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

paolo.franzoi 12/5/2012 | 4:35:10 PM
re: US Wireless Competition: Does It Exist?


There is a presumption in the argument for lots of competitors at equal market share that there is enough money for all of them to make money.  By that I mean bottom line profit, not top line revenue.  Is everyone convinced that we would have enough profit in the industry to have complete overlap of all services for 10 carriers at all locations?  Really?  The equipment folks would just love it as there would be a lot of buying.

As far as I can tell there are 4 "national" carriers (AT&T/Verizon...then Sprint and Tmobile).  After that there are a number of smaller and regional carriers.  Do we really need more to build a competitive market?  I would say there is a much bigger issue on the data side, but all anyone ever talks about is the voice side of things. 




P.S. Also, this brings into question why anybody could buy Alltel if they did not believe the market was competitive...eliminated a competitor right there.

shygye75 12/5/2012 | 4:35:09 PM
re: US Wireless Competition: Does It Exist?

Does Mr. Settles really think that the ideal competitive environment is 10 operators each with 10 percent of the market? I'm not sure whom that would be ideal for. Certainly not the operators, who would probably have zero chance of turning a profit. In its analyses of national telecom markets, Pyramid Research consistently finds that three operators can create a sustainable business. If you are number 4 in a market, you'd better figure out a way to get to third, or prepare for your exit strategy.

paolo.franzoi 12/5/2012 | 4:35:09 PM
re: US Wireless Competition: Does It Exist?


Mendyk and I are not the same person....really.



CJSettles 12/5/2012 | 4:35:08 PM
re: US Wireless Competition: Does It Exist?

There are a couple of additional pieces of information you should know about the research we did. 

First, our goals for the research wasn't to review all the possible factors that could contribute to competitiveness. We wanted to establish one benchmark - market share - to which anyone could add elements that contribute to what in their view means competitiveness: ad spends by each company, type of services offered, pricing, etc. Further, we wanted to establish an ideal market share based on how some economists define an ideal competitive market, which is the absence of a dominant market player.

Second, the issue with competition (which the FCC report reinforces) is that different people have different views as to what competition is. We did not say ours is the only way to define competition, we said if you look at market share you get a window into competition AND you're able to rank states this way. However, that said, when you see states that have one cable and one wireless provider with collectively 80% or 90% of the market, it's easy to assume this isn't a particularly competitive state.

Third, we did not show, but alluded to the fact that our published ranking was based on statewide market share breakdown. The data that ID Insight has in house shows that at the county and city level, the market share breakdown can be dramatically different than statewide numbers, and in a number of counties the top one or two providers have even greater market share.

Finally, my personal correspondence with hundreds of city and county officials, community stakeholders and others directly assessing broadband issues locally paint a picture of markets sorely lacking in competition based on several factors.

All of these points together, rather than ID Insight's data by itself, is what led me to say in the article that in many parts of the country we don't have sufficient competition. Of course, others will tell you different... :) 


shygye75 12/5/2012 | 4:35:07 PM
re: US Wireless Competition: Does It Exist?

Thanks for the clarifications. In general, would you not agree that the level of competition is directly related to size and geography of the market? There are more people who live within a ten-mile radius of my house than live in the entire state of Wyoming. Which market do you think will draw the most interest from competitors?

The only reason that significant parts of the US have any wireline phone service at all is that those builds were heavily subsidized. Until cacti, cows, or cornstalks become viable paying customers, the economic case for competition in remote areas simply willl not exist.

Not to belabor the point, but what drove the decision to focus on just one metric for your analysis?

jepovic 12/5/2012 | 4:35:06 PM
re: US Wireless Competition: Does It Exist?

I just wonder: Which markets have 10 competitors with less than 10 percent market share? Clothes? Perhaps, but not if you break it down locally and by segment.

This was just silly research.

The results hint at another issue, which is partially in conflict with the goal of max 10% market share: That in large parts of the US (like many other countries), there are no providers whatsoever (especially if one looks at the details and the highend services). Most people would prefer one expensive provider over not have any services availabla at all. The costs for the operators are vastly different in these areas compared to metropolitan areas. The regulators must consider this aspect as well.

CJSettles 12/5/2012 | 4:35:06 PM
re: US Wireless Competition: Does It Exist?

You have to understand one of our motives for this exercise. There are plenty of industry people claiming that we have competition everywhere, customers have plenty of choices, all is well, etc. etc. We just didn't believe this to be true, so we created this first picture to show all is not well. There are a variety of causes for the lack of competition, including market size and geography. But from my perspective at least, if the industry is allowed to convince Congress that everything's well, Congress or the FCC won't take appropriate measures to correct those problems. 

The FCC has since released its report that takes a broader look at what defines competition. They are in a better position in terms of resources to create this broader look. That's why their report is 300 + pages, ours is 11.

paolo.franzoi 12/5/2012 | 4:35:06 PM
re: US Wireless Competition: Does It Exist?


So, by your own words - you looked to find a way to define a lack of competition.  If in some places if a company did a really good job and had a high market share, then that is bad?



shygye75 12/5/2012 | 4:35:05 PM
re: US Wireless Competition: Does It Exist?

Can you elaborate on what problems need to be corrected? Is it a problem that consumers are choosing certain operators over others when there is direct competition? Is it a problem that fewer operators are willing to make significant investment to serve markets that have almost no hope of being profitable for them? Is it a problem that operators strive to win business and market share at the expense of their competitors?

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