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CHAPTER III - Wired and Wireless Substitution, Competition and Complementarity

As the Centers for Disease Control’s National Health Interview Survey (NHIS) report has shown, consumers are increasingly turning to wireless as a substitute for wired telephony:[5]

Preliminary results from the July - December 2013 National Health Interview Survey (NHIS) indicate that the number of American homes with only wireless telephones continues to grow. Two in every five American homes (41.0%) had only wireless telephones (also known as cellular telephones, cell phones or mobile phones) during the second half of 2013—an increase of 1.6 percentage points since the first half of 2013 and 2.8 percentage points since the second half of 2012.

By comparison, the NHIS report for the second half of 2007 found that:

During the last 6 months of 2006, more than 3 out of every 20 American homes (15.8%) did not have a landline telephone. Of those homes without a landline telephone, most had at least one working wireless telephone. Preliminary results from NHIS suggest that more than one out of every eight American homes (at least 12.8%) had only wireless telephones during the second half of 2006.

There is no question that wireless has made significant strides as a replacement for wired telephone access, and econometric evidence seems to support the survey data on substitution. A 2011 study finds that:

[W]ireline and wireless voice service are economic substitutes, and…changes in relative prices drive economically significant intermodal substitution. Specifically … a one percent decrease in the price of wireless service leads to a decline in the demand for traditional wireline service of approximately 1.22 - 1.28 percent. These figures substantially exceed prior econometric estimates of the wireline/wireless cross-price elasticity.[6]

But at the same time, some believe that wireless, even 4G wireless, is not a viable substitute for cable, fiber or DSL broadband.[7] Given the constraints on wireless, including terms of service, high costs, speed deficiencies, bandwidth limitations and other factors, only a small number of those living in urban areas may be able to substitute wireless for wired broadband access.

The differences between wired and wireless networks lead some to conclude that ubiquitous broadband access will be made possible only through fiber optic infrastructure because of its capacity and its complementary relationship with wireless networks. Thus, for some observers, wireless networks will remain a complement to, rather than a substitute for, wired connections, particularly when it comes to broadband.[8]

One important caveat for this this conclusion, however, is the use of wireless broadband access as substitute for wired among poorer and minority users. As former FCC Chairman Julius Genachowski noted in 2011:

Increasing broadband adoption rates for minority communities is very important, no matter how the Internet is being accessed. And with new mobile devices like tablets hitting the market, and wireless carriers beginning to roll out 4G networks, which will offer a high-speed Internet experience comparable to what many enjoy on desktops, the mobile broadband experience will only get richer.[9]

The evidence suggests that:

Not only are minorities more likely to have mobile Internet-capable smartphones, until recently they were more likely than whites to use them to access the Internet. A few years ago, while 30% of whites used their cell phone to access the Internet, half of all blacks and 42% of Hispanics surfed the net through their phones. These patterns of usage revealed consumers’ preferences. African Americans are more than twice as likely as whites to say their cell phone is their preferred device to access the Internet, and Hispanics are 60% more likely to say this than whites. In fact, minorities led whites in using a wide range of their smartphones’ capabilities.[10]

Meanwhile, rapidly increasing mobile broadband speeds and advancing technology lead many observers to believe that wireless networks may be prematurely dismissed as a viable option for future broadband architecture more broadly:[11]

If wired and wireless broadband access to the Internet are sufficiently close substitutes from the consumers’ perspective, then we can view wireless options as offering a bridge across any remaining digital divide. A key difference between wired and wireless in the past has been speed, although PC Magazine’s June 2012 mobile tests reveal that 4G LTE networks can deliver wireless broadband speeds that actually exceed the 10 Mbps beyond which the FCC finds little improvement in the basic web browsing experience.

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[The] observed lack of switching based on speed, suggests that wireless broadband options, especially those with some of the speeds reported in PC Magazine’s tests, are likely to be viewed by consumers as viable substitutes for wireline broadband. It appears that faster wireless broadband speeds together with consumer preferences for mobility are such that issues of speed are unlikely to prevent consumers from switching to wireless broadband in response to increases in the price of wireline broadband.

These commentators explain that, because wireless broadband may be the infrastructure of choice for many, it may be more important than fiber optic broadband. They further explain that the two assumptions associated with next generation broadband network projects—that service to the home is essential and that services require high capacity networks—are yet to be validated.

As such, there is room for wireless to be a disruptive technology and wireless may become a more important part of broadband connectivity policy. Therefore, given the possibility of wireless disruption, it is important to consider whether universal obligations should extend to wireless broadband, whether wireless broadband should be public infrastructure and whether the government should continue to invest in fiber optic networks.[12]

As smartphones, tablets and other devices with the capabilities of PCs, as well as PCs connected to advanced cellular modems, gain access to faster wireless networks like 4G, LTE and LTE Advanced, data consumption over wireless networks will continue to rise. The trend is towards ubiquitous wireless network connectivity. Wireless networks, however, face a significant constraint—spectrum scarcity. To overcome this barrier, the industry is shifting to a combination of licensed (spectrum) and unlicensed (Wi-Fi) infrastructure in order to meet the growing demand of wireless broadband access. This shift is also being driven by consumer preferences because Wi-Fi is easily interchangeable with wireless networks on almost all mobile devices. Further, the shift is being driven by the reduction in costs for carrier infrastructure and licensed spectrum capacity.

The offloading of mobile broadband from wireless to Wi-Fi networks creates a hybrid network. These networks are taking the form of one of three business models:[13]

  • Carrier-Provisioned Hotspots and Hot Zones. Mobile carriers are building Wi-Fi zones to increase the amount of data offloading. Although this is largely happening overseas, there are signs that U.S. carriers will follow this trend. For example, AT&T gives customers free access to thousands of AT&T hotspots, focusing on congested areas where data traffic is the highest.
  • Metro Wi-Fi Extensions of Wireline Networks. Cable and other ISPs are building out “Internet Everywhere” Wi-Fi mesh networks in a manner similar to mobile carriers. These networks give users the ability to access content on mobile devices away from the home. Such networks increase the mobile data traffic offload from carrier networks to wireline connections via unlicensed spectrum.
  • Fully Integrated HetNets. Wi-Fi would be capable of providing greater relief to congested wireless carriers by offloading to unlicensed bands if consumers were able to seamlessly transfer between wireless and Wi-Fi networks. Since consumers have to manually discover, select and access Wi-Fi networks, there is less offloading than would otherwise occur. This could be achieved through various forms of industry standardization. Several mobile apps have begun to offer this function, and recent reports suggest that Google is currently working on similar functionality.

Some commentators recommend that policymakers expand the availability of unlicensed access to licensed spectrum to boost the supply of unlicensed spectrum. To do this, the FCC would have to balance the interests of longtime licensed spectrum users and the potential of broader unlicensed access.

[5] See Stephen J. Blumberg, and Julian V. Luke, Wireless Substitution: Early Release of Estimates From the National Health Interview Survey, July–December 2013, NHIS (Jul. 2014), available at Previous reports are available at

[6] Kevin W. Caves, Quantifying Price-Driven Wireless Substitution in Telephony, 35 Telecomm. Pol’y 984 (2011).

[7] See, e.g., GigaOm, Will 4G Wireless Really Threaten Wires?, Bloomberg BusinessWeek (Aug.13, 2009), available at .

[8] See, e.g., Susan Crawford, Roosevelt Institute Fellow Susan Crawford offers a rebuttal to critics who claim high-speed Internet access is in good shape in the U.S., Roosevelt Institute (undated, visited Aug. 2014), available at See also, PewResearch Internet Project, Home Broadband 2013 (Aug. 2013), available at (finding that while 46% of Americans have both a home broadband connection and a smartphone, 24% have a home broadband connection but not a smartphone, and 10% have a smartphone but not a home broadband connection).

[9] Julius Genachowski, Prepared Remarks before the Minority Media & Telecom Council Broadband and Social Justice Summit (Jan. 2011), available at

[10] James E. Prieger, The Broadband Digital Divide and the Benefits of Mobile Broadband for Minorities, Pepperdine University School of Public Policy Working Paper No. 45 (2013), available at

[11] Leslie M. Marx, Wireless Bridge Over the Digital Divide (Jul. 30, 2012), available at

[12] Catherine Middleton and Jock Given, The Next Broadband Challenge: Wireless, 1 J. Info. Pol’y 36 (2011), available at

[13] Michael Calabrese, Solving the Spectrum Crunch: Unlicensed Spectrum on a High-Fiber Diet, Time Warner Research Program on Digital Communications (Oct. 2013), available at

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