FCC Report Reconfirms the Reality of Wireless Innovation and Competition

On Friday, March 21 the FCC released its 16th Wireless Competition Report. Information and estimates compiled in the new Report cover the course of wireless innovation and competition since 2010. Report descriptions and data regarding wireless products and services put into concrete terms what anyone paying attention to the wireless market would already know; namely, the wireless market is indeed "effectively competitive."

Wireless market providers continue to create and make available to consumers new products, services, and pricing choices, with consumer prices decreasing in many instances. Meanwhile, the wireless market is characterized by heavy private investment, infrastructure deployment, and network upgrades. All this is spurring job creation, cutting business costs, and increasing workplace productivity to benefit the entire economy.

Dynamic markets like wireless are the success stories of free market enterprise. And their vibrancy is best preserved by a minimal regulatory environment.

Consider the following dozen indicators of wireless marketplace innovation and competition, as revealed in the FCC's report:

• Consumer choice among mobile service providers prevails. As of October 2012, 99.3% of the population is served by 2 or more mobile voice providers, 97.2% by 3 or more, 92.8% by 4 or more, and 80.4% by 5 or more. Additionally, as of October 2012, 97.8% of the population is served by 2 or more mobile broadband providers, 91.6% by 3 or more, 82% by 4 or more, and 68.9% by 5 or more.

• Mobile subscriptions continue to climb. "[A]t the end of 2011 there were 298.3 million subscribers to mobile telephone, or voice, service, up nearly 4.6 percent from 285.1 million" from a year before. Also, "there were 142.1 million subscribers to mobile Internet access services at speeds exceeding 200 kbps in at least one direction, up from the 97.5 million were reported for the end of 2010, and more than double the 56.3 million reported for year-end 2009."

• Upgrades to next-generation broadband wireless networks are proceeding. As of November 2012, "[Verizon's] LTE network covered more than 250 million POPs," with "[p]lans to expand LTE nationwide in 2013." As of November 2012, "[AT&T's] LTE network covered 150 million POPs," with "plans to deploy LTE to…250 million POPs, by the end of 2013, and to 300 million by the end of 2014." Also, "[a]s of September 2012, [Sprint's] LTE service is offered in 19 cities and plans to deploy LTE to 100 additional cities within the next several months and to complete LTE build-out by the end of 2013." The FCC's order approving the T-Mobile/MetroPCS merger was based, in significant part, on the post-merger potential to further LTE deployment. And providers such as Clearwire, Leap, U.S. Cellular, and C-Spire already have 4G services available, with further expansions underway.  

• Wireless-only households are increasing even more. "As of the second half of 2011, just over one-third, or approximately 34 percent, of all U.S. households were wireless only, up from 29.7 percent in the second of 2010 and 24.5 percent in the second half of 2009." And that number should be expected to continue its upward trajectory since "[a]pproximately half of all adults aged 18-24 and aged 30-34 lived in wireless-only households, while nearly 60 percent of adults aged 25-29 did so."

• Smartphone consumers now a growing majority. "[A]mong those who acquired a new cell phone in the second quarter of 2012, 67 percent opted for a smartphone, up from 30 percent in the fourth quarter of 2009. As of the second quarter of 2012, 55 percent of U.S. mobile subscribers now own smartphones."

• Consumer mobile data consumption is sharply increasing. Average consumer data consumption rose to 500MB/month at the end of 2011, up from over 200MB/month in 2010 and 150MB/month in 2009. For that matter, "mobile data traffic more than doubled from 226.5 billion MB in the last six months of 2010 to 525.7 billion MB in the second half of 2011."

• Consumer prices have seen decreases. Voice revenue per minute "has declined over the past 18 years, from more than $0.40 to the current $0.05," according to one estimate. Moreover, "the effective price per megabyte of data declined from $0.47 per megabyte in the third quarter of 2008 to about $0.05 per megabyte in the fourth quarter of 2010, which is roughly an 89 percent decrease."

• Private investment is sizeable and also increased. 2010 capital investment by wireless providers totaled between $23 and $25 billion, marking double-digit increases in investment from the year before. Those numbers exclude investment in spectrum licenses.

• The number of wireless apps continues to surge. U.S. consumers had access to over 1 million wireless apps by mid-2012. In addition, the "[t]otal number of applications downloaded from Apple’s App Store grew from 100,000 in 2008 to 25 billion in March 2012. By October 2012, Google Play for the Android operating system offered over 675,000 applications and had more than 25 billion total downloads.

• M-commerce services are growing. Although "[m]aking payments by mobile phone is not yet a mainstream payment method due to lack of awareness," "[p]aying-by-phone is playing a growing role in transactions made by U.S. consumers." In particular, "[a]bout 13 percent of U.S. bank account holders regularly use mobile banking services. As of August 2012, 61 percent of these mobile banking customers used their mobile devices to check transaction histories, 45 percent to check balances, and 31 percent to transfer money between accounts." Also, "in June 2012, 45 million smartphone owners accessed applications in the shopping and commerce category, an average of 17 times."

• Wireless infrastructure is expanding. "[T]otal cell sites in use by CTIA’s members was 283,385 as of year-end 2011. This represents an increase in the number of cell sites of 12 percent since December 31, 2010, of 15 percent since December 31, 2009, of 54 percent since December 31, 2005, and of 61 percent since December 31, 2004." This build-out is critical to ensuring upgrades to next-generation wireless networks. And "as infrastructure improves, transaction costs for businesses fall, including the costs of ordering, gathering information, and searching for services."

• Wireless continues to benefit the overall economy. "U.S. wireless providers directly employed 238,071 workers at the end of 2011, up from 184,449 in 2000, yielding an average job creation rate of around three percent per year," and "the mobile app economy employs an additional 466,000 workers." Also, "in 2011, the wireless industry accounted for $33 billion in productivity gains for U.S. businesses." Plus, "the wireless industry was responsible for 3.8 million U.S. jobs in 2011, directly and indirectly, and accounted for 2.6 percent of all U.S. employment."

Like its two predecessors, the 16th Wireless Competition Report "makes no formal finding as to whether there is, or is not, effective competition in the industry." Supposedly, "the complexity of the various inter-related segments and services within the mobile wireless ecosystem" is the reason for the FCC's non-conclusion. But that explanation is unconvincing. The tremendous growth in the wireless market's sophistication and intricacy points to the market's dynamism and competitiveness. (I made this point more extensively in prior Perspectives papers on the FCC's 14th and 15th Wireless Competition Reports, respectively.)

Most important, the FCC must preserve the minimal regulatory environment in which wireless has thrived. That was the basic point of my chapter on wireless policy in Communications Law and Policy in the Digital Age.

Among other things, preserving a minimal regulatory environment means keeping common carrier-like regulations away from wireless voice and broadband services as well as devices, operating systems, and applications. It also means eliminating regulatory barriers to deploying infrastructure. And the FCC must work to foster a light-touch regulatory environment for wireline services and fixed mobile functionalities that will increasingly work in tandem with wireless to offer consumers greater reliability and cost-effective services. The Report, for example, referenced expected adoption and use of new technologies such as small cells and seamless Wi-Fi offloading.

For that matter, the Report's findings, hopefully, should end calls for regulation of handset exclusivity business agreements between wireless handset manufacturers and service providers. Notwithstanding the Report's observation that Apple's iPhone exclusivity deal with AT&T ended in 2011, "[d]uring June 2011, 20 handset manufacturers offered a total of 297 handset models to mobile wireless service providers in the United States." This prompted the FCC to conclude that "[i]nnovative smartphones are available at a variety of price points and with both post-paid and pre-paid service plans."

A simple comparison of the wireless consumer experience from a dozen years go with today's experience should be reason enough for recognizing the dynamism of the wireless market. In that time, the market has transitioned from analog, voice-centric service to a digital, broadband-centric multimedia service of increasing sophistication and variety. Still, assembling the positive data points into a single report drives home the progress that wireless continues to make.

All told, the 16th Wireless Competition Report reconfirms the commonsense conclusion that the market for wireless services is effectively competitive. The task for Congress and the FCC is to ensure that a free market devoid of impediments exists to best ensure that the maximum benefits of the wireless market are bestowed upon consumers in the years ahead.