As mandated by Congress the FCC came out with its 14th annual report [Download Here] on the state of competition in the market for wireless services. And as usual, it is a trove of solid data, a must-have reference for telecom and antitrust nerds (like us). What’s a bit disturbing, though, is the conclusion drawn by the commission majority.
The most significant changes in the market last year were (a) the disappearance of Alltel, the fifth largest carrier, through merger with Verizon and (b) the explosive growth of MetroPCS and Leap, the number six and seven carriers respectively, which both specialize in all-you-can-talk-text-surf plans. All told, the FCC notes that the market is a bit more concentrated than it was last year, and significantly more concentrated than in 2003.
No argument there: The Herfindahl-Hirschman Index has risen from 2141 to 2858 in five years. The dispute is over what that implies. Commissioner Michael Copps concluded that “competition has been dramatically eroded and is continually endangered.” We think concentration is just one factor is assessing the state of competition in this and other industries characterized by rapid technological change and service quality.
According to the report, prices are stable – evidence that the carriers either face direct competition or fear entry. Indeed, Leap and MetroPCS have had great success in using their image as discounters to compete for younger, less affluent customers. Note, too, that all the major carriers are running scared. All are promoting slews of new devices and investing heavily in the high speed, 4G networks needed to get the best out of bandwidth-hungry smartphones.
Then there’s the question of international comparisons. The average price of a minute of airtime in the United States is far, far lower than in other rich countries. In Japan, for example, the typical customer talks 139 minutes a month at a hefty 26 cents per minute, compared to the typical American’s 829 minutes at 5 cents a minute.
Don’t get us wrong. Somebody – preferably the Department of Justice or the Federal Trade Commission – needs to keep an eye peeled for signs of market power in the wireless industry. But the bigger risk at this point is that, in their enthusiasm to protect consumers, the FCC will attempt to manage market share – say by giving a helping hand to smaller carriers or by barring marketing practices that make it costly to switch carriers before the end of a handset contract. The industry has done very well on its own, thank you, in containing costs while fostering a technological revolution in wireless communications.