For Wireless, What Does The Term ‘Competition’ Really Mean?

The FCC will soon be releasing its annual report on wireless competition and, according to the American Consumer Institute (ACI), one key question is the definition of “competitive.” 

While there certainly are those out there who believe that markets should be supporting three, four or five flavors of every kind of communications player (wireless, wireline, cable, ISP, you name it), ACI points out that “accepted economic literature and empirical research finds no evidence that market concentration, by itself, answers questions about market performance.”

“The issue of market structure and the impact on consumer welfare is far more complex than that,” it writes today. “A reflexive look at market structure, such as the number of competitors, is not an indicator of market failure. Indeed, if the market performs well – exhibits high growth, low prices and a never-ending expansion into new technologies and devices – then a focus on market structure is irrelevant. This appears to be the case for the wireless services market.”

It continues, “Whether choosing from three wireless providers or three dozen, the core question for consumers is whether market forces are sufficient to provide them with the services they want, a fair price, a variety of plan options, and the ability to influence provider behavior by moving their business to a rival. Evidence shows that wireless providers have sufficient incentive to attract customers by offering innovative handsets and other devices, and pricing.”

The Emerging Landscape

Today’s established wireless operators – Sprint, AT&T, Verizon Wireless, MetroPCS, T-Mobile, Leap, Cellular South, U.S. Cellular and related resellers – soon could be feeling some real heat from such new competitors as Clearwire and satellite’s LightSquared; CT Reports has heard some glowing reviews of Clear’s performance recently (and from people who know their stuff), and churn in those markets is a very real possibility.

And there always are new devices and the promise of future-facing operating systems. With voice continuing to be the killer wireless app, “Internet applications and cloud computing now support voice communications, teleconferencing, messaging, video conferencing and voice mail – at little or no costs,” ACI adds, “so simply concluding that the market is in the hands of a few competitors is overly simplistic. Competition is intense.”

Since the early 1980s, there is no question U.S. wireless prices have declined steadily, with domestic subscribers enjoying some of the lowest monthly bills in the world; only Hong Kong (according to the FCC) offers lower overall rates.

ACI cites an April 1 report from Bernstein Research that found that while Americans use two or three times the wireless bandwidth as do Europeans, they pay two or three times less per megabyte, and data consumption only is going to increase when 4G really takes hold here later this year.

No New Taxes?

“Those concerned with the affordability of wireless communications services should take a hard look at the relatively high rates of taxation on wireless consumers,” ACI writes. “For instance, a recent report by economist Scott Mackey showed that government taxes and fees on wireless communications services are three times the rate of general sales taxes. If affordability is an issue, ending discriminatory taxes on these services would provide a boost for wireless consumers.”

Indeed, in March, a bipartisan group of more than 140 co-sponsors in the U.S. Senate and the U.S. House of Representatives introduced the Wireless Tax Fairness Act of 2011. Commenting on that move, Steve Largent, president and CEO of CTIA-The Wireless Association, thanked the congressmen for the initiative that would “put a five-year moratorium on the discriminatory taxes and fees levied on our consumers. This freeze would not take away any existing revenue for state and local governments, but would provide time so the localities can reform their existing tax systems.”

He added, “In light of today’s challenging economic conditions, it is hard to understand why the average wireless consumer is being charged more than 16 percent in taxes and fees when other taxable goods and services are only 7.4 percent. When you add the fact that policymakers are looking for ways to make affordable broadband accessible for all Americans, it’s incomprehensible why 47 states and the District of Columbia charge their wireless consumers a rate that exceeds the general rates for other taxable goods and services.”

So what does this all mean? The FCC soon will release the latest iteration of its wireless competition report, with the ACI hoping the agency, after researching other reports and opinions regarding U.S. wireless competition, will scale back any plans to regulate an already competitive industry.

“The FCC should be asking such questions as whether prices are in line with inflation, whether innovation is continuing to boost quality or create new services, and whether service providers are working vigorously to win customers,” it concludes. “Yes answers to these questions suggest that the wireless market is yielding competitive outcomes, and consumer welfare is increasing. If that is the case, additional regulatory remedies are unwarranted.”

– Debra Baker