This week, the Senate Judiciary committee is holding an important hearing on the wireless industry. Rather than focusing narrowly on policies that promote wireless competition, Congress—as well as the Federal Communications Commission (FCC )—should focus instead on promoting broadband competition: With the right strokes, wireless broadband could be poised to impose real competitive discipline on other forms of broadband, including cable modem service.
The wireless industry is intensely competitive, and the best measure of that competition is the trajectory of wireless prices. With only one exception (when prices held steady in 2009), wireless prices have declined every year since the Bureau of Labor Statistics began to track the index in 1998. By comparison, the price of cable and satellite television service has increased every year over that period.
The recent cascade of new wireless plans is further evidence that wireless consumers are benefitting from intense competition. In January of this year, AT&T T +0.78% and T-Mobile offered cash to consumers who would switch carriers, and AT&T has trimmed pricing for its “Mobile Share” plan. Even Verizon, which has been reluctant to compete on price (preferring to compete on quality instead), has jumped into the fray with a new pricing schedule of its own.
In addition to this fierce fight to retain their own subscribers and poach new customers from their rivals, the four national carriers are upgrading service quality by pouring tens of billions into expanded and enhanced LTE networks. What more could a wireless consumer ask?
It turns out there could be one more wish: Why pay for both wireless and wireline broadband, a consumer might ask, if a single broadband platform can meet all of her online demands? FCC Chairman Tom Wheeler seized on this idea in a January interview at the Consumer Electronics Show. The chairman offered up the nearly unpronounceable phrase “modal substitutability” to suggest that direct competition among wireless, wireline, and satellite providers for a consumer’s broadband needs is coming. “We’re getting there,” Mr. Wheeler observed.
Cutting one’s wireline cord in favor of an all-wireless solution would be a very appealing development for some consumers. According to the FCC’s latest video competition report, cable customers were paying $61 per month for expanded basic video service, which does not include the price of set-top boxes or other add-ons like HBO. And according to a survey of broadband prices compiled by the New America Foundation, the average monthly price of a standalone cable modem connection in the United States was $56 (based on a sample of 44 distinct offerings as of 2013).
Modal substitutability is also an alluring strategy for wireless companies—vastly expanding their potential revenues at a time when most Americans already own a wireless phone. Relying on upgrades and price-cutting strategies to drive business is a time-limited strategy that cuts into margins. Capturing broadband (and video) subscribers from cable and other wireline service providers is a far grander opportunity. If wireless providers could figure out how to offer for these services—holding quality constant—for less than $117 (the sum of the two monthly expenditures noted above), broadband consumers clearly would be better off.
To date, wireline service has held the edge in broadband because of advantages in both speed and capacity. Wireless streaming, for example, just wasn’t much fun with 2G and 3G wireless. But 4G LTE is dramatically changing that equation. And new technologies such as pCells could result in even bigger gains in wireless speeds.
New data support the claim of wireless substitution. This month’s Nielsen report on “The Digital Consumer” reveals that almost a quarter of Netflix NFLX -2.34% users are already streaming TV shows and full-length movies to their mobile device. In 2013, Americans spent nine hours, 52 minutes more online on their smartphones each month than in 2012, and one hour and 54 minutes a month less online on computers than in 2012.
But for all the promise, Mr. Wheeler’s vision of modal substitutability hasn’t quite arrived. Before most consumers consider mobile broadband interchangeable with wired service, wireless providers and regulators have a bit of work before them.
Wireless carriers must successfully complete their LTE buildouts and make sure that even more capable 5G services arrive on schedule. Based on public statements, wireless competitors seem to be on the right path with plans to boost their investments again this year. That’s critical because cable providers also are investing heavily, and the Comcast-Time Warner merger, if approved, would give cable an even greater advantage.
In addition, wireless providers need more spectrum to ensure the speed and reliability of broadband services, especially for video streaming. That puts the onus on regulators to boost spectrum supplies by getting auction policy right. Although it is politically tempting to steer scarce spectrum to “smaller” wireless carriers, the FCC needs to keep its eyes on the larger prize, by ensuring that sufficiently “beefy” wireless carriers step into the broadband ring.
If mobile companies and regulators can do what’s necessary, consumers should benefit from expanded options and even more vigorous competition in broadband for years ahead.