The FCC has been very busy on the wireline side of the industry of late, delivering its National Broadband Plan proposal, considering sweeping broadband carrier reclassification, weighing Universal Service Fund reforms, sparring around Net neutrality and more. But besides the usual spectrum tussles, the FCC has generally kept a hands-off distance from the fast-growing and seemingly competitive wireless industry. Could that be changing? In its annual mobile wireless competition report (PDF) released yesterday, the commission expressed concern that the wireless industry has become more consolidated and less competitive of late. Could that result in a heavier regulatory hand from the agency?
CNET sums up the consolidation argument:
Specifically, the FCC said since 2003, market concentration has increased 32 percent. The report indicates that 60 percent of the nation’s subscribers and revenue come from the country’s two largest wireless providers: AT&T and Verizon Wireless. The FCC noted that these companies are continuing to gain customers as other national operators, Sprint Nextel and T-Mobile USA, have been losing subscribers.
[FCC] Chairman [Julius] Genachowski tried to remain neutral. “This report does not seek to reach an overly simplistic yes-or-no conclusion about the overall level of competition in this complex and dynamic ecosystem, comprised of multiple markets,” he said at the [open FCC] meeting [where the plan was unveiled].
Connected Planet’s take,
Compared to, say, the cable or wireline telecom space the wireless industry is pretty wide open competitively. In most markets customers still have a choice between half a dozen wireless operators. If operators were still just competing on voice plans and coverage there wouldn’t be a problem. But the game has changed. In a new world of data services, devices are what are making and breaking operators. And Verizon and AT&T haven’t been shy about throwing their weight around to get the most attractive devices, which bloat their subscriber rolls further at the expense of other operators and in turn makes a handset-exclusivity deal with the Big Two even more attractive to device vendors.
Despite 3G network troubles AT&T has seen phenomenal growth over the last two years, largely due to Apple’s iPhone. Verizon may not have a device as iconic as the iPhone or iPad in its portfolio, but it certainly has no trouble getting the most cutting-edge gadgets first. T-Mobile and Sprint have exclusivity deals of their own, but I imagine they have to fight harder to get them and in many cases are left with AT&T and Verizon’s scraps.
Ending exclusivity deals wouldn’t solve the problem, though. The operators’ networks have now become so varied, using different technologies and frequencies, that devices practically have to be designed for one network or another. Even if Apple and AT&T were to end their partnership today, the iPhone and iPad wouldn’t suddenly appear on T-Mobile’s HSPA network. Apple would have to build devices that worked over T-Mobile’s AWS frequency bands. For Sprint and Verizon, the iPhone would have to rebuilt with CDMA chips. Why design costly variants that will pick allow Apple to sell to increments of the total U.S. subscriber base when a single device already addresses 30% of the market? The growth of the largest wireless operators makes exclusivity self-reinforcing, regardless of whether there is a formal deal in place. As we migrate to 4G that network differentiation will only become worse, basically forcing vendors to build devices for specific network operators.
Connected Planet’s take,
The FCC already has made a few moves aimed at introducing more competition into the wireless market-perhaps at the expense of Verizon and AT&T. The commission’s recent spectrum plan, for example, would prevent either of the Big Two from partnering with satellite spectrum holders that may opt to re-purpose some of that spectrum for terrestrial use. And some industry observers say the FCC continues to pursue a commercial auction for the D-block because it wants more competition in the coveted 700 MHz band.
The FCC’s attitude about wireless competition also suggests the commission will be serious about imposing data roaming obligations on the big carriers — and at least one of the big guys appears ready to learn to love it. Along with its plans to work with small wireless carriers to build out its 700 MHz network, Verizon also has reportedly said it would allow those carriers to roam on its network.
That’s our take on this. Let us know what you think in the comments section below: