Handsets Too Expensive Without 700 MHz Interoperability Mandate, Small Carriers Say

But AT&T and Verizon Wireless said in filings at the commission that interference remains a big issue and a single handset that works across the lower 700 MHz band won’t meet their needs.

Small carriers have been at the FCC for several meetings in recent weeks, said one industry attorney. “In the last month, several offices have said, ‘Hold it, let’s go over this again. You're telling me that you're not going to be able to get devices, and we've allowed this spectrum to be sliced up and essentially balkanized and the value of the spectrum actually depleted,'” the attorney said. FCC officials are “taking another look at it. They thought this was merely an issue of interference.” While House officials also appear to be paying attention, the attorney said. Phil Weiser, a White House aide on telecom policy, declined to comment.

The FCC is scoping the issue. Tom Peters of the FCC’s Wireless Bureau went to Spain for a recent 3GPP meeting and to Chicago to attend an ad hoc meeting on the lower 700 MHz A, B and C blocks hosted by U.S. Cellular. The FCC has also taken comment on a petition for reconsideration filed last year by the 700 MHz Block A Good Faith Purchaser Alliance, asking the FCC to mandate 700 MHz interoperability.

The problem, small carrier attorneys said, is that the standards-setting group 3GPP has agreed to divide 700 MHz spectrum into bands. Verizon Wireless’s operations will be mainly in Band 13 and AT&T’s in Band 17. Most small carriers, which bought A-block spectrum, will be in Band 12.

Small carrier sources said they have had many discussions this year with handset makers and the results were discouraging. The market they will serve is relatively small -- in the hundreds of thousands of subscribers, compared with Verizon and AT&T, which measure their markets in the tens of millions. Many vendors are not interested in serving Band 12, one small carrier source said. Others forecast handset prices “well north of $500,” the source said. LTE phones with the same features as the iPhone would likely run more than $650, which would mean a small carrier probably would have to subsidize the purchase price $400 or more, since consumers dislike paying more than $250 for phones, the source said.

"When we got to talking to manufacturers and the component vendors, it seemed like everyone was waiting for someone else to do some of that development, but that development would come third in line, if it came at all, after Verizon’s band 13 orders and AT&T’s band 17 equipment orders,” said Eric Graham, vice president of government relations at Cellular South.

The industry could be moving to an LTE world in which the GSM-CDMA division is no longer important, Graham said. “Instead things are setting up to perpetuate the world that we've come to hate in the wireless industry,” he said. “Everything that you hated about wireless is going to continue for another generation if there’s not a requirement for interoperability. Wireless won’t be divided by a technology. … It will be divided by spectrum, where you land in that 700 MHz spectrum."

Rural Cellular Association President Steve Berry said interoperability at 700 MHz “has been a big issue for our guys, because it encapsulates our three big issues together,” spectrum utilization, roaming and availability of devices. “The original band plan was Plan 12, and it was designated before the auction,” Berry said. “All these new bands were designated after the auction.” AT&T and Verizon both went to 3GPP “and carved out a band plan that is only good for them,” he said.

Dividing the band as 3GPP wants would cause many problems, Berry said. The big carriers have “almost defined themselves out of any data roaming requirement that the FCC may mandate,” he said. “Who will you connect to? If the FCC has given you a license in New Mexico, when you go outside that area who are you going to roam with?"

Peter Crampton, an auction expert at the University of Maryland, said in a recent paper that inaction by the FCC would “further cement” AT&T and Verizon’s “dominant position” in the market. Small carries can compete with the big two but need “not only spectrum, but the availability of low cost devices,” Crampton said. Small carriers have also enlisted some public safety groups to weigh in, since they will use 700 MHz spectrum and have similar concerns about finding affordable handsets.

But AT&T and Verizon say the separate bands are necessary and were sought at 3GPP by equipment makers, not by them. Separating off band class 17 addresses lingering concerns about interference from television broadcast in channel 51 and high-power operations allowed in lower D & E 700 MHz spectrum, AT&T said. Interference in general can be addressed through the use of narrower and more selective filters, the carrier added. “The alliance approach would require the use of wider duplex filters making for more complex and expensive solutions,” AT&T said.

A big-carrier source said the 700 MHz band is one of the most challenging to be sold in an FCC auction because of nearby high power operations. “The argument is this is just radio frequency engineering -- we do this all the time,” the source said. “We haven’t had to deal with engineering around high power frequencies.” Another issue is that the LTE networks will take time to build out and handsets sold to operate at 700 MHz will need access to other legacy spectrum as well, requiring carrier-specific handsets, the source said.