Editors' note: This is a guest column. See Fred Campbell's bio below.
Although it's running late, the Federal Communications Commission is on the brink of releasing its yearly report to Congress on the state of competition in the mobile wireless market. For nearly a decade, the FCC has found the wireless market in the United States to be effectively competitive.
Last year, however, the FCC shocked the industry by refusing to even make a finding regarding competition in the mobile wireless market. The FCC instead said that "because no single definition of effective competition" would be adequate, it would only provide raw market data. But federal law requires the Commission to say "whether or not there is effective competition." This unambiguous phrase mandates a determination one way or the other. So why did the FCC ignore the will of Congress and say nothing at all?
My fear is that the agency wants to impose new and heavy-handed regulations on the mobile industry. The FCC telegraphed its intent in the last mobile wireless report. Rather than analyze competition, it said that it should instead provide "data that can form the basis for inquiries into whether policy levers could produce superior outcomes." In other words, it believes that its regulations can produce better results than competitive markets. That's why the FCC has recently imposed Net neutrality regulations on mobile wireless providers (without a finding of market failure) and has proposed a host of other intrusive regulatory requirements. This new agenda includes proposals to regulate wholesaling arrangements "to ensure competition in...mobile broadband services," make it more difficult to renew radio licenses, and collect quarterly information regarding service quality and pricing.
These types of regulations aren't typically applied to competitive markets. Federal law presumes that competitive markets will be lightly regulated. By refusing to make a competitive finding, the FCC avoids this presumption and opens the door for additional regulation. If I'm right, the Commission will again avoid making any competitive finding in order to pursue an aggressive regulatory agenda.
If the Commission were to make a determination, the facts would compel a finding that the mobile wireless market is effectively competitive. The FCC's data shows that, between the release of the 2008 report and the last report in May 2010, the mobile market became even more competitive in critical areas. The percentage of population covered by five providers increased from 64.9 percent to 73.8 percent. An entirely new competitor, LightSquared, announced its plans to enter the mobile broadband market. The four nationwide providers launched 67 new smartphones. Apple's App Store went from having only 900 applications to over 100,000. And the annual Cellular Consumer Price Index decreased by 0.2 percent compared to a 3.8 percent increase in the overall Consumer Price Index. Increased coverage, new entry, market innovation, and lower prices are all signs of effective competition.
In light of this evidence, it's ironic that this very same Commission has repeatedly issued orders during the past year finding the video cable market to be effectively competitive. The FCC has deemed cable markets to be effectively competitive when only three providers serve the market (that is, the cable company plus two competitors) and at least two providers serve more than 15 percent of subscribers--even when the cable company has more than 70 percent market share. The mobile wireless industry easily surpasses these metrics. Over 90 percent of the population is covered by at least four mobile wireless providers, and the two largest mobile wireless providers together have only 60 percent market share.
Given its comfort in finding cable competitive under these circumstances, the FCC should have no difficulty finding that the mobile wireless market is effectively competitive.
Yet last year the FCC avoided making any finding at all. The Commission must have some motive for ducking Congress, the evidence, and its own precedent by failing to make a competitive finding in the mobile wireless context. The only sensible explanation is the FCC's desire to increase its regulation of the mobile wireless industry. The FCC has historically avoided extensive regulation of the mobile wireless industry because effective competition is better at protecting consumers than bureaucratic regulation.
If the FCC makes no competitive finding at all this year, this regulatory constraint no longer applies. That's why the Commission recently imposed Net neutrality regulations on mobile wireless providers. It's also why I think the FCC will again shirk its congressional mandate to make a competitive finding in the mobile context.