Friday, February 28, 2014

Senate Hearing Highlights Healthy Wireless Marketplace

On February 26, the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing entitled, “An Examination of Competition in the Wireless Market.” Testifying witnesses included Eric Graham, Senior Vice President, Strategic Relations at Cellular South, Inc., Roslyn Layton, Ph.D. Fellow at Aalborg University in Denmark, Randal Milch, Executive Vice President and General Counsel at Verizon, Jonathan Spalter, Chairman, Mobile Future, Kathleen O’Brien Ham, Vice President, Federal Regulatory Affairs at T-Mobile, and Matthew Wood, Policy Director at Free Press. The witnesses represented diverse perspectives on the wireless ecosystem.
Most witnesses and Senator Mike Lee observed that the wireless marketplace is “fiercely competitive,” and that competition is driven by massive investment and innovation. Verizon’s Randal Milch cited impressive figures reflecting the healthy state of the wireless ecosystem. For instance, the wireless industry invested more than $34 billion in 2013, and has invested over $300 billion since 2001, not including investments in spectrum. Further, the wireless sector has produced 1.6 million new jobs from 2007 – 2011 while many other sectors were experiencing some of the lowest employment rates in years. Overall, the wireless economy is responsible for $2 billion in economic activity and will generate over $1 trillion in economic growth over the next five years.
In addition to impressive investment and growth, the use of creative marketing strategies, business practices, and aggressive infrastructure improvement by wireless providers evidence a healthy, competitive marketplace. More than 90% of U.S. consumers have a choice of three or more providers. And these providers are making aggressive moves to keep and gain customers. From January to September 2013, the telecommunications sector spent $7 billion in advertizing while other segments vastly decreased their marketing spending. T-Mobile alone 4.4 million new subscribers in 2013 (1.6 million added in the fourth quarter of 2013 alone) and built out its virtually non-existent 4G LTE network to cover 20 million people currently. Such practices are clear indicators of tough rivalry and healthy competition in the marketplace.
Not surprisingly, witnesses from Free Press and Cellular South in particular warned that these figures have been the result of regulatory intervention by the FCC and DOJ and not the free market. They also claimed that the market has been characterized by an “acute lack of sustainable competition in the wireless industry” since 2009, citing the fact that AT&T and Verizon between them have more than a 60% share of wireless consumers. But this figure does not accurately represent the true state of competition in the wireless sector.
Today, the market is defined by disruptive technologies and the state of competition is not necessarily reflected by the number of competitors in a given traditional service sector. For instance, Roslyn Layton reported that mobile services may provide their customers with a package of voice, data, and SMS services, but consumers are increasingly using their data subscriptions to access competing communications services like Skype and Facebook and WhatsApp (OTT services). Today Microsoft and Facebook have the largest market caps of any mobile service provider, at $310 and $175 billion respectively. Ms. Layton concludes this shows that while AT&T and Verizon may have grown, this change motivated innovators to create new platforms and technologies that disrupt the competitive landscape and deliver services to consumers in new ways. And the market is to thank for this, not the FCC or the DOJ.
So despite the testimony of the naysayers, the facts and statistics showing the fierce rivalry, steady investment and innovation in the wireless sector presented delivered a clear message: the best way to promote the continued investment, innovation and growth in wireless is to allow the free market to drive the existing virtuous cycle. As Mobile Future Chairman Jonathan Spalter stated, “It would be pure folly” for the government to try to proscribe a regulatory framework based on non-existing market failures. Instead, an approach characterized by regulatory restraint and humility has fostered, and will continue to promote the competitive wireless ecosystem that exists today. As Senator Lee stated, “we must keep our focus on protecting competition, not protecting competitors.”