FCC Trumpets Wireless Competition, But Won’t Admit It

Yesterday, the Federal Communications Commission (FCC) released their annual Mobile Wireless Competition Report, mandated by Congress to provide an update on the status of the wireless industry. Unsurprisingly, the report declines for the second year in a row to describe the industry as competitive, despite painting a clear picture of high competition with lower prices and more access to wireless services than ever.

In the report, the FCC found that 99.8% of the entire U.S. population has access to wireless service, and 89.6% have a choice between 5 or more voice service providers. This stands in contrast to last year’s report, where only 74% of the population had access to 5 or more providers. When it comes to mobile broadband, 81.7% of Americans can choose between at least 3 mobile providers.  And the number of mobile broadband subscriptions over 200 kbps doubled between 2008 and 2009 (the last available data in the report).  This huge increase in coverage and subscriptions would not have occurred if wireless companies were not striving to compete with each other.

When it comes to consumer prices, the report notes that voice data prices now average $0.05 per minute.  This is a slowing rate of decline, yet it follows a Government Accountability Office report that the price of voice service was slashed in half over the past ten years.  The simple fact is that voice prices cannot go much lower without bottoming out.

Prices for data and text messaging – the growing share of mobile services – have been in steeper decline of late. Wireless subscribers sent an average of 100 more texts per month between 2008 and 2009, yet the price sending a text message decreased by 25%.  The FCC’s report lacks sufficient information on data pricing, only noting that data consumes a growing share of consumer bills (27% of revenue per user), while voice’s share is declining.  Yet, more up-to-date studies have found that the price per megabyte of data declined by 89 percent between 2008 and 2010.  In the past year alone, data usage jumped by 89 percent while per megabyte data prices fell by 46 percent.

The report also has an interesting section on “price rivalry” (pgs. 61-70) that notes significant changes in plan offerings in the market and how companies have adjusted the plans they offer based on competitor actions.  This sort of competition was what we highlighted in our comments on the AT&T/T-Mobile merger, noting that competition is not a simple metric, but an act of jostling with competitors to meet consumer demand.

With regard to technological competition, the report notes the following:

During 2009 and 2010, several providers upgraded their networks with technologies that enable faster data transfer speeds for mobile data services, while others announced plans to deploy new mobile broadband network technologies… While each of the four nationwide providers has announced or begun implementing plans to offer a faster network, each has chosen a different path towards fulfilling such plans.

Considering commentary that there is significant convergence in the industry, this is an interesting anecdote showing that competition over technologies is still strong, particularly between LTE (Verizon), HSPA+ (AT&T and T-Mobile) and WiMAX (Sprint Nextel).

The FCC’s report shows clearly positive consumer and industry trends, especially considering the data lags from 2009. Wireless services and devices are growing and adjusting at an exceptional rate, and are being driven by consumer demand. This is especially so in the prepaid market, where the report notes a new “aggressive push by the nationwide network operators” that has helped to lower already low prepaid prices.

Given the report’s findings, it’s disconcerting that the FCC refuses to acknowledge whether there is effective competition in the wireless market. This creates a setting in which the FCC can use the top level finding of the report as a justification for regulatory action or to prevent future mergers.  Even the FCC's calculation of the myopic competition metric known as the Herfindahl-Hirschman Index (which calculates the mere size of firms and their market share) found more competition in the market. The FCC (and other agencies) have in the past used this metric to argue that there is a lack of competition.  Oddly, however, this year the FCC switched its tone and conceded it's basically bunk, stating “shares of subscribers and measures of concentration are not synonymous with a non-competitive market or with market power.”

So the question is: in what world would the FCC find sufficient competition?