The Federal Communications Commission today declared that there is “effective competition” in the United States’ mobile wireless market, a finding that could influence how the FCC regulates wireless carriers and whether it approves mergers such as a possible combination of T-Mobile USA and Sprint.
The FCC is required to report annually on the state of wireless competition, but during each year of the Obama administration it declined to make a finding on whether the market benefits from effective competition. The FCC had declared the market competitive during George W. Bush’s presidency and is now returning to that finding with Republicans once again controlling the White House and the FCC.
The change, adopted in a 3-2 vote, comes as T-Mobile and Sprint are reportedly deep into merger talks. It wouldn’t be the first time that two of the four major nationwide carriers tried to consolidate.
When the FCC opposed AT&T’s proposed takeover of T-Mobile in 2011, an FCC analysis said the merger would bring “significant harms to competition… in the form of increased prices for consumers, reduced incentives for innovation, and decreased consumer choice.” That analysis included dozens of references to market and pricing data and other information in the commission’s previous wireless competition reports.
The findings in the competition report approved today could thus play a role in the FCC’s review of a possible T-Mobile/Sprint merger or in the implementation of consumer protection rules. The relevant statute in the Communications Act says the FCC may impose common carrier obligations on wireless carriers if it’s in the public interest and that the FCC’s public interest analysis has to factor in the competitive state of the market.
FCC failed to define competition, Democrat says
The FCC’s Democrats say that too many rural Americans lack adequate coverage, and that the commission’s Republican majority did not properly justify its finding of effective competition. The FCC is required to define “effective competition” but failed to do so, Democratic Commissioner Jessica Rosenworcel said at today’s commission meeting:
Instead of a definition of this essential threshold, we have all manner of apologies and admissions. We are told there is no single definition used by economists or policy authorities. We are told that upstream and downstream market segments involving network equipment, operating systems, and applications are outside the scope, and yet the core of what is “effective competition” remains undefined. In short, it’s hard. Well, tough. Congress creates new terms in legislation all the time and it’s up to expert agencies like this one to define them. But our failure to do so is inexcusable if the Commission wants desperately to conclude, as it does here, that “effective competition” exists.
Rosenworcel cautioned against allowing mergers that would reduce competition. “While this report celebrates the presence of four nationwide wireless providers, let’s be mindful that a transaction may soon be announced that seeks to combine two of these four,” she said. “While the commission should not prejudge what is not yet before us, I think this agency sticks its collective head in the sand by issuing this report and implying, ‘move along, there is nothing to see here.'”
Democratic Commissioner Mignon Clyburn faulted the FCC’s Republican majority for reducing the scope of the annual analysis. Despite making a specific finding of effective competition, the new report is actually less detailed than previous ones, she said.
Previous annual reports “assess[ed] competition in the entire mobile wireless ecosystem, including key input markets, such as towers, backhaul, and transport facilities, as well as the output markets for products that rely on mobile wireless services, such as mobile applications and content,” Clyburn said. Because of that, those reports “were useful in identifying areas where communications policy could promote deployment of competitive options for wireless service in rural areas,” she said.
But the new report “takes a decidedly myopic view of the ecosystem, and instead focuses only on ‘competition in the provision of mobile wireless services.’ This is like a doctor looking at one organ and pronouncing a patient fit as a fiddle,” Clyburn said.
“A number of facts” support competition finding
The Republican-approved competition report said the commission did not “attempt to do a full market definition or market power analysis, however, as this would involve an extremely detailed analysis of supply and demand factors at the national and local level. Instead, we consider a number of facts and characteristics of the provision of mobile wireless services, which taken together, indicate that there is effective competition.”
Those factors include rising consumer demand and increased output, falling prices, network investment, service quality and speed, access to spectrum, and innovation and new technologies, the report said.
“As the report details, wireless prices are falling, speeds are increasing, network coverage and capacity are expanding,” Republican Commissioner Brendan Carr said. “Providers are competing vigorously with each other through innovative technologies and service plans, and for the first time ever, the majority of American households are wireless-only [for telephone service]. The facts make it abundantly clear that this is a competitive market and that consumers are the beneficiaries.”
Chairman Ajit Pai said the FCC is “return[ing] to following the law, and by that, I mean the specific direction set out for us by Congress to include in this report analysis of whether there’s effective competition in the wireless marketplace. Unfortunately, the past six reports have simply dodged this question.”
“Most reasonable people see a fiercely competitive marketplace,” Pai also said. “For example, since the FCC’s last report in 2016, all four national carriers have rolled out new or improved unlimited plans.”
Rural Americans still lack coverage
But coverage in rural areas still falls short, Clyburn said.
“Consider this: if one of our nationwide wireless carriers [Sprint] covers only 64 percent of the rural population, that means it is probable that 20.5 million people in these areas do not have access to all four of our nationwide wireless providers,” Clyburn said. “So, my question is a simple one: How then can this commission conclude that the mobile wireless market is effectively competitive?”
While Sprint covers 64 percent of the rural population with wireless service, T-Mobile covers 79 percent, Verizon Wireless covers 93 percent, and AT&T covers 97 percent, according to the competition report. Republican Commissioner Michael O’Rielly said that “in rural America, 91 percent of the population has a choice of three or more providers, and more than 90 percent have at least two LTE options.”
She emphasized her point with an anecdote:
This summer I received a letter from Pat of Athens County, Ohio, a rural community located not far from the West Virginia border. To illustrate just how bad the cell phone coverage is in that area, she wrote: “A few years ago, my son was travelling State Route 550 between Amesville and Bartlett on a motorcycle and hit a deer. He had no cell phone signal to call for help. He’s very fortunate to be alive.” When she worked in the Village of Amesville, there was no Internet or cell phone coverage at all.
Despite today’s glowing report, the FCC recognized shortfalls in a separate proceeding for its Mobility Fund, which “is designed to bring ubiquitous mobile wireless service to millions,” Clyburn said. “Yes, I said millions of Americans who are still waiting for mobile wireless service with the download speeds others enjoy.”