Wireless Carterfone
A Long Overdue Policy Promoting Consumer Choice and Competition
Rob Frieden, Penn State University
New America Foundation | January 2008

Abstract

Wireless carriers in the United States operate as regulated common carriers when
providing basic telecommunications services, such as voice telephone service, text
messaging and speed dialing to services and content. Remarkably, stakeholders debate
whether this clear cut regulatory status requires wireless carriers to provide service
to any compatible handset, subject to a certification process to ensure that such
use will not harm carrier networks.

Thirty-nine years ago the Federal Communications Commission (FCC) established its
Carterfone policy establishing such a right for wireline subscribers. Consumers
now take for granted the right to purchase their choice of telephones and other
devices (e.g., computer modems, answering machines) and to attach them to wireline
networks without carrier-imposed limitations. After announcing its Carterfone policy,
the FCC identified ample consumer benefits and applied this fundamental right in
several instances so that consumers can freely use their handsets to access services, applications
and content. This fundamental right has accrued unquestionable benefits to consumers
and the national economy.

Wireless operators have vigorously opposed efforts to convince the FCC that it should
establish a wireless Carterfone policy. Opponents claim that Carterfone offered
an industry-specific remedy to a monopoly environment where the Bell System controlled
both the manufacture and distribution of telephones and telephone service. They
assert that the lack of such vertical integration and the existence of robust competition
in the wireless marketplace obviate the need for rules requiring carriers to
unlock the handsets they sell and to open their networks for access by any compatible
handset.

This paper explains why wireless Carterfone policy constitutes a long overdue policy
response to carrier practices that often have nothing to do with protecting their
networks from technical harm or other legitimate network management needs. For example,
blocking the implementation of wireless Carterfone enables carriers to continue
locking subscribers into two-year service contracts with substantial penalties for
early termination. In exchange for the service commitment, consumers acquire a
carrier-subsidized handset, but they also consent to carrier-imposed restrictions
on the use of the handset they bought, including the ability to access telecommunications
and content services of competitors even after the carrier has recouped its subsidy.

This analysis explains how wireless carriers benefit financially by avoiding Carterfone
obligations and refutes the rationales and justifications for this behavior. The
paper also demonstrates that the FCC has ample statutory authority to apply wireless
Carterfone policy based on the largely ignored fact that when wireless cellular
telephone companies provide telecommunications service, they remain subject to most
common carrier regulations regardless of the fact that they also may offer less
regulated information services. Finally, this report explains that wireless carriers
must comply with public interest regulatory mandates even though they might conflict
with carriers' preferred business plans. The Commission has undertaken a number
of analogous initiatives to protect consumers from mandatory bundling arrangements,
such as its 2005 order mandating alternatives to cable set-top box leasing, which
underscore the continued importance of Carterfone principles to protecting the
public interest.

Full paper <http://www.newamerica.net/files/Wireless_Carterfone_Frieden.pdf>