WASHINGTON, D.C. – Representative Edward J. Markey (D-MA), Chairman of the Subcommittee on Telecommunications and the Internet, held a hearing to examine the relationship between wireless consumers and wireless service providers. The hearing, entitled “Wireless Innovation and Consumer Protection” took place a week after the much-anticipated release of the Apple iPhone.
During his opening statement, Chairman Markey said, “The iPhone highlights both the promise and the problems with the wireless industry today. On the one hand, it demonstrates the sheer brilliance and wizardry of wireless engineering….On the other hand, the advent of the iPhone raises questions about the fact that a consumer can’t use this phone with other wireless carriers, and that consumers in some areas of the country where AT&T doesn’t provide service can’t use it in some neighborhoods at all.”

Chairman Markey went on to call for innovation in the wireless marketplace, highlighting the upcoming 700 MHz spectrum auction as an opportunity to encourage competition and innovation. The chairman’s full opening statement is below:

Good Morning. Today the Subcommittee will explore several wireless issues, including the role of States in regulating the terms and conditions of wireless service, consumer protection and enforcement issues, as well as how to promote greater innovation and consumer freedom in the marketplace for wireless devices and applications.

The wireless industry has suggested that Congress should pre-empt States from regulating the terms and conditions of wireless services as it did over a decade ago with respect to prices for wireless services. Many States have initiated attempts to take action to provide consumer protection policies for their residents, particularly with respect to regulations aimed at wireless contract terms, early termination fees, privacy issues, and others.

To the extent that wireless service is by its nature an interstate service, this hearing will provide an opportunity for us to explore whether further pre-emption is advisable, how consumer protection can be enhanced if regulatory treatment is nationalized, and how best to ensure rigorous enforcement of consumer protection policies in such a regime.

With respect to wireless innovation….just over a week ago, people stood in lines around the country over night to get one of these: an iPhone.

The iPhone highlights both the promise and the problems with the wireless industry today.

On the one hand, it demonstrates the sheer brilliance and wizardry of wireless engineering. This cutting-edge device clearly breaks new ground in terms of technology and millions of consumers will undoubtedly cherish this device. It also includes a wi-fi chip, which is a welcome addition.

On the other hand, the advent of the iPhone raises questions about the fact that a consumer can’t use this phone with other wireless carriers, and that consumers in some areas of the country where AT&T doesn’t provide service can’t use it in some neighborhoods at all. That’s because the iPhone is exclusively offered on the AT&T wireless plan. Moreover, even though consumers must buy an iPhone for the full price for 500 or 600 dollars, AT&T Wireless reportedly still charges an early termination fee of apparently $175 for ending the service contract early, even though the phone cost wasn’t subsidized and a consumer can’t even take it to use with another network provider.

This highlights problems with the current marketplace structure, where devices are provided by carriers, portability of devices to other carriers is limited or non-existent, and many consumers feel trapped having bought an expensive device or having been locked into a long-term contract with significant penalties for switching. (I would note that a witness today, Verizon Wireless, remains an anomaly in the industry by pro-rating its early termination fees, and I applaud them for taking such a step.)

It has become increasingly clear, however, that wireless carriers are exerting far too much control over the features, functions, and applications that wireless gadget makers and content entrepreneurs can offer directly to consumers. I believe this is stultifying innovation and unquestionably diminishes consumer choice.

The freedom to innovate in the wireless marketplace for gadgets and applications could unleash hundreds of millions of dollars in investment and create new jobs. Consumers would see more phones with wi-fi or Wi-Max chips incorporated into wireless devices -- and application providers could avail consumers of the opportunity to obtain new content and or other technologies that enhance the consumer experience and provide additional competition.

Policymakers should to explore how to promote greater innovation in the wireless marketplace and empower entrepreneurs and consumers with greater freedom. This was the idea behind the so-called “Carterfone” decision in the late 1960s, when the FCC broke the stranglehold Ma Bell had over the black rotary-dial phone that consumers used and allowed un-affiliated manufacturers provide such devices in the marketplace. The result was incredible innovation and an unquestioned policy success.

The FCC has a rare chance to foster similar innovation in the wireless marketplace in the upcoming auctions. As I have suggested previously, the FCC should seize this opportunity to create an open access opportunity for wireless service in this auction, and should insist upon Carterfone-like principles applying to a significant portion of the licenses to be offered. Recent comments by FCC Chairman Martin that he is poised to embrace these policies in a proposal for auction rules is a step forward and welcome news. I encourage the FCC Chairman and his colleagues to maximize the benefits these policies can bring to consumers and the high tech economy in their upcoming decision.

I look forward to hearing from our witnesses this morning.