FCC stays neutral again on state of wireless competition

For the second year in a row, and as expected, the FCC did not take a definitive stance on the state of competition in the wireless industry, neither arguing that there is sufficient competition nor that the market is uncompetitive.

In its 15th annual report, the FCC provided few clues as to how its assessment of competition might impact the commission's judgment on whether to approve AT&T's (NYSE:T) proposed $39 billion acquisition of T-Mobile USA, which is also being reviewed by the Justice Department. Though the report usually ignites a debate over how competitive the industry is, the report has added significance this year in light of the AT&T/T-Mobile deal. 

The 304-page report, officially called the Mobile Wireless Competition Report, covers 2009 and part of 2010, and said that "the mobile wireless ecosystem is sufficiently complex and multi-faceted that it would not be meaningful to try to make a single, all inclusive finding regarding effective competition that adequately encompasses the level of competition in the various interrelated segments, types of services, and vast geographic areas of the mobile wireless industry." The FCC said this conclusion is consistent with the first seven competition reports, which used to be known as CMRS Competition reports, for Commercial Mobile Radio Service.

The report found that the four Tier 1 carriers continued to upgrade and expand 3G and 4G networks during 2009 and 2010, and found that 67.8 percent of the U.S. population has access to four or more mobile broadband providers. The report found that total industry average revenue per user fell by 3 percent from 2009 to 2010, to $45.85.

On the issue of market concentration, which will figure prominently in the analysis of the TA&T/T-Mobile deal, the FCC continued to find that the overall market is "highly concentrated," according to the Herfindahl-Hirschman Index, a scale used by antitrust regulators to measure market concentration. The report said that as of mid-2010, the weighted average of the HHI has increased to 2,848, slightly higher than the market's year-end 2008 level (any HHI score over 2,500 means a market is highly concentrated).

With regard to mergers specifically, the commission noted that a merger "can potentially form a stronger provider that restrains competitors from engaging in anticompetitive behavior, or may increase the likelihood that the merged firm may itself, or in coordination with other firms, would obtain or maintain market power."

In a statement, CTIA President Steve Largent said that while the trade group wished the FCC would have concluded effective competition existed, "consumers clearly enjoyed more advanced handsets, an ever-expanding range of services and applications and more robust networks, even as the Bureau of Labor Statistics reported that prices decreased." Largent said the expansion of wireless into mHealth, educations, transportation and energy demonstrates the innovation of the industry.

Others were less sanguine about their conclusions. "Many barriers stand in the way of effective competition in the wireless market," Matt Wood, policy director of public interest group Free Press, said in a statement. "Special access costs and disparities in spectrum holdings harm competitive providers and their customers, while exclusive deals for the most popular handsets and punitive early termination fees bind consumers to unsatisfactory service. All of these lead to higher profit margins for AT&T and Verizon (NYSE:VZ), but a broken market for consumers."

For more:
- see the FCC report (PDF)
- see this WSJ article (sub. req.)
- see this GigaOM post

Related Articles:
Report: FCC to stay neutral on wireless competition in latest report
FCC sets wheels in motion to review AT&T/T-Mobile deal
FCC dings wireless industry on competition
FCC competition probe: Carriers say industry competitive, consumer advocates say no
FCC to start probes into wireless innovation, competition and billing