A U.S. General Accountability Office (GAO) study of the wireless industry reports the past 10 years have been good for wireless subscribers. Average prices of wireless services have been cut in half over the past decade, and subscriptions have skyrocketed from 3.5 million in 1989 to a current level of 285 million.
Additionally, the study found the number of U.S. households employing cell phones as a primary phone is close to 40 percent, and that the quality of coverage is unprecedented.
The GAO passed its findings and recommendations to the Federal Communications Commission, calling on the FCC to increase its collection of wireless data, including prices, special access rates, capital expenditures, and equipment costs.
The GAO finds this data “would help the Commission better satisfy its requirement to review competitive market conditions with respect to commercial mobile services,” as the FCC is responsible under federal law “for fostering a competitive wireless marketplace while ensuring that consumers are protected from harmful practices.”
Greater Efficiency, Improved Coverage
GAO-10-779—”Enhanced Data Collection Could Help FCC Better Monitor Competition in the Wireless Industry”—was conducted at the request of Rep. Ed Markey (D-MA), then chairman of the House Commerce subcommittee on telecommunications and the Internet, and released August 26 by Democratic Reps. Markey, Rick Boucher of Virginia, and Henry Waxman of California.
The study concludes consolidation lowered consumer prices as a result of intense competition between the four main telcos in the U.S. market: T-Mobile, Sprint, AT&T, and Verizon. This competition, the GAO found, has resulted in more efficiency and improved coverage.
Among the evidence of improved coverage and price reductions, the study cites “northern Minnesota, an area with low population density, [where] economic development officials noted that since the area has consolidated under one carrier, there have been fewer ‘dead spots’ in the coverage. Second, national price plans have become commonplace, and all of the national wireless carriers offer unlimited voice plans. Further, according to one stakeholder, consumers have also seen a reduction in roaming fees with the advent of national networks and pricing plans.”
Less Is More
A common industry practice identified by both the GAO and FCC as possibly inhibiting competition and market entry by smaller telcos is early termination fees imposed by the Big Four. The GAO report states, “Many small carriers and consumer groups perceive early termination fees associated with wireless service contracts and exclusive handset arrangements as creating switching costs that serve as barriers to consumer movement.”
Other potential barriers identified by the GAO are that AT&T and Verizon together account for nearly 60 percent of the nation’s subscribers, and exclusive contracts between handset manufacturers and telcos, whereby customers have to choose one carrier over another in order to use a preferred handset.
“The GAO’s findings, together with the FCC’s recent report on wireless competition, paint a clear picture of an increasingly concentrated industry in which competitors and consumers pay high prices to pad the high profit margins of AT&T and Verizon,” said Chris Riley, counsel for the activist group Free Press in a press statement..
Lower Prices, Better Service
Hillsdale College History Professor Burton Folsom, author of The Myth of the Robber Barons, disagrees, saying plenty of market competition can exist even in a limited field of contenders.
“Competition in the telcos has been marvelous for consumers,” said Folsom. “True, we have only four companies, but those four have brought prices down and wireless service up for some time now. The same thing has happened in steel, railroads, and many other industries in the United States ever since the late 1800s. Competition reduced the number of corporations, but those who were strong brought lower prices and better service to America and to the world.”
Sheldon Richman, editor of the Foundation for Economic Education’s Freeman magazine, concurs with Folsom: “As a mobile-phone industry watcher, I am constantly wowed by how vigorous and beneficial competition can be even within government constraints,” he said. “Imagine how things would be without those restraints! The consumer truly would be king.”
Bruce Edward Walker ([email protected]) is managing editor of Info Tech & Telecom News.
“Enhanced Data Collection Could Help FCC Better Monitor Competition in the Wireless Industry”: http://www.gao.gov/new.items/d10779.pdf
Chris Riley’s Free Press statement: https://www.freepress.net/press-release/2010/8/26/gao-fcc-should-do-more-wireless-competition