Regulatory Reform

Doesn’t the Government Know There Is Competition and Innovation in Wireless?

Strange as it may sound, the Pentagon City Mall in Arlington, Virginia is a perfect microcosm of the U.S. wireless industry.

On the Mall’s four floors, amid department stores such as Macy’s and restaurants like Johnny Rockets, you can find seven wireless retailers. There are storefronts for the four national carriers (AT&T, Sprint, T-Mobile, and Verizon) and three outlets that sell various brands of either wireless phones or accessories (Apple, Radio Shack, and PCC Wireless). If you were to walk through the mall right now, you would find consumers taking full advantage of the choices available to them, comparing the prices and features of the vast selection of phones and carriers’ voice and data plans.

From the commanding heights view of the wireless industry (in this case, the fourth floor of the mall near the ATM machine) one can see clearly that the industry is competitive and innovative. But will the government recognize that?

Government and industry data lend support to the anecdotal evidence observed at the mall that the wireless industry is competitive and innovative. Earlier this summer, the Federal Communications Commission (FCC) released its annual Wireless Competition Report. Congress requires the FCC to annually produce a report that “shall include … an analysis of whether or not there is effective competition” in the wireless market.

Falling Prices, More Choices

The FCC’s report provides a great deal of interesting and positive data about the U.S. wireless industry. For example, nearly 90 percent of the U.S. population is served by five or more wireless voice providers. When it comes to mobile broadband, approximately 68 percent of the population has four or more providers to choose from.

Meanwhile, prices for wireless voice and data services continue to fall. For example, prices for mobile voice services fell 9 percent from 2008-2009. The unit price for text messages also declined by 25 percent. The substantial decline in prices is telling and strongly indicative of a competitive market.

Not only are prices falling, but there are plenty of choices in mobile devices. A May 2011 survey by comScore found one out of every three Americans owns a smartphone. Phones running Google’s Android software comprise 38.1 percent of the market, followed by Apple’s iOS (26.6 percent), and then Research in Motion’s Blackberry (24.7 percent). Phones running software manufactured by Microsoft and HP are the remainder of the total. What’s more, these numbers could change as Apple, Google, and Microsoft are expected to release new software and phones in the months ahead.

What is clear is that no one phone dominates the market.

Despite devoting 300 pages to these and other findings that suggest a competitive and innovative market in wireless, the FCC made “no formal finding as to whether there is, or is not, effective competition in the industry” for 2011, the second year in a row this has been the case. In addition, Seth L. Cooper, a research fellow at the Free State Foundation, has pointed out the FCC’s latest report misses an opportunity to evaluate the “impact of intermodal competition and wireless substitution in the advanced telecommunications marketplace.”

Misguided Government Policy

With this failure to determine whether there is effective competition in the industry, state and federal policymakers are left without the information necessary to properly guide their decisions in matters such as antitrust review, regulatory modernization, and taxation. These matters are now front and center in state and federal regulatory bodies and legislatures. Without proper guidance, the result could be harmful decisions impacting wireless and the larger economy. Consumers could be left with fewer choices in products and services, and industry could be left without the investment necessary to build the next generation in wireless technology. Given all that has been made possible through wireless, this would be a real shame.

The U.S. wireless industry continues to grow and is the source of much of the recent spectacular innovations and investment in the high-tech sector. Since 1999, the wireless industry has invested more than $213 billion. AT&T and Verizon are investing in their next generation, 4G, long-term evolution networks, which are expected to deliver true broadband speeds to mobile devices. Sprint continues to offer consumers the option of unlimited data plans and shall soon debut Apple’s new iPhone. Consumers downloaded 9 billion mobile apps last year and are now spending more time on average using apps than surfing the Web.

The only thing standing in the way of continued growth, innovation, and investment in wireless could be misguided government policy.

Perhaps government officials should pay a visit to the Pentagon City Mall, especially the fourth floor, for a clearer picture of the wireless industry as it exists today.


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