At its
September 26 public meeting, the FCC is scheduled to consider for approval its Twentieth Wireless Competition Report. Data cited in the draft report solidly
demonstrate the effectively competitive state of the commercial mobile services
market. After several years of avoidance, the Commission is finally set to reach the commonsense conclusion that there is
effective competition in the market for commercial mobile services.
The
competitiveness of the commercial mobile services market bolsters the case for the
Commission to adopt its Restoring
Internet Freedom proposal to remove its Title II public utility regulation
of broadband Internet access services. The Commission should restore the
light-touch regulatory environment in which mobile broadband services have
thrived and which best matches today's competitive conditions.
Section 332(c) of the Communications Act
provides that the Commission shall provide an analysis of "whether or not
there is effective competition" in the commercial mobile services market.
The Commission has dodged the congressional directive for the last six reports
by preparing analyses devoid of any effective competition determinations. Much
to the Commission's credit, this time around it appears the Wireless Competition Report will fulfill
Section 332(c)'s mandate with a positive determination.
Several key data points contained in the
Commission's draft report offer clear and convincing evidence to support a
determination that the commercial mobile services market is effectively
competitive:
- Consumer connections and data consumption have risen. Wireless connections rose from 378 million at the end of 2015 to 396 million at the end of 2016. At the end of 2016, monthly data usage per smartphone subscriber reached an average of 3.9 GB, up 39% from year-end 2015.
- Prices have decreased. In 2016, Average Revenue per User (ARPU) fell 7%, from $44.65 to $41.50. Between 2012 and 2016, while the overall consumer price index (CPI) rose 4.5%, the annual Wireless Telephone Services CIP decreased 8%.
- Consumer access to advanced network capabilities has increased. At the start of 2017, 92% of the U.S. population had access to four or more service providers offering 3G technology or better, up from 82% at the start of 2014. And 89% had access to at least four service providers offering 4G LTE technology, up from 41% in mid-2015. Between 2013 and 2016, nearly 4,000 new cell sites were added. Further, service providers increasingly have deployed small cells and DAS sites to improve coverage and prepare for 5G network deployments. Mobile service providers have also begun trials for 5G networks.
- Speeds have increased. Mean LTE download speeds increased to 23.5 Mbps in the first half of 2017, up from 14.4 Mbps in the first half of 2014. Over that same span, median LTE download speeds increased to 15.5 Mbps, up from 11.0 Mbps.
- Increased availability of pro-consumer pricing options. In 2016, "unlimited" data plans became widely available to consumers once again. Also, in 2016 and early 2017 free data plans became much more widely available. Free data plans exempt certain types of content, especially streaming video, from subscribers' monthly data allowances. Meanwhile, consumers enjoy choice among postpaid as well as prepaid plans. Prepaid offerings include Cricket and MetroPCS brands offered by national mobile broadband ISPs as well as popular offerings by mobile virtual network operators (MVNOs) such as TracFone.
In addition to being proof
positive of the effectively competitive state of the commercial mobile services
market, the foregoing data points undermine the "virtuous cycle" or "gatekeeper"
rationale for imposing public utility regulation on mobile broadband Internet
access services. The Title II Order
(2015) posited that broadband Internet access service providers (ISPs) control
the point of Internet access between edge content providers and consumers and
thereby possess the incentive and the ability to harm consumers by blocking
content or discriminating against content providers. Yet, as explained in the Free State Foundation's public comments in the Restoring
Internet Freedom proceeding, the plausibility of the virtuous cycle theory depends on broadband ISPs
possessing market power. For its part, the Title
II Order failed to provide any evidence that broadband ISPs possessed such
power. Now draft report data regarding the availability of choices among
mobile broadband service providers – including 89% of the population having
access to at least four service providers offering LTE – highlights once more
the non-existence of broadband ISP market power and the implausibility of the
virtuous cycle theory for public utility regulation.
Additionally, the draft report’s observation that "service providers have offered various promotions designed to
partially or fully compensate consumers' switching costs," contradicts the Title II
Order's claim that high "switching costs" create gatekeeper power. Consistent with the draft report, the Eighteenth and Nineteenth Wireless Competition Reports recognized that trends have reduced or
eliminated switching costs. Providers have phased out term contracts and offer early
termination fee buyouts to attract new customers.
Unfortunately,
the Title II Order has negatively
impacted mobile infrastructure investment. Using a baseline of actual capital investment
from 2003 to 2014, the Free State Foundation's Michael J. Horney found broadband
investment decreased $5.6 billion in 2015 and 2016 as a result of the Title II Order. Consistent with those findings,
data cited in the draft report indicate that mobile service providers invested
an incremental $28.0 billion in 2016, a decline of 9% from the $30.9 billion
invested in 2015. Further, "AT&T, Sprint, T-Mobile,
and Verizon Wireless spent a combined $27.5 billion in 2016, $30.3 billion in 2015,
and $31.2 billion in 2014." Capital investment by those
four major providers account for nearly 100% of industry investment.
Moreover, the regulatory uncertainty posed by the Commission's
investigation into free data plans based on its vague general conduct standard
– adopted in the Title II Order – had
the negative consequence of curtailing innovative pro-consumer offerings. Free data plans offer value-conscious consumers,
especially including low-income consumers, unlimited streaming of video or
other popular apps that do not count against their monthly data allowances. To its credit,
under Chairman Ajit Pai's leadership, in early 2017 the Commission closed its inquiry
and withdrew its misguided inquiry report on free data plans. As indicated in the
draft wireless competition report, free data plan options are now increasingly
available to consumers. Competitive choice among mobile broadband providers and
pricing options available to consumers constitute further reasons why the Commission
ought to restore a pro-innovation environment in which free data plans and
other innovative offerings are readily available sources of value for
consumers.
The
Commission's proposed adoption
of the draft Twentieth Wireless Competition Report – including its determination that there is
effective competition in the market for commercial mobile services – is backed
by a firm set of data points. After
several years of ducking such determinations, the Commission's willingness to
face up to the evidence of mobile wireless competition is surely welcome. Recognition of the effectively competitive state of
the commercial mobile services market should lead the Commission to restoring a
light-touch environment for wireless services. This result can be accomplished by
adopting its Restoring Internet Freedom
proposal and removing Title II public utility regulation of broadband Internet
access services.
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