Late last month, the FCC issued its 16th Mobile Competition Report, a 400-page document that analyzes in detail the competitive landscape for mobile carriers and the ecosystem that surrounds them.
Congress charged the FCC with answering one simple question in the annual report: Is there "effective competition" in the mobile ecosystem?
But since the 2009 confirmation of Genachowski as the chairman, the FCC has refused to answer the question one way or the other. Here, as in its previous two reports, the commission comes tantalizingly close to the right conclusion, but then backs away from it in the interests of political expedience.
This year's report comes at a crucial time. Days before its release, Genachowski announced his resignation, and this came on the heels of senior Republican Commissioner Robert McDowell announcing his retirement.
Genachowski's tenure was marked by dubious interventions, large and small, in the markets over which the FCC has authority -- including broadcasting, cable, telephone, and mobile. While the chairman promised that the commission under his leadership would practice fact-based decision-making , the FCC instead frequently engaged in results-oriented politics aimed at supporting White House efforts to appear tougher on corporations.
Its refusal to find "effective competition" in the mobile ecosystem -- along with related non-conclusions on the pace of deployment of all broadband services -- was cynically designed to leave the chairman a free hand to activate emergency powers. These powers include everything from net neutrality to extracting conditions on a variety of spectrum transactions and mergers.
At least one step in the right direction comes in the report's explicit acknowledgment that competition in the mobile marketplace isn't limited to the four carriers (Verizon, AT&T, Sprint, and T-Mobile/MetroPCS), which operate their own networks. The competition also includes makers of devices, operating systems, apps, and other content providers, as well as virtual network providers, such as TracFone, which offer prepaid services on the carriers' networks.
Indeed, the growing dynamism of the mobile market ironically is the FCC's sole rationale for refusing to reach the obvious conclusion:
The data speaks volumes
Given the Report's expansive view of mobile wireless services and its examination of competition across the entire mobile wireless ecosystem, we find that the mobile wireless ecosystem is sufficiently complex and multi-faceted that it would not be meaningful to try to make a single, all-inclusive finding regarding effective competition that adequately encompasses the level of competition in the various interrelated segments, types of services, and vast geographic areas of the mobile wireless industry.
That's getting it backwards. It is, in fact, those very features of what the FCC refers to as the "mobile ecosystem" that should have made the conclusion an easy one. Instead, the report's bulk continues to expand, building a mountain of evidence that makes clear on every possible measure that the industry only becomes more dynamic as consumers embrace more devices, more services, and more apps. The answer is there, hiding under every footnote.
If there was any doubt about the level of competition -- and the benefits of that competition for consumers -- the commission's findings are overwhelming. Consider just a few data points:
- 99.9 percent of the U.S. population now has access to mobile services from at least one provider, and 99.5 percent have access to mobile broadband. That is more Americans than have access to indoor plumbing, despite a considerably longer effort to provide the latter.
- More than 80 percent of consumers have a choice of more than five providers, a figure that doesn't even include virtual and prepaid services.
- Between 2009 and 2012, smartphone penetration increased from 21 percent to more than 50 percent of all Americans. The number of connected devices increased from a little more than 100 million in 2001 to more than 300 million in 2011. That latter figure translates to 102 devices per 100 people -- more than one for every person in the U.S.
- Mobile data traffic increased 270 percent from 2010 to 2011 and has more than doubled each of the past four years. Average data consumption grew from 100MB per user in 2009 to 500MB in 2011.
- Even as consumer prices overall rose between 2009 and 2011, average prices for mobile services continue to decline -- 3 percent from 2009 to 2010 and another 3.6 percent from 2010 to 2011. The prices for voice minutes, text messages, and data have all declined substantially.
- Infrastructure investments by the major carriers continued throughout the recession, averaging more than $20 billion annually and more than $25 billion in 2011. That figure represents 15 percent of total industry revenue.
- In the operating system race, Android grew from 3 percent market share in 2009 to 51 percent in 2012. Apple increased from 20 percent to 32 percent in the same period, with Blackberry and Microsoft falling back significantly. Apple offered some 700,000 apps by 2012, with Google close behind.
- Cord cutting for voice services has reached epidemic proportions. More than a third of all American homes are wireless only, while nearly 60 percent of young adults live in wireless-only households.
There's no need to belabor the obvious. The mobile ecosystem is fiercely competitive and highly dynamic. Just ask anyone who has traded one smartphone for a better one, added a tablet to their collection of connected devices, or downloaded the latest app.
Declining costs for voice (from 40 cents per minute in 1993 to 5 cents in 2011) and data (from 47 cents per megabyte in 2008 to 5 cents per megabyte in 2010) make equally clear who is winning: consumers. Even a conservative calculation of profitability for the major carriers shows substantial declines for all of them, with earnings per wireless customer dropping by more than 10 percent for Verizon and 20 percent for AT&T between 2006 and 2011.
If individual consumer bills have gone up, of course, it's only because the demand for more services, devices, and apps is growing even faster. That's a good thing for everyone, including the overall economy, where mobile has been a shining star even through the darkest days of the recession.
The only thread on which the FCC can dangle its stubborn refusal to acknowledge reality is the relatively high concentration of market share among the four providers that operate their own networks. However, not only does this measure, known as the Herfindahl-Hirschman Index (HHI), exclude any competitive influence from other ecosystem participants, there has never been any evidence that high concentration leads to anticompetitive behavior.
Both the Department of Justice and the FCC have acknowledged that HHI, whatever its value in more mature industries, has limited application in the mobile ecosystem. As the FCC notes near the end of its report, even here in the U.S. concentration levels are lower than in nearly every other developed nation, including Germany, Canada, France, Australia, and Japan, which are frequently held up as exemplars of more successful mobile deployment.
A wasted opportunity
But so what if the FCC is playing games with its data? What difference does it make? A lot. The mobile competition report is a key input to FCC policy decisions, on everything from spectrum allocations to future auction design to the retirement of obsolete regulations.
The incomplete mobile competition report is a wasted opportunity. Had the FCC overcome its paralysis long enough to state the obvious, crucial implications for future policy would have come into sharper focus.
Most of all, a finding of a competitive mobile market would have forced the FCC to broaden its view of the market. Mobile "competition" has never been limited to the four major carriers only. It also includes a wide range of regional networks, as well as the prepaid-phone carriers that use those networks and put pressure on pricing.
Device manufacturers, notably Samsung and Apple, can and do extract considerable premiums for access to the hottest new devices. (AT&T reportedly paid Apple more than the actual price of the iPhone for its early exclusive on the first generation of the device.)
Operating system providers -- especially Google, Apple, and their cottage industry of app developers -- increasingly determine who wins and who loses. And as LTE network availability spreads, consumers are cutting the cord of wired telephone and Internet services, accelerating what is known as "intermodal" competition that will only become more intense in the next few years.
The FCC's ability to influence the market, however, is largely restricted to its regulatory power over the carriers. So the over-reliance on HHI leads the commission to put on dangerous blinders in reviewing potential mergers, spectrum transfers, and other transactions aimed at improving the consumer experience.
Instead, the commission either needs to consider all competitive factors or, better yet, stay out of the way of a market that doesn't need micromanagement. In either case, it must speed up its review of pending transactions and resist the temptation to attach sometimes hundreds of unrelated conditions and pet projects to its approval.
One the other hand, the one area over which the FCC does have power to influence the mobile ecosystem is in the provisioning of more radio spectrum for mobile services. Here the commission needs to expedite efforts to find and put up for auction more bands to accommodate the ferocious increases in demand.
This includes moving faster on its newly granted authority to conduct "voluntary incentive auctions" to wrest valuable frequencies from over-the-air television broadcasters and from the federal government itself, the most significant holder of underutilized spectrum.
Let's hope the next FCC chairman will allow the hard work of the FCC staff to speak for itself, without inserting increasingly implausible spin and equivocation.
At that point, we might even be able to acknowledge another key fact buried in all the prevarication. Congress, acting through the FCC, has demonstrated brilliant foresight in first adopting and then largely maintaining a hands-off policy since the very beginning of the mobile revolution.
The facts tell that story too, no matter how hard the FCC tries to bury the lede.