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August 2007 | Volume 10 / Nuber 8
Enterprise View

Skype’s Carterfone Petition Poses New Opportunities and Challenges in the Enterprise Market

On February 23, 2007, Skype filed a petition at the Federal Communications Commission (FCC) seeking a ruling that cellular mobile telecommunications service subscribers have a right to choose their own terminal equipment (i.e., handsets, PDAs, laptops, etc.) and software applications. As cellular networks become more open to interconnection of customer-provided equipment, enterprise systems developers and suppliers have an opportunity to offer added value to their customers — specifically, to offer multi-network devices and eventually seamless interconnection between cellular services and enterprise systems. Wireless is the growth sector of telecommunications — and regulation will have a key impact on enterprise systems companies’ ability to gain a share of this market. The Skype petition and any spin-off proceedings deserve careful attention from companies serving the enterprise market, who can take collective action through trade groups such as the Enterprise Communications Association (ECA).

Citing the open interconnection principles that have applied to wireline telecommunications networks for more than three decades and that prevail in many wireless networks in other countries, Skype has urged the FCC to require wireless carriers in the U.S. to allow interconnection of any equipment meeting reasonable technical standards, and to prohibit carriers from discriminating in favor of their own handsets and applications. Skype analogized its petition to the FCC’s 1968 Carterfone decision, which gave telecommunications consumers, for the first time, a right to connect their own, non-Bell telephones to Bell’s wireline telecommunications network. Skype is seeking for wireless customers the same right to connect their own handsets and operate their own applications on wireless networks.

Predictably, wireless carriers opposed Skype’s petition. While claiming that they do not actually prevent customers from connecting their own handsets, carriers argued that they have a right to control interconnection because (1) they are not monopolies, (2) they have a right to protect their network investments by limiting others’ ability to get a “free ride”; (3) they need to protect the technical integrity of their networks.

In response, Skype and its supporters replied that, even where they do not absolutely prohibit interconnection, carriers impose significant barriers to customers attempting to connect their own devices. The proponents urged the FCC to mandate open interconnection because (1) although not monopolists, wireless carriers frequently behave oligarchistically to the detriment of competition, (2) using public radio spectrum resources is a privilege, not a right, and may reasonably be conditioned on open interconnection requirements, and (3) technical harm issues were raised in the Carterfone era and were effectively addressed by imposing technical standards on interconnected equipment.

There is even more at stake in this dispute than consumers’ right to choose their own handsets and applications. The deployment of wireless broadband networks and consumers’ escalating expectations of convergence will almost certainly stoke demand for handsets and other devices that can interconnect with — and eventually move seamlessly between — cellular and other networks, including enterprise communications systems. Although wireless carriers may resist this trend, entrepreneurs will find a way to offer multi-network solutions if there is sufficient demand for them.

Thus, while the FCC may be in no hurry to act on the Skype petition, the market may not wait for the FCC. As the recent launch of Apple’s iPhone demonstrates, wireless devices increasingly offer a host of applications that have nothing to do with traditional cellular telephony. Thus, even though the iPhone is a carrier-sponsored offering, the underlying market trend seems inconsistent with continuing carrier control of terminal equipment. Moreover, as the complexity of terminal devices increases, so does the price tag, making it more difficult for carriers to justify continued subsidies for their own sponsored devices. In short, for cellular carriers to continue maintaining tight control of the expanding array of terminal device features and applications seems to make less and less sense either technically or economically.

The FCC will need to be prodded to make rulings favorable to open wireless interconnection. Meanwhile, as the FCC ruminates on the broad policy principles, enterprise systems providers are likely to move ahead with integrated wireless solutions, either in collaboration or in conflict with wireless carriers. Disputes are likely to arise, requiring resolution on an ad hoc basis by the FCC or other forums without the benefit of settled interconnection rules. For example, there may be confusion as to applicable pricing rules, including access charge regulations, for calls that are handed off across network boundaries. In addition, different E911 regulations — including potentially inconsistent location identification standards — apply to enterprise and cellular networks. Disputes may also arise as to who is responsible for complying with applicable regulations — the manufacturer, hosted system provider, cellular carrier, or the enterprise itself.

As regulators begin to grapple with these complex issues, as well as the overarching interconnection policy, enterprise systems providers need to be alert to the emerging regulatory opportunities and challenges that will affect their market position. Organizations such as the ECA offer an important collective vehicle for enterprise market participants to make their voices heard and avoid conceding this emerging convergence opportunity to others. IT

Bob Aldrich is an attorney with Dickstein Shapiro LLP, Washington, DC, and is counsel to the Enterprise Communications Association (ECA).

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