FCC issues mixed report on industry competition
The FCC didn’t give the industry much of an endorsement for its competitiveness in a 237-page report issued this week.
The agency cited a key financial index that shows the wireless industry is getting less competitive and declined to say that the industry had an “effective” level of competition.
The FCC found “effective competition” in the wireless market in last year’s Mobile Wireless Competition Report (MWCR) but did not issue the same finding in its latest report. The newly released 2008 MWCR is the FCC’s 14th such report.
“In the thirteenth report, the Commission found effective competition in the Commercial Mobile Radio Services (CMRS) market based on a variety of metrics, including the number of providers, subscribers, usage and prices,” the FCC said in its report. “Since the period covered by the thirteenth report, CMRS competition has grown stronger by some of the measures previously considered, but weaker by others.”
One of those measures the FCC uses is the Herfindahl-Hirschman Index (HHI), a widely accepted measure of market concentration in competitive analysis. The HHI for wireless has risen nearly 700 points between 2003 and 2008, reflecting the industry's consolidation.
The average HHI for the wireless industry now stands at 2848, up from 2151 in 2003. The Department of Justice’s antitrust guidelines consider a market to be “highly concentrated” if the post-merger HHI exceeds 1800.
While the HHI seemed to indicate that competition was on the decline, another metric indicated competition was actually rising. The FCC found that 90 percent of the U.S. population is served by at least four mobile voice providers, and nearly 96 percent is served by at least three different carriers. Only 1.1 million people have no access to cellular service.
CTIA said it was “disappointed and confused” as to why the FCC chose to not make a finding of “effective competition” for 2008, the year that the agency’s most recent report focused on.
“Whether based on HHI, the raw number of competitors in each market, investment, handset and network innovation, price, or consumer choice, the U.S. wireless market is the envy of the world. That is why the lack of a finding is so troubling,” said CTIA President and CEO Steve Largent.
CTIA also said it was “very concerned” about the potential misuse of policy levers mentioned in the report. “[We] believe that any attempt to add regulation to wireless as a result of this report would be both misguided and harmful to consumers,” Largent said.
FCC Chairman Julius Genachowski issued a carefully worded statement on the report that did not comment on its findings, but instead emphasized its methodology.
“This report does not seek to reach an overly simplistic yes-or-no conclusion about the overall level of competition in this complex and dynamic ecosystem, composed of multiple markets,” he said. “Instead, the report complies with Congress’s mandate to assess market conditions by providing data on trends in competition and choice over time – an approach that fits best with the role of the FCC as a fact-based, data-driven agency responsible for promoting competition and protecting consumers and fostering investment and innovation.”
FCC commissioners Meredith Baker and Robert McDowell interpreted the agency’s 2008 Mobile Wireless Competition Report as an indication of a highly competitive market.
Commissioner Michael Copps took the opposite stance, saying that competition in the wireless industry had “dramatically eroded” since the agency began tracking the information.
“The report confirms something I have been warning about for years – that competition has been dramatically eroded and is seriously endangered by continuing consolidation and concentration in our wireless markets,” he said, citing the HHI numbers. “We are going to need an extra dose of vigilance going forward and use whatever policy levers we have available to ensure good outcomes for American consumers.”
Commissioner Mignon Clyburn was comparatively neutral on the state of competition in the industry but emphasized the need for underserved citizens to have access to a wider selection of service providers.
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