Wireless Competition Under the Senate’s Microscope

The future of wireless connectivity.

Today the Senate will convene a distinguished panel of experts to discuss the state of wireless competition in America. Although it is trendy among the cognoscenti to complain about the wireless industry, the reality is that wireless competition is vibrant here, and U.S. carriers are leaving their European counterparts in the dust.

A common refrain among those calling for regulators to “level the playing field” is that two carriers—AT&T T +1.8% and Verizon—are running away from the pack, due to their allegedly superior spectrum holdings. The resulting imbalance in competition can be remedied, they claim, by capping the spectrum holdings of the larger carriers and steering newly available spectrum to smaller carriers. Any relative improvement in the smaller carriers’ networks would attract more customers, which would reduce wireless concentration.

One problem with this story is that wireless concentration—a very fuzzy indicator of competition when it comes to wireless services—is not climbing as predicted. In fact, U.S. wireless concentration as measured by the FCC has held steady since 2008, indicating that Sprint and T-Mobile are not losing ground. Indeed, 2012 was a particularly good year for these carriers, as both enjoyed significant subscriber gains. T-Mobile recently completed its merger with MetroPCS, giving the combined company access to more subscribers and more spectrum.

Perhaps the best indicator of the smaller carriers’ prospects is the bidding war for Sprint that has erupted between Softbank and Dish Network. If Sprint stood no chance to compete with AT&T and Verizon due to its allegedly inferior spectrum, then these savvy investors would not be so bullish about Sprint’s future. Put differently, Sprint’s spectrum holdings are valued dearly in the marketplace despite their “high-frequency” nature.

The same voices calling for intervention will likely cite lower wireless prices in Europe as proof that reducing concentration will bring lower prices. But a new study by GSMA, a trade association representing 800 of the world’s mobile operators, concludes that “Europe now lags far behind the United States in the deployment of next-generation mobile technologies and the advanced services made possible through mobile,” rendering any straight-up price comparison unreliable. The study found that U.S. mobile customers consume five times more voice minutes and nearly twice as much data as their European counterparts, and average mobile data connection speeds in the United States are now 75 percent faster than those in Europe.

By convening a panel on the state of wireless competition, the Senate must be careful not to miss the forest for the trees. The phrase “wireless competition” implies incorrectly that wireless carriers compete exclusively among themselves. New data suggests that wireless competes increasingly with wireline connections such as cable modem and DSL for broadband customers. According to a consumer survey by Leichtman Research Group, hundreds of thousands of Americans canceled their home Internet service in 2012, taking advantage of the proliferation of Wi-Fi hot spots and fast new wireless networks accessible to smartphones and tablets. Indeed, more U.S. households stopped paying for home Internet subscriptions (and relied on wireless access instead) than cancelled their pay-television subscriptions (and relied on video over Internet services).

How quickly will wireless overtake wireline broadband connections? Dish’s chairman is projecting that as many as a third of all Americans one day could find it more efficient to get their home Internet service wirelessly; Cisco IBSG recently projected that up to 15 percent of U.S. consumers could “cut their cord” in favor of a mobile data connection by 2016; and Samsung recently predicted that mobile networks could supplant wireline broadband by 2020.

The oncoming battle between wireless and wireline Internet providers suggests a more permissive attitude toward wireless concentration. For those who can’t (or won’t) recognize this “inter-modal competition,” any increase in wireless concentration is mistakenly perceived as bad news for consumers. The quest to promote wireless competition via spectrum policy could result in less competition where it matters most.

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