T-Mobile Wins an FCC Battle With AT&T and Verizon

By Markets Fool.com

T-Mobile has once again struck a blow againstAT&T andVerizon, and in doing so has helped rival wireless carrierSprint.

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The No. 4 wireless company argued in a petition to the Federal Communications Commission that the largest carriers -- AT&T and Verizon -- charge artificially high prices when customer from smaller carriers, including T-Mobile and Sprint,data roam on their networks. In the document, T-Mobile asked the FCC to setspecific guidance and enforcement criteria for determining whether a data roaming agreement is commercially reasonable.

The FCC granted T-Mobile's petition on Dec. 18. That in itself does not immediately provide rate relief for T-Mobile or its customers, but it does give the company (and Sprint) an easier path should it challenge what its rivals charge.

T-Mobile CEO John Legere has made going after AT&T and Verizon one of his main priorities. Source: T-Mobile.

What T-Mobile asked for
The FCC already has a rule, the Data Roaming Order, that requires deals to be commercially reasonable, but it offered no clear definition forthat term. That left a huge loophole and allowed AT&T and Verizon to create their own definition for "commercially reasonable," which it seems is very different from T-Mobile's. In petitioning the FCC, "The Un-carrier" sought more clarity from the government agency.

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Despite adoption of therule, however, real-world industry experience shows that providers continue to be stymied intheir efforts to negotiate data roaming agreements on commercially reasonable terms.These problems are due in large part to certain ambiguities in the "commercially reasonable"standard for data roaming -- ambiguities that could not have been foreseen at the time, but whichhave become apparent with experience. The data roaming marketplace, and the consumers whorely on it for ubiquitous, affordable wireless service, would benefit substantially if theCommission provided greater clarity on the meaning of its "commercially reasonable" standardin the context of data roaming

Basically, T-Mobile argued that "commercially reasonable" is a meaningless gray area completely open to interpretation and manipulation. In its petition, the company suggested using four benchmarks set byformer FCC chief economist JosephFarrell to determine whether a price is in fact commercially reasonable:

  1. Whether a wholesale roaming rate offered to a retail competitor substantially exceeds therelevant retail rate
  2. Whether a wholesale roaming rate substantially exceeds roaming ratescharged to foreign carriers when their customers roam in the U.S
  3. Whether a wholesaleroaming rate substantially exceeds the price for wholesale data service that a seller charges tomobile virtual network operator customers;
  4. How the proposed wholesaleroaming rate compares to other competitively negotiated wholesale roaming rates.

T-Mobile's petition was supported by a number of consumer advocacy groups, which argued that forcing to AT&T and Verizon to offer reasonable roaming rates to their competitors benefited the public.

"The FCC's roaming policies are an important guarantor of competition," said John Bergmayer, senior staff attorney at Public Knowledge, in a statementlast week."Customers of any wireless carrier ought to be able to travel around the country without fear of losing service or being hit with unexpected, sky-high bills. Today, data roaming is just as important as voice roaming. When the FCC adopted its data roaming rules in 2011, it used a new legal standard that left many questions unanswered. By clarifying some of these issues, today's action will help ensure that customers of even smaller or regional carriers can use their smartphones freely as they travel."

AT&T and Verizon disagreed
AT&T and Verizon both spoke out against the T-Mobile petition when it was submitted, and both issued statements decrying the FCC decision. AT&T explained its argument in a public statement. The company charged that T-Mobile was not simply looking for clarification of existing rules, but was seeking a major overhaul of a system that is "functioning well." AT&T pointed out that T-Mobile was also ignoring the fact that it has the option of building out its own network, The statement added that T-Mobile's own admission that what it pays for roaming had declined shows that its petition was unnecessary:

Those declines include very marked declines in the rate T-Mobile is paying to AT&T. That rate is more than 70% lower than it was just three years ago, and it compares favorably with the rates T-Mobile claims it pays other providers. In fact, the rate T-Mobile pays AT&T is lower than the average rate paid by AT&T: AT&T currently pays an average roaming rate that is higher than the 30 cents T-Mobile reports that it paid to other providers in 2013 (and significantly higher than the 18 cents T-Mobile projects it will pay in 2014).

What this mean for consumers

The FCC ruling enables both T-Mobile and Sprint to allow their customers to data roam on AT&T and Verizon's superior networks without fear of massive charges. It also lets the two companies save money by not forcing them to expand their own networks in areas where it makes little sense to do so. AT&T and Verizon can still charge whatever they deem to be "commercially reasonable" rates. But other carriers will now have a specific mechanism to challenge any rates they see as unfair and criteria will be in place to determine which company is correct.

This FCC decision won't produce any immediate changes,but it's another tool at T-Mobile and Sprint's disposal to force their larger competitors to abide by the terms of the Data Roaming Order. It should offer more cost certainty for both carriers and allow them to continue to compete nationally with AT&T and Verizon despite not have equal infrastructure in all parts of the country.

In accepting the petition the FCC has not changed anything, but it has given its existing rules teeth that allow for the words commercially reasonable to actually be applied in the way consumers would define them. That's good for the public and it's good for Sprint and T-Mobile.

The article T-Mobile Wins an FCC Battle With AT&T and Verizon originally appeared on Fool.com.

Daniel Kline owns shares of Apple. The Motley Fool recommends Apple and Verizon Communications,. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.