FCC Adopts Mobile Wireless Competition Report

May 20, 2010. The Federal Communications Commission (FCC) adopted a Fourteenth Report [308 pages in PDF] on the state of mobile wireless competition.

This report is 308 pages long, and is packed with all kinds of data. But, it lacks the one thing that the Congress expressly required the FCC to report -- an analysis of the "competitive market conditions with respect to commercial mobile services", including "an identification of the number of competitors in various commercial mobile services, an analysis of whether or not there is effective competition, an analysis of whether any of such competitors have a dominant share of the market for such services, and a statement of whether additional providers or classes of providers in those services would be likely to enhance competition".

The FCC could have offered a conclusion as to whether or not there is effective competition. The above quoted statutory language requires the FCC to report its conclusion. But, the FCC report contains no such conclusion.

Also, unlike the previous thirteen reports, this one goes beyond the statutory mandate to examine "all mobile wireless services, such as voice, messaging, and broadband", which this report calls the "mobile wireless ecosystem".

The relevant statute, codified at 47 U.S.C. § 332(c)(1)(C), requires the FCC to write annual reports on competition in "commercial mobile services" or CMS, which is defined in Section 332 and Section 153. The statute makes no reference to broader "ecosystems". The FCC often uses the acronym CMRS as a substitute for CMS.

The report finds that "As of the end of 2008, 90 percent of Americans had a mobile wireless device". It also finds that "Data traffic has grown significantly, due to the increased adoption of smartphones and data consumption per device."

This report also states that "Handset manufacturers have introduced a growing number of smartphones that provide mobile Internet access and other data services, and use operating systems that provide many of the functionalities of personal computers. The four nationwide providers launched about 67 new smartphones in 2008 and 2009, based upon several
different platforms (e.g., Apple iPhone, Android, BlackBerry, Palm, and Windows Mobile). The Android and iPhone platforms have been particularly successful in creating an entire ecosystem of applications and services. As of December 2009, there were over 100,000 applications on the Apple App Store, and 15,000 on the Android Market." (Parentheses in original.)

It also addresses concentration, and applies the Herfindahl-Hirschman Index (HHI). It states that "Over the past five years, concentration has increased in the provision of mobile wireless services. The two largest providers, AT&T, Inc. (AT&T) and Verizon Wireless, have 60 percent of both subscribers and revenue, and continue to gain share".

It further states that the HHI "is used to measure concentration of mobile wireless service providers. Average HHI (weighted by Economic Area (EA) population) increased in 2008 relative to prior years. Both the lowest EA HHI value and the highest EA HHI value are both higher than preceding years’ lowest and highest EA HHI values. The weighted average of the HHIs (weighted by EA population) was 2848 in 2008, an increase from 2674 in 2007. The weighted average HHI has increased by nearly 700 since we first calculated this metric in 2003." (Parentheses in original.)

It also reports that "Providers continue to invest significant capital in networks, despite the recent economic downturn."

Also, it states that the percentage of households that have do without landline phones continues to grow. "In the first half of 2009, 22.7 percent of households (or more than one out of every five), were wireless only, up from 17.5 percent in the first half of 2008, 13.6 percent in the first half of 2007, and 10.5 percent in the first half of 2006." (Parentheses in original.)

FCC Commissioners Meredith Baker and Robert McDowell praised the report, but concurred only, because it lacks any conclusion as to whether or not there is effective competition. They also both found encouraging data about competition.

Baker wrote in her statement that "I see nothing in this Report that should lead us to question the overall competitiveness and vitality of the mobile wireless industry in the U.S. Indeed, this Report cannot provide factual support for any shift in the flexible manner in which we auction, license, or regulate wireless services."

McDowell wrote that "74 percent of American consumers have access to five or more mobile wireless service providers", up from 65 percent in the 13th report. He also noted that "the percentage of the population served by three or more providers increased from 51 percent to 76 percent. Moreover, the percentage of people served by at least two mobile broadband providers increased from 73 percent to nearly 90 percent."

In contrast, both FCC Commissioners Mignon Clyburn and Michael Copps found darks sides in this report. Clyburn wrote in her statement that in rural areas "consumers do not have meaningful choices among providers".

Copps wrote that "Unfortunately this report's findings are not always encouraging. Some are downright sobering -- and worrying, too. Specifically, the Report confirms something I have been warning about for years -- that competition has been dramatically eroded and is seriously endangered by continuing consolidation and concentration in our wireless markets. One number sticks out like a sore thumb: the Herfindahl-Hirschman Index".

Steve Largent, head of the CTIA, which represents wireless service providers, stated in a release that the FCC "missed an opportunity today to truly highlight one of the few glowing examples of investment, innovation and consumer choice in the U.S. economy. While we understand that the Commission is not making any conclusion about the state of competition in the market, nor are they suggesting that the marketplace has changed to the detriment of consumers during 2008, we nonetheless are disappointed and confused as to why they’ve chosen not to make a finding of `effective competition´ for that year. The Chairman has committed to a fact based, data driven Commission. We have embraced that and placed numerous facts, in the record, about each element of the wireless ecosystem. We believe, based on the facts submitted, that a determination of effective competition in the wireless marketplace is not only inescapable, but is actually quite simple – ask any American. Whether based on HHI, the raw number of competitors in each market, investment, handset and network innovation, price or consumer choice, the U.S. wireless market is the envy of the world. That is why the lack of a finding is so troubling."

He added that "any attempt to add regulation to wireless as a result of this Report would be both misguided and harmful to consumers".

This report is FCC 10-81 in WT Docket No. 09-66.

For a comparison to previous wireless competition reports, see, the FCC's 13th report [190 pages in PDF], adopted on January 15, 2009, and released on January 16, 2009. It is FCC DA 09-54 in WT Docket No. 08-27. See also, the FCC's 12th report [192 pages in PDF], adopted on January 28, 2008, and released on February 4, 2008. It is FCC 08-28 in WT Docket No. 07-71.