FCC Finds Rise in Wireless Concentration, Balks at Finding ‘Effective Competition'

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The Federal Communications Commission June 27 publicly released its annual report to Congress on competition in the wireless industry, and for the second straight year did not define the sector as “effectively competitive.” The report, which covers 2009 and a portion of 2010, did not technically find the wireless industry to be “uncompetitive,” but again omitted the key phrase, “effective competition.”

Last year, for the first time since 2002, the FCC neglected to declare the industry as either effectively competitive or un-competitive, a conclusion some providers fear may lead to more regulations.

Under the Omnibus Budget Reconciliation Act of 1993, Congress mandated that the annual reports include an “analysis of whether or not there is effective competition,” but the agency claims the statute did not actually require the FCC to make a definitive conclusion about whether there is, or is not, effective competition, but instead provide details on the state of the market.

“The report makes no formal finding as to whether there is, or is not, effective competition in the industry,” the agency wrote. “Rather, given the complexity of the various inter-related segments and services within the mobile wireless ecosystem, the report focuses on presenting the best data available on competition throughout this sector of the economy and highlighting several key trends in the mobile wireless industry.”

Voice Providers

According to the FCC's analysis, 285 million people, or 99.8 percent of the total U.S. population, are currently “covered,” meaning they have access to at least one facilities-based mobile services provider. On the other hand, 568,000 Americans, or 0.2 percent of the U.S. population, are not covered at all. As for competition, 277 million people, or 97.2 percent of the population, are covered by at least three mobile voice providers. Approximately 269 million people, or 94.3 percent of the population, are covered by at least four mobile voice providers.

For data services, 82 percent of the total U.S. population is covered by three or more mobile broadband provider networks, compared to just 38 percent of the rural population.

Commissioner Robert McDowell, the senior and now lone Republican member of the agency, voted to concur with the agency's release of the report because the commission, in his view, has not identified “new or particularly revealing information” that would prevent it from “opining as to whether or not there is effective competition, as the statute requires.”

In a statement, McDowell cited the report's language that said it would be “overly simplistic to apply a binary conclusion or blanket label to this complex and multi-dimensional industry.”

“Nonetheless, this is what Congress asked us to do,” McDowell wrote. “Yet, at its core, the report shows that the wireless sector is dynamic, ever-improving and responsive to consumer demand.”

He noted with enthusiasm findings that show that the percentage of the population served by four or more mobile broadband service providers increased from 58 percent in November 2009 to 68 percent in August 2010. What is more, the percentage served by three or more providers increased from 76 to 82 percent. In rural areas, 69 percent have a choice of two or more providers and 38 percent have a choice of three or more providers, he noted.

Copps: Industry Consolidation

His Democratic colleague, Commissioner Michael Copps, found areas of progress, but also concern.

“Dig deeper and, sure enough, we find ongoing trends of industry consolidation,” Copps wrote in a statement. “The well-accepted metric for market concentration, the Herfindahl-Hirschman Index, remains above the threshold for a ‘highly concentrated' market. It also appears that consumers are no longer enjoying falling prices, according to the CPI [consumer price index] for cellular services.”

The HHI, which is calculated by summing the squared market shares of all firms in any given market, is a commonly used measure of industry concentration. In the mobile wireless services industry, the weighted average of HHIs, which is weighted by population across the 172 economic areas in the United States, was 2811 at the end of 2009, compared to 2842 at the end of 2008. Both the lowest HHI values and the highest HHI values by Economic Area decreased in 2009 relative to 2008. From 2003, the first year the commission calculated HHIs, to 2009, the average HHI has increased from 2151 to 2811, an increase of 660 points. As of mid-2010, the weighted average of the HHIs has increased to 2848, slightly higher than the yearend 2008 level, according to the report.

While commending the commission for improving certain aspects of the report, the industry, as it did last year, raised sharp questions about why the FCC did not find “effective competition.”

“The United States has the most innovative, dynamically competitive wireless market in the world,” Kathleen Grillo, Verizon senior vice president of federal regulatory relations, said in a statement. “This fast-evolving marketplace is very different from the one that existed eight years ago; consumers view it and participate in it differently, so should policymakers.”

Jonathan Spalter, chairman of Mobile Future, pointed to report's own findings as justification for finding a “highly competitive” wireless sector, such as that 89.6 percent of Americans can choose from five or more service providers.

Steve Largent, president and CEO of CTIA-The Wireless Association, said that while he had not had the opportunity fully vet the report, it appeared to him to “reflect the tremendous innovation and investment that occurred in the wireless ecosystem in 2009.”

“The report showed a multitude of facts and figures that proved the wireless ecosystem continues to work for America and Americans,” Largent said in a statement.

By Paul Barbagallo

For the report, visit http://op.bna.com/der.nsf/r?Open=rtar-8j8u34 .