US Wireless Competition: Does It Exist?
"Competition" is one of those nebulous words that's open to broad interpretation.
For wireless operators in the US, though, the definition being used by the Federal Communications Commission (FCC) is the only one that matters, especially now that the Commission's report on the state of the wireless industry did not conclude that it was competitive. (See Carriers Respond to FCC's Competition Concerns.)
Naturally, the wireless operators have leapt to their own defense, noting that factors such as innovation, investment, new product releases, and applications support competition in the industry. However, if the FCC disagrees with the carriers, regulation will be the result.
CTIA president Steve Largent told the FCC to "ask any American" to confirm the market’s competitiveness.
But Craig Settles, CEO of broadband consultancy Successful.com, isn’t as convinced. He's been working to determine the real state of competition, and, following a survey of users across the US conducted in partnership with ID Insight, he has concluded that the market isn't as competitive as it might seem.
For Settles, an ideal competitive market model would be one in which each of the top 10 broadband competitors for wired and wireless captures 10 percent of the market, so that there’s no dominant player in the market. He recognizes that analyzing market share in isolation doesn’t account for other factors such as advertising, but believes it's a jumping-off point for an industry struggling to find a benchmark.
"You can show the market share that exists in an area, and you can’t really deny the numbers," Settles says, arguing that it's the only measurable way to judge a market's competitiveness.
Tracking the competition in large cities is an entirely different story than in the smaller, rural areas, Settles says. At the state level, Arkansas has the most ideal breakdown, in which six of the top 10 broadband providers have around 10 percent market share apiece. Dig a little deeper, though, and there are entire counties not reached by the providers that are clustered in certain parts of the state.
As another example, in a small town in California, AT&T Inc. (NYSE: T) has 39 percent market share, a local competitor has 15 percent, and the rest, including local providers and even Sprint Corp. (NYSE: S) and Verizon Wireless , only have around two to three percent, he says.
This scenario was fairly prevalent in his studies across the US, but Settles couldn’t find a common theme that explained the mix. For example, in California’s 58 counties, there was no correlation between population size and degree of competitiveness, as one might expect.
In a lot of regions, large wireless operators say the number of providers present is proof of competition, but users tell a different story, saying there is often only one viable option. As a result, the prices are high, the service poor, and connections fail, depending on the time of day. There may be options for service –- a duopoly at best, Settles says -- but whether it satisfies consumer or business needs is a totally different story.
This is a point that the FCC made as well. According to its report, 900,000 rural residents in the US have no wireless access at all, and 2.5 million only have one option for a wireless provider. Only 39 percent of rural customers can choose from all four of the Tier 1 operators.
"When you get down to it, done surfing through all the facts thrown at you in a blizzard, we in America are not in a competitive environment," Settles concludes. "We have pockets, generally big urban pockets, where competition exists… But when you leave the big city, that whole picture changes. When you look at people's reality in these markets... they don’t have competition."
Why it matters
Market share, though, is only one of the FCC's many considerations. The Commission is charged with accounting for all the various operators’ definitions of openness, looking out for the end users' best interests, and considering spectrum issues, advertising, innovation, apps, services, and a host of other issues, of which market share is only one.
The reason the FCC's definition of competition matters is that it will have important implications for all the wireless operators. If the FCC decides that the US is not competitive enough to benefit consumers, increased regulation will be the result.
For AT&T and Verizon, that means they likely won't have access to the multibillion-dollar spectrum auction planned for the end of next year. For Sprint, T-Mobile, and the nation's other, smaller wireless operators, regulation that would allow them more spectrum would be welcome.
The FCC is also probing into a number of other wireless issues, including early-termination fees, handset exclusivity, cellphone billing, and data roaming agreements.
[Note: This article is part two of a two-part series. Read part one here.]
— Sarah Reedy, Senior Reporter, Light Reading Mobile