A new study from the non-profit think tank The Phoenix Center for Advanced Legal and Economic Public Policy Studies found that when spectrum is constrained or exhausted, consumers are better off with fewer firms offering wireless service rather than multiple competitors.
The report noted that while it's generally presumed that prices tend to fall as the number of competitors in a market increases, this is not true when spectrum constraints are added to the traditional economic models. In fact, the Phoenix Center found that when spectrum is constrained, a reduction in the number of companies will produce lower prices and possibly increase investment and employment. The report said that prices will fall if scarce spectrum resources are deployed more efficiently and firms can better manage the growing demand for bandwidth.
With more companies in the mix, capacity is lower and then rising demand has to be managed with higher prices, the report said.
The Phoenix Center report is notable because it is contrary to what FCC Chairman Julius Genachowski and many others have been advocating. In fact, in November the FCC released a 109-page study of AT&T's (NYSE:T) proposed $39 billion acquisition of T-Mobile USA that said the merger would harm competition in the wireless market and result in fewer jobs in the industry--countering arguments AT&T made in March in support of the transaction.
Phoenix Center President Lawrence Spiwak, co-author of the report, said that no one has formally studied how spectrum shortages affect competition in wireless communications. "If mobile carriers have too little spectrum, then the standard view that more competitors leads to lower prices is precisely backwards."
The Phoenix Center was formed in 1998 with a mission to provide independent assessments of the economic and material implications of regulatory and economic policy in the U.S. and abroad.
- see this release
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