The FCC and the Communications Industry, Research Paper Example

Abstract

The Federal Communications Commission was established in 1934 to monitor and govern business processes in the communications industry. The current paper will discuss the impact, which the FCC produces on wireless communications providers. The example of Cellcom will be used to discuss the role of the FCC in various business processes. The paper assumes that the role of the FCC in the communications industry is so significant, that the latter is hardly driven by the market forces, but requires that companies like Cellcom balance their profitability objectives with the need to comply with the FCC’s regulations and requirements.

Introduction

Throughout its history, the Federal Communications Commission (FCC) sought to create a vision of the communications industry in the U.S. as of the sector that uniquely combines the features of the free and regulated markets. On the one hand, the FCC always tried to impose restrictions necessary to promote fair competition and equity in business. On the other hand, deregulation was one of the major business moves ever made by the FCC in the pursuit of free market principles. In its current state, the FCC is fairly regarded as the source of the major regulatory influences on the communications industry players. Dozens of large and small communications companies have to comply with various FCC requirements, to secure themselves from possible legal accusations and to position themselves as the supporters of the fair market play. It would be fair to assume that the FCC influences the communications business sector in ways, which make companies adjust their strategies and organizational structures, to help them balance fair competition principles with reasonable profitability and continuous growth.

FCC: The Background

The Federal Communications Commission (FCC) is included into the list of independent United States government agencies and was established by the Communications Act of 1934 to regulate and manage interstate and international communications by radio, television, satellite and cable (FCC, 2010). The FCC’s jurisdiction covers all 50 U.S. states, as well as the District of Columbia and U.S. possessions (FCC, 2010). The FCC’s organization is structured so that five appointed Commissioners direct the FCC itself, while Commissioners are appointed by the President for 5-year terms (FCC, 2010). The Commission’s offices and bureaus are organized by function: these include consumer and governmental affairs, enforcement, international affairs, media, wireless telecommunications, public safety & homeland security, communications business opportunities, etc. (FCC, 2010). The official FCC’s website does not provide any clear mission or organizational objectives, which is natural, given the multiplicity of agencies and bureaus it is expected to govern, but for the purpose of the current paper, the discussion will be limited to Wireless Telecommunications Bureau, which is a part of the FCC. The WTB “handles all FCC domestic wireless telecommunications programs and policies, except those involving public safety, satellite communications or broadcasting, including licensing, enforcement, and regulatory functions” (WTB, 2010). It would be correct to say that the major mission and objective of WTB, as well as of the FCC in general, is to maintain a reasonable balance between government involvement with communications and free market principles, to make sure that the communications market players follow the basic rules of free market conduct.

Cellcom: A Wireless Triumph?

Cellcom is included into the list of companies, which do their best to combine the principles of profitability with the need to comply with the basic rules and regulations of the communications market. Cellcom is “a wireless company dedicated to hometown values and outstanding customer service. We provide wireless solutions that help people stay connected around the world right from their very own backyard” (Cellcom, 2010). Cellcom belongs to the family of Nsight companies and is considered to be the biggest Wisconsin-based wireless telecommunications service provider. Cellcom was founded in 1986 and serves customers through more than 80 retail and agent locations (Nsight, 2010). Cellcom is well-known for its social activity and charity, but it is even more important to realize that Cellcom is bound to operate in conditions, where the FCC determines the rules of the market play and where every move of wireless telecommunications services providers is being constantly watched and controlled.

The Impact of the FCC on Cellcom’s Activity

The impact, which the FCC currently produces on wireless communications providers in general and Cellcom, in particular, can be briefly discussed through the prism of the several essential points: ownership structures, the balance of privacy and public safety, the role and possibility of foreign ownership, and the need for companies to preserve their profitability. The number of various communications regulations issued by the FCC is so large, that it is at times too difficult to see how and in what ways wireless communications providers can balance their business needs with the regulatory needs of the FCC and the communications market. More often than not, companies have no other choice but to comply with what the FCC requires them to do, in order to preserve their market position and to pursue continuous growth.

That the FCC makes companies adjust their strategies and policies to the regulatory pressures is no longer a secret, and the new initiatives and moves proposed by the FCC, as well as the ways in which FCC creates and promotes these regulatory changes often question the value of free market and position market fairness as the basic element of successful business performance in wireless communications. Simultaneously, taking into account the increasingly high level of competition in communications, it is natural that the FCC should gain and use its power for the benefit of all market players. The recent example of trading the electromagnetic spectrum in the 700 megahertz frequency range sets the stage for discussing how the FCC governs the organizational and strategic processes in the wireless communications provider companies: while companies sought to acquire a slice of the C block 22-megahertz based on an ‘open platform requirement’ because such requirements would make the wireless communications market more competitive and open to potential rivals, the FCC has come to conclude that the level of competition in wireless communications is already too high to produce any dramatic changes; but such openness would negatively impact the prices and customer expenses, leading them to cancel their cell phone subscriptions for the benefit of other, cheaper, wireless solutions (Hahn & Ingraham, 2008). In the same way, upon offering a piece of the D Block frequencies to the wireless communications providers, the FCC required that they shared their network with firefighters and police “in ways to be negotiated directly with public safety officials” (Hahn & Ingraham, 2008), and based on the profits which wireless communications companies are likely to earn by acquiring additional frequencies, they have no other choice but to comply with the basic FCC’s requirements, which confirm government regulation and interference as the basic tool of market control in wireless communications sectors.

It should be noted, that what the FCC currently does is sometimes referred to as “putting wireless industry under the microscope” (Singel, 2009). In other words, the FCC launches broad campaigns and investigations aimed to figure out what norms, standards, and regulations are likely to provide customers with better and cheaper access to wireless solutions. The recent FCC’s decision to investigate the existing opportunities for wireless companies to reassign a part of their radio spectrum for smartphones signifies the continuous FCC’s desire to closely watch the signs of anti-competitive behaviors in the market (Singel, 2009), and Cellcom as a part of the wireless telecommunications industry should count several steps ahead before taking and implementing any strategic decision. In many aspects, what the FCC demands from wireless communications companies is both a matter of customer satisfaction and the companies’ market position, which they want to preserve even by losing a share of their profits.

In the context of the FCC’s influence on Cellcom, the AT&T example is probably one of the most demonstrative ones: the FCC actually became the major driver of AT&T’s growth and organizational failure – with the implementation of the Communications Act, the AT&T was no longer considered the monopolist of the communications market, and numerous providers, including those in the wireless communications field, were given an opportunity to enter the market and to compete (Guttman-McCabe & Murck, 2005). From Cellcom’s perspective, such FCC’s actions could work for the benefit of the company’s profitability and growth, and to a large extent, everything the FCC does is expected to give smaller market players a chance to survive. That, however, does not mean that companies like Cellcom have full freedom of market activity and are not obliged to follow the FCC’s regulations and rules.

Looking back to the events 9/11, it is natural and even anticipated that Cellcom, like other wireless communications providers, would become particularly attentive to the issues of public safety. In the context of wireless connections, the term ‘safety’ is usually associated with the notion of the ‘user location’ – a term which Cellcom, according to the 1999 Wireless Communications and Public Safety Act is to protect (Smith 2006). As a result, the company is facing a conflict of safety vs. privacy and in its current state, this conflict is likely to result in financial and organizational losses for Cellcom. The fact is in that the organization should be prepared to protect and prove the relevance of its decisions to the FCC, in case the Commission questions the need for breaching consumer’s privacy against the need for protecting consumer’s safety.

In the same way, the FCC closely monitors the organizational changes and processes (like mergers) that occur in the wireless communications sector: as a part of its pro-competitive strategies and missions, the FCC controls and analyzes the organizational trends that emerge between small and large market players. The example of the Cingular/ AT&T merger shows that, on the one hand, companies in the wireless communications sector are expected to consult the FCC prior to mergers and acquisitions take place and, on the other hand, that the organizational structure of wireless communications providers is closely linked to their competitiveness (Zimmerman, 2008). Because the FCC views mergers as the sources of risk to intermodal forms of competition, the Commission may require that Cellcom, in case it seeks to merge with another company, provides and uses remedies necessary to reduce the adverse impacts of their organizational changes on the market (Zimmerman, 2008). In this context, wireless communications providers like Cellcome will either have to refuse from their merging ideas or to accept the conditions and requirements of the FCC.

The FCC closely monitors the state and scope of foreign ownership in companies that provide wireless communications services: based on the need for promoting and protecting consumer interests and national security, article 310 of the Communications Act of 1934 claims that “a company cannot receive a broadcast or common carrier radio license if the company is directly or indirectly controlled by any corporation of which more than twenty-five percent of the capital stock is owned by foreign individuals, foreign governments, and/ or foreign companies” (Sherman, 2004). As a result, any act of intervention by a foreign company and its desire to acquire Cellcom, its part, or its broadcasting radio opportunities will immediately become a matter of the FCC’s analysis, and will require that Cellcom and its potential partners adjust their business decisions to the norms and requirements of the Commission. These, in turn, will impact the profitability and organizational structure at Cellcom, depending on whether the FCC views such foreign ownership as acceptable, legal, and justified.

There is a persistent impression that the FCC is the central and the governing tool of regulation in the wireless communications market: consumer interests and fair competition as the two major goals of the FCC’s activity position the Commission as the basic source of regulatory changes in the telecommunications industry, which neither small nor big companies have a chance to neglect. However, the recent FCC’s proposal to treat all web content equally, regardless of its direction and destination (Torrieri, 2009), has shifted the emphasis to how companies can negotiate the proposed changes in order to reconcile them with their strategic objectives. The FCC shows itself as the central regulatory body in the wireless telecommunications market, but it is also expected to redirect its policies in ways that reconcile the principles of profitability with the principles of consumer care and fair competition. The FCC is being criticized for favoring some industries over other (e.g., cable mergers over telecom mergers) and for being misbalanced in the ways in it presents information about new norms and standards to wireless market players (Reardon, 2007). As a result, companies like Cellcom may face difficulties in changing their strategies to follow the FCC’s requirements. Mobile operators and wireless communication providers like Cellcom should become more active in their desire to express opinions and views on the newest FCC’s decisions. However, in its current state, it is clear that neither small companies like Cellcom nor larger operators like AT&T and Verizon have a single chance to overplay the FCC: the FCC remains the basis of market regulation in the communications industry, and the latter is totally driven and completely controlled by the government, with market forces playing the minor role in wireless communications.

Conclusion

The Federal Communications Commission was created in 1934 to govern the basic processes and the development within the communications industry in America and internationally. Created as an agency that had to preserve the monopolistic power of the leading communications providers, the FCC has gradually realized the value of free competition and has created opportunities necessary for the new rivals to enter the market. In its current state, the role of the FCC in wireless communications is so significant, that companies like Cellcom have no other choice but to balance their profitability interests with the need to comply with the major FCC’s requirements. Although the FCC closely monitors the state of competition in the communications industry, such control comes at a price: the communications sector is driven by forces that can hardly be considered market and free.

References

Cellcom. (2010). About Cellcom. Cellcom. Retrieved from http://www.cellcom.com/about.html

FCC. (2010). About the FCC. Federal Communications Commission. Retrieved from http://wireless.fcc.gov/index.htm?job=about

Guttman-McCabe, C. & Murck, P. (2005). Homeland security and wireless telecommunications: The continuing evolution of regulation. Federal Communications Law Journal, 57 (3), 413-455.

Hahn, R. & Ingraham, A. (2008). The FCC’s $19 billion baby. Regulation, Fall, 7-8.

Nsight. (2009). The Nsight family of companies. Nsight. Retrieved from http://www.nsight.com/nsight_temp.php

Reardon, M. (2007). Cable industry head FCC is ‘broken’. ZDNet Asia. Retrieved from http://www.zdnetasia.com/news/communications/0,39044192,62034443,00.htm

Sherman, L.B. (2004). A fundamental misunderstanding: FCC implementation of U.S. WTO commitments. Federal Communications Law Journal, 61 (2), 396-406.

Singel, R. (2009). FCC puts wireless industry under the microscope. Wired. Retrieved from http://www.wired.com/epicenter/2009/08/fcc-wireless-study/

Smith, G.D. (2006). Private eyes are watching you: With the implementation of the E-911 mandate, who will watch every move you make? Federal Communications Law Journal, 58 (3), 705-725.

Torrieri, M. (2009). Wireless experts predict FCC’s net neutrality rule’s impact on mobile operators. TMC. Retrieved from http://fixed-mobile-convergence.tmcnet.com/topics/mobile-communications/articles/65095-wireless-experts-predict-fccs-net-neutrality-rules-impact.htm

WTB. (2010). About the WTB. Wireless Telecommunications Bureau. Retrieved from http://wireless.fcc.gov/index.htm?job=about

Zimmerman, P.R. (2008). Strategic incentives under vertical integration: The case of wireline-affiliated wireless carriers and intermodal competition in the US. Journal of Regulatory Economics, 34, 282-298.