This graph below (or at least its implicit message) may be familiar: The average monthly bill for cellphone voice services has fallen by almost one-third since 2005, even as average minutes of use have been drifting up from 902 to 990.

The really eye-popping price changes, though, are in less traditional uses of the mobile networks. According to Entner (and Nielson Mobile), the average cost of a text message fell from six cents to a penny in five years.

Meanwhile, since 2008, the average cost of data services has tumbled by almost 90 percent – which explains how smartphones, powered by data-rich services from multi-media messaging to streaming video, became commonplace almost overnight. 

Can we count on the trend continuing? There’s no end in sight for the technological miracles that have lowered the costs of mobile data transmission. Moreover, there’s good reason to believe that the competitive pressures forcing the telecoms to pass the cost savings through to customers are here to stay. The one potential fly in the ointment (sorry; just couldn’t resist the weird metaphor) is spectrum capacity.

If the telecoms can’t get their hands on more spectrum for 4G services soon, it’s likely that the competitive pressure on prices will ease.  That’s why it is so important to free more spectrum for auction – and why FCC Chairman Genachoski’s plan to compensate TV stations for giving up their claims on unneeded spectrum originally allocated for analog broadcasting is so tempting.

Among the highlights (available here, free):

• The total number of wireless subscribers in the U.S. has risen from 4.3 million (served by 4,800 cell towers) in 1990 to 293 million (served by 252,000 cell towers) today.
• The total capital invested in the wireless networks is up from $5.2 billion in 1990 to $292 billion in 2010.
•  Industry revenues have increased from $4 billion to $156 billion in the same two-decade span.
• The number of text messages sent ballooned from 57 billion in 2005 to 1.8 trillion in 2010.

Actually, we’ve saved the most impressive statistic for last. There’s no question that the quality of service (in terms of coverage and dropped connections) has greatly improved since 1990. Ditto for the scope of services offered: Then, it was a voice-only service. Meanwhile, the hardware and software packed into a modern wireless handset now rivals the complexity and cost of a laptop PC with all the bells and whistles. Yet the average monthly bill (which typically includes most of the cost for the handset) has declined from $83.94 to $47.47.

A miracle, you say? Well, in a sense: the technology underpinning the wireless revolution is simply jaw-dropping. But we’d give some of the credit to market capitalism (which has been taking its licks in public opinion in recent years). More accurately, to competition, which has forced the wireless carriers to pass on to consumers most of the difference between what it costs to deliver the services and what they are worth.

In 2007, Comcast, the giant cable company and Internet service provider, faced a marketing problem. A relatively small number of subscribers were hogging huge swaths of bandwidth, as they traded movies and music with others. (Some of the exchange was legal, some of it probably not.) Comcast responded by limiting upload speeds for customers using peer-to-peer networks.

After an investigative reporter from the Associated Press caught the company blocking a transfer of the King James Bible using BitTorrent (leading one blogger to ask, “Why does Comcast hate Jesus?” a couple of advocacy groups, Free Press and Public Knowledge, filed a complaint with the FCC. The agency ordered Comcast to stop.

Three years later, in Comcast v. FCC (PDF), a federal appellate court reversed the FCC’s order. But the court simply ruled that the FCC had overstepped its jurisdiction; it never addressed the legality of Comcast’s behavior.

Comcast, it’s worth noting, could have dealt with its peer-to-peer problem by switching to a pricing model that charged according to use. But the company feared that customers were wed to salad-bar-style pricing and would bolt at the change. Thus, apparently for competitive reasons, Comcast chose instead to block the offending traffic.

Now we can see why. Verizon, which is about to roll out its version of 4G high-speed wireless-data service, says it is planning to charge according to use. Verizon is worried that 4G will make it so convenient to move huge video files over wireless links that it would face a Comcast-like problem, if it didn’t charge by the bucket of data.

Meanwhile, AT&T has beaten Verizon to the punch, announcing that new iPhone customers will pay by the megabyte. (Existing customers with all-you-can-eat plans will be allowed to keep them.)

Verizon’s admission immediately brought forth criticism from the blogosphere. And the FCC wasn’t far behind: it is already preparing new regulations to prevent “bill shock“–you know, when dad finds out that little Jennifer has downloaded every episode of “True Blood” and “The Vampire Diaries,” and stuck him with a $400 cell phone bill.

The irony, of course, is that Comcast ran afoul of the FCC, in part, for failing to use tiered pricing to ration bandwidth. Now, apparently, Verizon has caught the FCC’s attention by deciding to charge according to usage.

The FCC may do no more than require carriers to notify customers when they’ve exceed their allotted megabytes–something AT&T is apparently planning to do, even without a nudge from Washington. Still, we’d much prefer that the FCC stay out of data-service-pricing decisions altogether, letting the carriers adjust to changing technology and market conditions.

Telecommunications markets don’t always get it right. But we doubt that the regulators could do better.

(This blog post was published earlier on CNET.)

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.

That’s the message from Robert Hahn (yes, regulation2point0’s Hahn) and Hal Singer (Navigant Consulting) in the latest issue of the Milken Institute Review (yes, the quarterly journal of economic policy edited by Passell). [Download Here] Competition in smartphones – and other markets in which innovation trumps efforts to create monopoly power – thrives on exclusive marketing agreements, which facilitate close cooperation in technological development and allows the innovators to reap the full rewards from their investments.

“While regulators look askance at virtually any vertical restraint that leaves rivals out in the cold,” Hahn and Singer argue, “the burden of proof should rest with those who claim that consumers (as well as rivals) will be harmed. It is very hard to predict the impact of changing technology or consumer taste, especially in markets in which innovation has a way of redefining the product. And in a world in which economic growth so depends on innovation, the stakes are just too high for regulators to guess.”