Economics and Technology, Inc. -- Views and News, April 2011

April 2011

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Measuring Wireless Market Concentration

As we discussed last month (Views and News, March 2011), there are already ample reasons to be concerned about the competitive implications of the "AT&T&T" merger. Nationwide market concentration in the wireless industry already raises red flags in that it meets threshold levels specified in the Department of Justice/Federal Trade Commission Horizontal Merger Guidelines. The Guidelines use the "Herfindahl-Hirschman Index" (HHI) as the measure of market concentration and potential market power. The increase in HHI that will result from the merger raises concentration levels even further. Our analysis was based on the national HHI values rather than those applicable in individual geographic markets because current "Economic Area" carrier subscriber data is not publicly available. As a general matter, it is nearly impossible for nationwide carrier market share data to overstate total concentration, as aggregating regional market shares for nationwide companies necessarily lowers HHI calculations and, as such, resulted in conservative HHI estimates. Right out of the gate, AT&T stated that national market share wasn't the proper way to examine the wireless marketplace, and that local markets should be examined on a case-by-case basis. We couldn't agree more.

The FCC publishes more granular HHI figures on an Economic Area (EA) basis for the wireless industry as a whole in its annual CMRS Report submitted to Congress. Even the most recent data as released by the FCC is somewhat stale – the latest edition reflects only year-end 2008 HHIs by EA. The data also shows only the total HHI for each market, not the underlying market shares of the top carriers upon which those calculations are based. The EA results are still unequivocal – EA market concentration is higher than the national average in nearly every geography. 19 of the largest 30 EAs exceed the current national HHI figure, and exceed the DOJ’s threshold of “highly concentrated.” All 30 of the top EAs qualify as moderately or highly concentrated by DOJ standards. And subsequent to the 2008 timeframe reflected in the latest FCC analysis, Verizon has acquired Alltel, and Sprint has lost customers (and market share) to AT&T and Verizon, indicating that the 2008 HHIs likely understate existing market concentration levels.

Both AT&T and T-Mobile currently offer service in at least a portion of all of these top-30 markets. If the merger goes forward without a concurrent requirement that one or the other firm divest its spectrum and operations in any overlapping geography, local market concentration levels will be subject to further – and potentially significant – escalation.

Wireless Market Concentration Top-30 Economic Areas by Subscriber Count Year-end 2008
Economic Area (EA)	Herfindahl-Hirschman Index (HHI)	DoJ Merger Guidelines Concentration Category
Cleveland	3773	High
Pittsburgh	3157	High
Columbus	3080	High
Charlotte	3059	High
Indianapolis	3033	High
Detroit	2971	High
Boston	2800	High
Washington, DC	2731	High
Phoenix	2683	High
Nashville	2679	High
St. Louis	2674	High
New York	2640	High
Dallas	2623	High
Sacramento	2621	High
Seattle	2615	High
Philadelphia	2614	High
San Francisco	2610	High
Minneapolis	2588	High
San Diego	2574	High
Los Angeles	2488	Moderate
Orlando	2486	Moderate
Portland, OR	2469	Moderate
Atlanta	2411	Moderate
Denver	2339	Moderate
Tampa	2291	Moderate
Kansas City	2290	Moderate
Houston	2279	Moderate
Miami	2250	Moderate
San Antonio	2220	Moderate
Chicago	2140	Moderate
Source: FCC 14th Annual CMRS Report

For more information, contact Colin B. Weir at cweir@econtech.com

Read the rest of Views and News, April 2011.

About ETI. Founded in 1972, Economics and Technology, Inc. is a leading research and consulting firm specializing in telecommunications regulation and policy, litigation support, taxation, service procurement, and negotiation. ETI serves a wide range of telecom industry stakeholders in the US and abroad, including telecommunications carriers, attorneys and their clients, consumer advocates, state and local governments, regulatory agencies, and large corporate, institutional and government purchasers of telecom services.