June 2, 2020 - 2:15 pm
By Michael O'Rielly | Commissioner

The device manufacturing sector is one of the most challenging and competitive in the communications field.  As the latest devices continue to top birthday and holiday wish lists, consumers rightfully maintain high expectations since innovators have a long history of delivering wonderment.  The reality is that the newest gadgets — used to entertain, ease our daily lives, and/or facilitate communications — need to have near flawless functionality and amazing features. 

Not surprisingly, developing new electronic devices can be a grueling process.  Getting a product from the first creative spark, through research and development, to the hardened physical unit that is ready for sale involves a myriad of steps and a rollercoaster of smiles and tears.  In the end, untold riches may await, but more often than not, new products fail miserably, as the market and capitalism work their mysterious powers to shoot down some innovator’s and entrepreneur’s best laid plans. 

I believe that we can thoughtfully update FCC rules to make it easier and more affordable to bring devices to consumers while reducing investment risk without undermining any consumer protections.  For some time, manufacturers have been advocating that the FCC modernize its marketing and import restrictions, and I heartily agree that now is a perfect time for these improvements, especially given the difficult economic situation facing our country and our increasing reliance on connected devices to work, learn, shop for essential items, and stay in touch with family and friends.

Specifically, our rules prohibit the pre-sale or conditional sale of radiofrequency devices, except to wholesalers and retailers.  That means, in order to market and sell the next new cell phone or other innovative device to individual consumers, the manufacturer must first seek and obtain the requisite equipment authorization from the Commission (in other words, through FCC-recognized Telecommunications Certification Bodies).  These rules may have been originally implemented to address concerns that allowing consumers to purchase pre-approved devices could jeopardize a thorough and accurate Commission review or that unapproved devices could accidentally get into the hands of consumers.  Additionally, the rules may have been intended to minimize consumer fraud, as few manufacturers would be willing to go through the equipment approval process if their ultimate goal was to scam consumers.  Or, maybe the aim was to temper the hype from new products to ensure that other FCC licensees wouldn’t be at added risk for harmful interference.  Whatever the reasons, this fifty year-old rule is past its prime in today’s commercial marketplace, where buying in advance of delivery or availability has become a common and acceptable practice.  

Many real-life examples suggest that these concerns may have been exaggerated or are no longer applicable.  Since 2009, Kickstarter campaigns have allowed the public to conditionally buy products via credit card, which does not get charged if the project fails to reach its preset funding or units sold targets.  Success rates for Kickstarter demonstrate that the market and, more importantly, consumers welcome the model: $4.5 billion out of $5.1 billion pledged has been allocated, providing funding for almost 200,000 projects that reached their goals.  In another example from the auto world, Tesla actively markets and takes deposits for vehicles just barely off the drawing board.  A case in point is Tesla’s Cybertruck, which consumers can reserve for a $100 downpayment:

Tesla Cybertruck

Now consider that anywhere from thousands to millions of new iPhones are sold long before they are available in stores or scheduled for delivery; before they can be marketed, however, they must complete the FCC equipment approval process.  What would be the difference or harm if they could be marketed prior to approval, but not be delivered to the consumer until FCC-approval is acquired?  I suggest there would be none.  If you can pre-order a truck, you should be able to pre-order any number of innovative new devices with endless possibilities of improving our daily lives.

All we’d need to do is change our marketing rules to allow equipment manufacturers to take orders for devices and obtain financial commitments before a device has obtained Commission approval.  This would let them gauge consumer interest in a particular device prior to devoting the necessary time and resources to gain said approval.  Market research may be insightful, but it pales in comparison to actual customers putting their money on the table.  Similarly, an early, full-fledged marketing campaign may help determine how many devices will be needed in the near-term to meet consumer demand, preventing both excess and under supply when it comes time to actually sell the devices.  For small manufacturers, this could be a game changer, as it may minimize the financial risk of potential product failure and keep the entire company from going down the drain.  Even larger manufacturers could benefit, as they would have the opportunity to branch out into new product areas without huge financial commitments on the front end.  Ultimately, consumers will benefit from any added innovation, which is especially exciting as 5G is deployed further and the Internet of Things expands to everything from connected appliances to remote health monitoring devices.  

Another issue is that FCC rules prevent the importation of radiofrequency devices that haven’t yet received FCC equipment authorization.  While there are exceptions for the very limited importation of devices for trade shows, testing and evaluation, and a few other specific uses, this doesn’t accommodate the large percentage of consumers that simply want to see and touch products prior to purchase.  For highly anticipated, high-demand products, however, it can take considerable preparation to have retail establishments ready for the start of marketing campaigns and actual sale of approved devices.  Lacking the ability to import a sufficient quantity of new products, for display purposes only, adds to the enormity of the challenge.  Furthermore, if the authorization is unexpectedly delayed, whole marketing and rollout campaigns can be put at risk or completely destroyed, threatening the success of a product for reasons that could be easily avoided.  

A reasonable solution, and one the Commission should quickly adopt, is to allow an exception to the import rules for purposes of device advertising and retail display preparation.  Such devices can be appropriately labeled, marked, or otherwise identified to clarify that they are not available for sale; and manufacturers have suggested that other safeguards can be added, as needed, to prevent any possibility for abuse.  Doing so would give manufacturers and their partnering wireless providers the chance to have a very limited number of physical devices on hand in retail establishments that clearly couldn’t be displayed, used, or sold without completing the FCC device authorization process.  

Some may try to claim that any expansion of import exceptions reduces interest in and profitability for domestic manufacturing.  I am all for producing here in the U.S., but progress on this front isn’t going to happen overnight.  And, the limited exception would have a negligible effect on overall device imports and would not in any way favor foreign manufacturing.  Moreover, as a free trade advocate, I recognize that considerable manufacturing is happening in countries that are strong U.S. allies, and that consideration shouldn’t be overlooked.

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An immeasurable amount of creative vision, research, testing, and so much more occurs prior to actually selling a product approved by the FCC.  The Commission can make that process a tad easier and more likely to succeed with a few tweaks to its marketing and import rules.  And, doing so wouldn’t undermine consumer or other protections one bit.  With all the massive economic difficulties now being experienced, these changes now make even more sense.