AT&T and Verizon Wireless are extracting "monopoly rents" from competitors who pay them for data roaming, forcing smaller carriers to charge higher prices to their own subscribers, four public interest groups wrote in a filing with the Federal Communications Commission yesterday.

By making it difficult for carriers like T-Mobile US to lower prices or offer truly unlimited plans, the nation's two biggest carriers are also able to "charge artificially inflated prices to their own customers" and maintain strict data caps and overage fees, alleges the filing (PDF) by Public Knowledge, the Open Technology Institute at the New America Foundation, the Benton Foundation, and Common Cause.

The groups are supporting T-Mobile's request for a ruling from the FCC to force AT&T and Verizon to negotiate lower rates. The T-Mobile petition asks for "prospective guidance and predictable enforcement criteria for determining whether the terms of any given data roaming agreement or proposal meet the 'commercially reasonable' standard adopted by the Commission in the Data Roaming Order [adopted in 2011]." T-Mobile's petition, filed in May, describes an ongoing dispute with AT&T and criticizes Verizon as well.

AT&T and Verizon oppose T-Mobile's request, saying that the market is working just fine as it is.

The consumer advocacy groups argue that the current state of affairs is hurting customers of all carriers. The groups wrote:

Despite (a) an enhanced revenue stream from data roaming agreements, and (b) lower costs than rivals by avoiding data roaming, Verizon and AT&T customers continue to pay inflated data costs due to capped plans and aggressive overage fees. Whatever Verizon and AT&T are doing with the additional revenue, they are not passing it along to consumers in the form of lower prices. To the extent AT&T and Verizon can artificially increase the cost of data roaming for rivals, rendering aggressive price competition economically unfeasible, it does more than extract monopoly rents from competitors. It allows Verizon and AT&T to charge artificially inflated prices to their own customers as well. In this case, Verizon and AT&T maintain strict data caps and overage fees and are able to maintain these strategies by rendering truly unlimited plans for competitors economically unfeasible. Action by the Commission to curb unreasonably high data roaming rates will therefore directly benefit all consumers, including customers of AT&T and Verizon. As we have seen demonstrated since T-Mobile adopted its aggressive 'uncarrier' strategy, competition benefits all consumers. Every pro-competitive move made by T-Mobile has triggered a response by AT&T and Verizon, benefiting all subscribers. T-Mobile CEO John Legere has indicated in public statements that he would like to offer cheaper unlimited data plans. Given the past history of T-Mobile, including passing on the savings from negotiating lower international roaming rates to consumers as part of the its T-Mobile Global Data plan, it seems reasonable to assume that requiring AT&T and Verizon to negotiate commercially reasonable data roaming agreements will result in T-Mobile offering lower prices and uncapped and unthrottled plans—forcing AT&T and Verizon to lower their own data rates.

Why data isn’t really unlimited

T-Mobile's data plans are generally unlimited, but speeds are throttled after customers use up their 4G allotments.

T-Mobile's inability to offer unthrottled data has "severe negative impacts," the consumer advocacy groups wrote. "T-Mobile Senior Vice President Dirk Mosa states in his declaration that: '[w]hen throttling and cap limitations are removed, consumers use significantly more data, typically in the range of 10-20x.' Additionally, in a recent press release accompanying the launch of its 'Music Freedom' promotion, T-Mobile cited survey evidence that 37 percent of mobile users avoid streaming on their cell phones for fear of exhausting their data cap and incurring overage charges," they wrote.

Sprint is reportedly close to a deal to purchase T-Mobile, which would leave the US with just three major nationwide carriers.

T-Mobile's petition says that small carriers have reported problems, including "offers of wholesale data roaming rates many orders of magnitude higher than the offering carrier’s retail rates to its own data customers, delays of more than eight months to obtain even initial responses to roaming requests, requests for detailed long-term traffic projections and proposed hefty penalties for any resulting deviations from those projections, and testing procedures and queues that would drag on for undisclosed or indeterminate periods of time."

A survey by the Rural Broadband Association, which represents nearly 900 rural independent phone companies, found that 58 percent of respondents "identified 'negotiating roaming agreements' as a major area of concern and that 69 percent 'categorized their experience in negotiating data roaming and in-market roaming agreements with other carriers as moderately to extremely difficult,'" according to T-Mobile.

T-Mobile's filing shows that the prices it pays per bit for data roaming within the US have gone down substantially in the past six years, although the amount of data paid for has gone up as well:

Still, "the average domestic wholesale data roaming rate that T-Mobile paid in 2013 is 3.6 times the maximum retail rate that Verizon charges a user of 1,700 MB per month, six times the rate AT&T charges, over seven times the rate that T-Mobile charges, and over 10 times Sprint’s maximum rate," T-Mobile wrote. "Similarly the average domestic wholesale roaming rate that T-Mobile paid in 2013 is more than 10 times the average rate that T-Mobile charged MVNOs [mobile virtual network operators] during that year."

AT&T's prices get a specific callout in T-Mobile's petition. Because of AT&T's high rates, "T-Mobile typically only roams on AT&T’s network where AT&T provides the only available network," the petition says. T-Mobile is losing money with some customers "simply by virtue of T-Mobile providing the customers with roaming service on AT&T’s network even as they are throttled and capped to contain costs."

"Additionally, in several instances we have been told by other roaming partners that they cannot offer T-Mobile better rates due to AT&T’s aggressive use of Most Favored Nations ('MFN') clauses in its roaming contracts," T-Mobile wrote. "Under MFNs, a carrier is prohibited from offering lower rates to other partners (such as T-Mobile) without facing a substantial decrease in inbound roaming traffic from AT&T or the need to substantially lower their price for a large volume of inbound roaming traffic—a choice that results in many carriers deciding to keep the higher roaming price. AT&T’s leverage of its 'must-have' status via MFNs keeps prices unreasonably high for competitors such as T-Mobile."

AT&T and Verizon don’t want any changes

AT&T wrote in a filing yesterday that "the balanced approach adopted in the Data Roaming Order is working and further commission action is unnecessary" and also that "T-Mobile’s proposed 'clarifications' are really an attempt to rewrite the data roaming order and undo the careful balance underlying the data roaming regime."

AT&T argues that the FCC's Data Roaming Order from 2011 "is clear that rates in existing, unchallenged contracts are presumptively reasonable." To support that claim, AT&T describes the order's handling of data roaming disputes. When there is a dispute, the order says the commission should consider factors including "whether the providers involved have had previous data roaming arrangements with similar terms.”

"In other words, the Data Roaming Order is already clear that existing agreements are not only relevant but presumptively reasonable, and that it would be T-Mobile’s burden in any future proceeding to show that the terms of existing agreements are unreasonable or irrelevant," AT&T said.

Verizon made a similar argument and also said that "T-Mobile should use the remedies provided in the data roaming order to resolve its dispute with AT&T."

The pricing benchmarks proposed by T-Mobile are inappropriate, Verizon wrote. "The Commission has previously rejected linking roaming rates to the rates for other services due to concerns that doing so could create incentives to raise the prices for those other services and diminish incentives to invest in network improvement and expansion," Verizon wrote.

T-Mobile proposes that the commission consider four benchmarks in determining whether a deal is commercially reasonable: whether the wholesale data roaming rate greatly exceeds the retail price of data; whether the domestic rates substantially exceed roaming rates charged to foreign carriers when their customers roam in the US; whether the rates substantially exceed the prices charged to MVNOs; and how the rates compare to other competitively negotiated wholesale roaming rates. For that last one, T-Mobile says the FCC should take into account "that some prevailing roaming rates may reflect the past exercise of market power or attempts to weaken retail rivals."

The consumer interest groups argue that the FCC can impose these benchmarks without declaring cellular companies to be "common carriers" because the benchmarks "do not rise to the level of requiring carriers to treat all requests for data roaming identically."