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

June 2011

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FCC issues new wireless market report, declines to find wireless market effectively competitive

In the April 2011 Views and News, we reported the wireless market concentration ratios for end-of-year 2008 as provided in the then-latest 14th annual FCC report on CMRS competition. All of the top 30 Economic Area (EA) markets (as measured by subscriber counts) were either "highly concentrated" or "moderately concentrated" as defined by the DOJ/FTC Horizontal Merger Guidelines (HMG). The FCC has just released its 15th annual report on CMRS competition that provides market concentration data for end-of-year 2009. This new data is particularly relevant in light of the pending AT&T/T-Mobile merger. Overall, there has been little change in the reported HHIs for 2008 and 2009. One "Moderately Concentrated" market – Portland, Oregon – crossed the HMG’s "Highly Concentrated" threshold of 2500, and one Highly Concentrated market – Philadelphia – inched below the 2500 threshold to become "Moderately Concentrated." The status of the remaining 28 remained unchanged. 47 U.S.C. §332(c)(1)(C) requires that:

The Commission shall review competitive market conditions with respect to commercial mobile services and shall include in its annual report an analysis of those conditions. Such analysis shall include ... an analysis of whether or not there is effective competition, an analysis of whether any of such competitors have a dominant share of the market for such services ...

Emphasis supplied. The Fourteenth CMRS Report was the first in many years in which the FCC did not offer such an analysis. In the Fifteenth Report, the FCC actually punts on such a determination:

Thus, the Fifteenth Report makes no formal finding as to whether there is, or is not, effective competition in the industry. Rather, given the complexity of the various inter-related segments and services within the mobile wireless ecosystem, the Report focuses on presenting the best data available on competition throughout this sector of the economy and highlighting several key trends in the mobile wireless industry.

Why did the FCC choose not to offer a formal assessment of the extent of competition when such a determination is critical to its response to the AT&T/T-Mobile merger? Perhaps it prefers to make no finding at all rather than to reach the only conclusion that is actually consistent with the data – i.e., that the wireless market is a concentrated oligopoly and in no realistic sense is it subject to effective competition. Commissioner Michael Copps provides the clearest perspective as to the status of competition in his attached statement:

Finally, I cannot ignore some of the darkening clouds over the state of mobile competition. The headline for this Report will be that the FCC neither finds nor does not find effective competition. Dig deeper and, sure enough, we find ongoing trends of industry consolidation. The well-accepted metric for market concentration, the Herfindahl-Hirschman Index, remains above the threshold for a ‘highly concentrated’ market. It also appears that consumers are no longer enjoying falling prices, according to the CPI for cellular services.

Wireless Market Concentration Top-30 Economic Areas by Subscriber Count Year-end 2008 vs. 2009
Economic Area (EA)	2008 HHI	2009 HHI	HMG Concentration
Cleveland	3773	3763	High
Pittsburgh	3157	3185	High
Columbus	3080	3157	High
Charlotte	3059	3097	High
Indianapolis	3033	3135	High
Detroit	2971	2815	High
Boston	2800	2752	High
Washington, DC	2731	2683	High
Phoenix	2683	2792	High
Nashville	2679	2562	High
St. Louis	2674	2669	High
New York	2640	2556	High
Dallas	2623	2614	High
Sacramento	2621	2831	High
Seattle	2615	2702	High
Philadelphia	2614	2498	Moderate
San Francisco	2610	2662	High
Minneapolis	2588	2689	High
San Diego	2574	2543	High
Los Angeles	2488	2365	Moderate
Orlando	2486	2426	Moderate
Portland, OR	2469	2546	High
Atlanta	2411	2452	Moderate
Denver	2339	2387	Moderate
Tampa	2291	2257	Moderate
Kansas City	2290	2289	Moderate
Houston	2279	2268	Moderate
Miami	2250	2238	Moderate
San Antonio	2220	2162	Moderate
Chicago	2140	2070	Moderate

On June 20, 2011, ETI Vice President Colin B. Weir submitted an expert declaration in FCC Docket WT 11-65, containing an expanded analysis of wireless market concentration across hundreds of EAs using even more current, but confidential, data from June 2010. The Weir Declaration, which needed to be filed under seal," developed pro forma HHIs for each of 165 EAs by combining the existing AT&T and T-Mobile market shares. While we are not permitted to present or to discuss the details of Weir’s analysis or conclusions, they do shed considerable light as to the overall effect of the merger on the extent of competition in the US wireless market.

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

Read the rest of Views and News, June 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.