional carriers could actually buy the 
spectrum that they need to continue to be competitive.
    Senator Blumenthal. So, you think there should be some kind 
of sensible limits or controls or----
    Mr. Berry. I think it'll bring certainty to the market, and 
I--hopefully it will keep AT&T and Verizon bidding in the 
market, and hopefully we'll have an ecosystem that everybody 
can participate in. So, yes, I do believe there should be some 
type of gating mechanism so that one carrier cannot walk away 
with the pie.
    Senator Blumenthal. Let me shift to text messaging. Maybe 
you can explain, Mr. Largent, why there is a discrepancy 
between the low cost of transmitting text messages for the 
mobile carrier and text-messaging rates, which seem to be 
increasing.
    Mr. Largent. Well, I can tell you that I, personally--my 
rates aren't increasing. And it's not because I'm the head of 
CTIA. My wife's rates aren't increasing, either, because we 
have an all-you-can-eat plan. And the majority of Americans 
have a plan similar to that, where they pay one fee. I think 
it's----
    Senator Blumenthal. Well, my understanding is that, 
actually, most consumers, or many of them, are paying more for 
text messaging. Over the past several years, carriers have been 
offering fewer options in text-messaging plans, and at higher 
rates. Most carriers now compel consumers to choose between a 
$20-a-month unlimited text-messaging plan or a per-message rate 
of 20 cents. So, the options are fewer. You may have chosen one 
where the cost, incrementally, does not rise. But, for other 
consumers, text-messaging costs are increasing. And the point 
is that the costs for the carrier are not increasing.
    Mr. Largent. Well, what I would say is, the great thing 
about this innovative industry, there are always ways that you 
can get around that, as well. There's many applications you can 
download on your phone, where there's no cost to text message. 
So, I just think, in this really creative, competitive, 
innovative industry, there are ways to work around these 
different issues that consumers have. And, frankly, that's why 
this industry, to me, is so exciting and fun to be a part of.
    Senator Blumenthal. Well, you should talk to some parents. 
You've talked to your wife. You should talk to parents--I don't 
know whether you have children--who have to pay their 
children's cell phone bill. And that per-message rate, if 
that's the one that they choose, can add up pretty quickly. And 
the point, here, is that maybe there should be lower-cost 
options for that per-message rate.
    Mr. Largent. Right. And that's what I'm saying. There are 
lower-cost options that are available. So, it's just a matter 
of the consumer finding those out. And it's not like they're 
hidden. If they look for them, they'll find them.
    Senator Blumenthal. My time is expired, but I do appreciate 
your being here. Thank you very much.
    Senator Pryor. Thank you.
    Senator Klobuchar. Thank you for your----
    Senator Klobuchar. Thank you. I just want to follow up--no 
questions, but I'm one of those mothers that didn't want to get 
the unlimited texting, because I didn't want my daughter to 
unlimited text. And I know what those higher bills are like. 
So, thank you. And I still haven't changed. And I hope that 
you'll change.
    The questions I had was on spectrum. And we've talked a lot 
today about how there's just this growing demand for spectrum. 
We all know that. And with this increased discussion about 
relocating government spectrum users in order to increase 
spectrum available for commercial--for consumer broadband 
usage, I know that Commissioner Rosenworcel has suggested 
providing financial incentives to government agencies to 
participate in relocation. And, as I understand it, she has 
proposed allowing agencies to reclaim a portion of the revenue 
that would come from auctioning off their spectrum, and this 
would be used to relieve the significant budget pressures 
facing all Federal agencies.
    Could you explain, Congressman, if you envision such a 
proposal could work?
    Mr. Largent. I think it absolutely can work, and I support 
that. And I've relayed those comments to the Commissioner about 
that. I think it's a great idea.
    Senator Klobuchar. OK.
    Anyone else want to comment?
    Mr. Berry. Yes. Actually, we did that in 2001/2002, when we 
cleared 1710 to 1745. I was at CTIA at the time, and we passed 
legislation that authorized the DOD to actually get reimbursed 
for the cost of their new capabilities, moving to a different 
slice of spectrum. And I agree with Steve--Mr. Largent--that it 
will be helpful, and we ought to try it, because we need to get 
more spectrum out of the Federal Government, for sure.
    Senator Klobuchar. OK.
    Anyone else?
    [No response.]
    Senator Klobuchar. OK. I am the Chair of the NextGen 911 
Caucus, and we're always looking for ways to improve public 
safety. Clearly, interoperability in the whole spectrum issue 
will be helpful. And we've got, in our state, about 27 percent 
of the Minnesotans living in rural areas, but almost 70 percent 
of our motor vehicle accidents occur in rural areas. And we 
know there are a number of reasons for this disturbing fact. 
But, could you speak a little bit about the public safety 
implications of widespread access to wireless networks, 
especially in terms of decreasing response time? And could you 
discuss, maybe--either of you, at the end there--how your 
members are working with the FCC on the implementation of text-
to-911 services, which--we know a lot of people are now using 
text to communicate with 911.
    Mr. Largent. Sure. We're actively working with the FCC to 
participate in the 911 panel that they have, the Committee. 
And, you know, my hope is, is that we can expedite this 
process. We have done a lot of work. And, frankly, though, a 
lot of work still needs to be done, on the Government side of 
the equation, to get them caught up, in terms of the equipment 
that they have and the ability to receive information from 
wireless carriers, that they can't now. So, that really is one 
of the most inhibiting factors in delivering next-generation 
911 service, is their ability to receive the information at 
those centers that you're referring to.
    Senator Klobuchar. Do you want to add anything, Mr. Berry?
    Mr. Berry. Yes. We, too, are working with FCC. And 
actually, have--are complying with the text--the bounce-back 
for the text 911 bounce-back. And the smaller carriers, may 
take them a little longer. And I think we're working with FCC 
to actually be able to meet the NG-911 requirements. But, 
it's--absolutely right, with that capability comes a 
responsibility. And our carriers, I think, are stepping up to 
the plate.
    But, Steve is absolutely right, it would be nice to have 
PSAPs, and the public service--or public answering systems--
compliant, also.
    Senator Klobuchar. Very good.
    You raised, Ms. Derakhshani, about the issue of cramming, 
earlier in your testimony. And I know there are intricacies to 
the wireless industry. But, at the same time, I've seen 
consumers show me their bills in Minnesota, not just on the--on 
regular phones, but also on the wireless. And I know the FCC's 
looking into this. And how underreported do you think it is? I 
just know--we had a Lutheran minister who went through his bill 
every single day, and then found it. And I just don't think 
everyone's doing that and looking at their bills that 
carefully.
    Ms. Derakhshani. Absolutely. We think this is a very 
important issue. We've been alerting our readers to the 
practice of cramming, and telling them to carefully look at 
their bills every single month. But the fact is that when 
consumers do not anticipate these charges--when consumers do 
not initiate the requests to have these charges, they're not 
looking for them. This further contributes to the problem.
    Industry often points to the fact that these numbers--the 
complaint numbers simply aren't there. But, the fact of the 
matter is, these numbers are underreported because many 
consumers have no idea that this practice is taking place.
    Senator Klobuchar. OK.
    I'll put my last question on the record--I see Senator 
Ayotte's here--but, to you, Mr. Berry, and it's just about the 
interoperability issue.
    I thought it was good, Senator Warner raised that. It is 
true that we need the interoperability to do the unlocking. And 
my question was going to be focused on the rollout of 4G 
service and the problems with that, in rural areas, if we don't 
have interoperability. So----
    Mr. Berry. Well, especially in the lower 700 megahertz 
band. Without interoperability, it's going to be a long time 
before our carriers can get devices.
    Senator Klobuchar. Exactly.
    Thank you very much.
    Senator Pryor. Thank you.
    Senator Ayotte.

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. Thank you, Mr. Chairman.
    I appreciate the witnesses being here today.
    Mr. Ford, I've got constituents in more rural areas of New 
Hampshire--Coos, Carroll County, and to some extent, Grafton 
County--that really don't yet have full access to the wireless 
or broadband capacity that they need. Roughly a third of 
American households don't even have a landline.
    And then, for economic activity and growth, what can we do 
to increase access and deployment in these areas? How does a 
competitive marketplace increase access in more rural settings?
    I'm also going to have a follow-up to Mr. Berry. 
Understanding you represent the smaller carriers, I'd like to 
hear your thoughts. I'm not a big fan of the Universal Service 
Fund, the way it is structured now, because New Hampshire is a 
$25 million annual net donor. We have these needs that I'm 
talking about that are real needs in rural areas of my state.
    I'd ask Mr. Ford, first, just from the competitive side, 
what are your thoughts on rural development?
    Mr. Berry, count me as someone who doesn't want New 
Hampshire to continue to be a net dolor to this fund. As 
someone who represents the smaller carriers, how do you suggest 
we address the disparity and equity issue of states like mine 
receiving 37 cents for every dollar we contribute to the 
Universal Service Fund?
    Starting with Mr. Ford.
    Mr. Ford. Well, whether the market is competitive or not, 
there are going to be areas of the country where it just 
doesn't pay for a private company to provide service. And, in 
those cases, if the Government can make it happen, they've got 
to come in with some kind of universal service program. But, 
like you have noted, those programs aren't all that good. And 
that's the--a fundamental problem with government trying to do 
nearly anything, and the problem with just being--living in a 
place where it's not economic to serve. In some cases, there's 
an economic case that comes from a carrier, who wants to be 
nationwide and wants to sell coverage, who might cover an area 
that's not really profitable, in and of itself, except for the 
fact that people may vacation there or drive through or 
something like that. But, there are just a lot of areas where 
there's no business case. If the Government wants to come in 
and try to create a business case in some way, that's possible.
    Competition is a problem, in some respects, because, in the 
old days, we did, sort of, internally funded universal service, 
where a carrier served the whole area, and he would take 
profits from an urban area and shift them over there, and that 
was fine. When competition developed, the margins were stolen 
by the competition, and you couldn't support that internal 
subsidy.
    There are probably some very creative ways to do it. I 
think that Universal Service may keep people from really 
searching out those competitive ways to solve that problem. You 
know, the Government could do some simpler things--build 
backhaul towers that could be shared, those sorts of things. I 
just don't think there's much discussion of that--I'm not 
certain of that--partly because there is this system that's 
supposed to take care of it, and people kind of think that's 
going to do it.
    Senator Ayotte. Right.
    Mr. Ford. And it doesn't. And if I wanted to, maybe--if I 
could get a little bit of money--I talked to a guy who had 
arranged to build a wireless network on some water towers in a 
little community in north Alabama, and he couldn't get any help 
to do it. It wasn't very expensive--$60,000 or something is all 
he needed. Couldn't get it from the NTIA on the broadband 
thing. You know, I think it's just really a failure of an 
institution. And maybe that institution will always fail. Maybe 
government just can't do it, and we just have to live with it.
    Senator Ayotte. Mr. Berry?
    Mr. Berry. Thank you, Senator.
    Universal Service Fund and CAF, the Connect America Fund. 
You should be outraged that there----
    Senator Ayotte. I'm outraged for my constituents----
    Mr. Berry. Well, you should be.
    Senator Ayotte. You don't have to tell me.
    Mr. Berry. Well, you share the same position as most of the 
wireless carriers. We contribute 44 percent to the Universal 
Service Fund, and wireless carriers take less than 20 percent 
of the Universal Fund dollars. The so-called ``reform'' on USF 
was disastrous to wireless--rural wireless carriers. It totally 
decimated the revenue. Sixty percent increase to ILECs, 6 
percent increase to RLECs--rural electric; 60 percent reduction 
to wireless carriers. It's an outrage to say that we did 
anything to improve broadband--high-speed mobile broadband in 
rural America. And your state was one of the ones that got 
really severely hit.
    I'd like to see a program at the FCC that is technology 
neutral and gives everyone an opportunity to bid. What they're 
doing with CAF-1 and CAF-2 and the Mobility Fund, I think it 
was outrageous. And the wireless carriers continue to support 
USF contributions--like I say, to 44 percent of the total 
fund--and take almost nothing.
    There's a few things--I'd love to talk to you, offline, on 
some of the things that we're working on at the FCC to make 
them--or at least get them to look at their next phase of CAF-1 
and CAF-2. You're talking about a CAF-1--Connect America 1--for 
wireline companies that was $300 million, and $185 million of 
it was not accepted by the wireline companies, because they did 
not want to commit to carrier-of-last-resort responsibilities. 
We had wireless carriers more than willing to do that. So, I'm 
sitting there saying, ``What's the policy that we should 
pursue?'' We should recognize that, in some areas of the United 
States, wireless will be the most efficient and most effective 
deployment of high-speed mobile broadband. And the Federal 
Government ought to recognize that, it is a substitute 
technology.
    So, I'd love to talk to you about some of the things that 
we're working on, and hopefully, you know, we could make some 
positive inroads down there.
    Thank you.
    Senator Ayotte. I would appreciate that.
    And I know that my time is up. I've got a couple of more 
questions that I will submit for the record.
    But, I appreciate you all being here, and I'm glad to hear 
that you're as outraged as I am for New Hampshire.
    So, thank you.
    Senator Pryor. Senator Ayotte, thank you for being here.
    And I do have one follow-up question for Ms. Derakhshani, 
and it's about cramming. Years ago, when I was Attorney 
General, we dealt a lot with this, just on your home telephone 
and cramming on bills. I remember, with telephone service, it 
was hard, because your typical telephone bill is not the same 
every month, you know, depending on if you're using long 
distance or whatever's going on. So, sometimes the customer 
doesn't really know, kind of, what their average is; and if 
it's a little high one month, they don't even look at it. And I 
assume that's pretty true with a lot of wireless plans, as 
well. I mean, you can get the packages and get all the data and 
all that. But, you know, a lot of this just depends on month-
to-month.
    So, the question is, do you think that the wireless 
companies should do something proactive? Like, for example, 
maybe send a text to their customers when something is placed 
on the bill so the customer can be notified and see it and 
verify it.
    Ms. Derakhshani. Absolutely. We were really glad that this 
was the case in the bill-shock proceeding. We hope that this is 
an effective way to alert consumers, to help ensure that they 
don't go over their plan limits.
    We were really glad to see that the landline rules were put 
into effect last year at the FCC. These rules more clearly 
separated out third-party charges. We would love to see this 
for the wireless context, as well.
    But, I really do think that carriers need to play an active 
role in ensuring that consumers are provided with the tools and 
the information that they need--not only to make meaningful 
choices, but to also protect themselves against abusive 
practices.
    Senator Pryor. Thank you.
    Well, I want to, again, thank the panel. We've kept you for 
2 full hours. I don't think that was our intention. But, I 
think we had 12 Senators come and ask good questions, and a 
couple, three, asked two rounds' worth. So, I want to say thank 
you very, very much for your participation today, and your 
preparation.
    This is going to conclude the hearing, but what I want to 
say before I drop the gavel is that we will keep the record 
open for 2 weeks, and members can submit questions. And some of 
them said that they would submit questions. So, we'd appreciate 
you all getting back with us as quickly as you can, once those 
questions come in.
    Again, thank you all for your participation. You're 
outstanding and really helped the Subcommittee understand the 
lay of the land when it comes to wireless.
    We're adjourned.
    [Whereupon, at 4:31 p.m., the hearing was adjourned.]


                            A P P E N D I X

    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                            Steven K. Berry

    Question. Consumers who have made investments in their devices, 
which are not always cheap, should be able to take their purchases with 
them to any network, unlocking is one way to ensure this . . . 
interoperability is another. Consumers don't always realize that they 
are being cornered into one service by a device. How does lack of 
interoperability impact the rollout of 4G service to rural America and 
the quality and cost of services they receive?
    Answer. The lack of interoperability in the Lower 700 MHz spectrum 
band has a significant negative impact on a carrier's ability to 
provide 4G LTE mobile broadband service to rural America. Absent 
interoperability, competitive carriers, including those who provide 
service in rural America, who have invested nearly $2 billion in 
spectrum in the Lower 700 MHz band, are largely unable to secure the 
devices necessary to deploy and provide mobile broadband services. The 
Lower 700 MHz band, known for its superior propagation characteristics, 
is particularly important for rural areas. Using this spectrum, 
competitive carriers can service rural areas more economically and with 
fewer towers than they would with higher frequency bands. The lack of 
interoperability is significantly impeding the rollout of 4G service to 
rural America.
    As you noted during the hearing, interoperability is required for a 
consumer to take an unlocked phone and use it on another network. 
Similarly, interoperability is required to allow a consumer to access 
service through carrier roaming relationships with other networks while 
outside their home network area.
    The Federal Communications Commission (FCC) has an open proceeding 
pending on this issue, and I strongly encourage the Committee to urge 
the FCC to immediately restore interoperability to the Lower 700 MHz 
band. Restoring interoperability to the Lower 700 MHz band would allow 
competitive, rural, and regional carriers to utilize low band spectrum 
that they have already purchased to deploy mobile broadband services in 
the rural areas that they have historically served. In turn, millions 
of rural, regional, and lower-income Americans will gain access to 4G 
LTE mobile broadband services, and will see increased competition and 
innovative pricing and plans in their local markets.

                                  
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