Tuesday, October 09, 2018

Three Reasons to Heed Michelle Connolly on Wireless Competition

Michelle Connolly is a former Chief Economist of the Federal Communications Commission. Indeed, the only person, I believe, to hold that position on two separate occasions. Good cred.

Dr. Connolly is also a highly distinguished Professor of Economics at Duke University, my alma mater. Another good cred.

Finally, Michelle is also a long-time member of the Free State Foundation's Board of Academic Advisors. Another really good cred.

Please don't ask me to choose which of these is most important!!!

No matter! Any one of them alone, of course, is sufficient to spur me to recommend for your consideration Professor Connolly's new paper, Competition in Wireless Telecommunications: The Role of MVNOs and Cable's Entry into Wireless. You can find it here on the T-Mobile-Sprint merger website or here on SSRN. (Dr. Connolly acknowledges that the report was underwritten by T-Mobile but states that the opinions expressed in this report are hers alone.)

If you are interested in better understanding the marketplace context of the proposed T-Mobile/Sprint merger and the competition analysis that the regulatory authorities are undertaking, I heartily commend the entire report to you. But, in the meantime, here I highlight just a few key excerpts:

"This report examines the competitive effects of Hybrid Mobile Network Operators (HMNOs) — mobile virtual network operators that rely in large part on self-deployed facilities — on the market for mobile wireless services and recommends that the Federal Communications Commission (FCC) broaden its now antiquated definition of the mobile telephony and broadband market to account for HMNOs. HMNOs share certain characteristics of both facilities-based carriers (Mobile Network Operators or MNOs) and non-facilities-based providers of mobile services (Mobile Virtual Network Operators or MVNOs). An understanding of MVNOs therefore partially illuminates the competitive impact of HMNOs, but HMNOs are poised to play a competitive role in the wireless marketplace that goes substantially beyond that of traditional MVNOs."

"HMNOs use a combination of facilities to provide wireless service and are not as reliant on MNOs as are pure MVNOs. Cable operator HMNOs own high-capacity network facilities that enable them to offload a majority of the voice and data traffic coming from mobile devices onto their fixed broadband networks. For example, rather than relying solely on their MVNO agreements to use Verizon’s mobile network, Comcast and Charter use their own extensive Wi-Fi hotspot networks to deliver wireless service to their customers over wide geographic areas. Comcast and Charter thus are providing wireless service using a hybrid strategy, combining traditional non-facilities-based MVNO agreements and facilities-based MNOs. (Emphasis in original.)"

"HMNOs should be considered as part of the relevant mobile services market. Cable HMNOs’ entry into the wireless market has already increased competition. The impact of this intensified competition on price discipline will grow in the next couple of years. Accordingly, any analysis of the mobile telephony/broadband market must at the very least include HMNOs. (Emphasis in original.)"

On behalf of the Free State Foundation, Senior Fellow Seth Cooper and I filed comments and reply comments in the FCC's proceeding to consider the proposed T-Mobile/Sprint merger in order to provide context for the agency's consideration, including the competition analysis. As with Professor Connolly's paper, if you are interested in the merger, I hope you will review the FSF comments and reply in their entirety.

Here is a brief excerpt from each that, in relevant part, is consistent with Dr. Connolly's conclusions in her paper.

From FSF's August 27 Comments:

"Wireless market entry by Comcast and Charter Communications using hybrid Wi-Fi/cellular mobile wireless networks as well as DISH Network’s planned launches of IoT and 5G networks diminish the likelihood of significant price increases, post-merger. Commission precedents like the CenturyLink/Level 3 Order (2017) factor such entry into the review analysis."

"Of course, reciting the market shares above might be read to suggest that mobile broadband is a properly defined market for purposes of competition analysis, but this likely is no longer the case. It is more likely that wireless and wireline broadband services properly are part of an overall broadband communications market – a broader broadband market, if you will – as these two market segments become increasingly substitutable. Traditional market definitions, such as a “mobile broadband” market, are now likely to be overly narrow, just as "cable" is certainly outdated and overly narrow as a meaningful product market definition."

From FSF's September 18 reply comments:

"The Commission should reject any artificial rule demanding four nationwide mobile wireless providers. Post-merger, consumer choices will still include three nationwide mobile service providers, plus regional providers, and hybrid Wi-Fi/cellular service providers Charter Communications and Comcast. “New T-Mobile” would likely be a stronger competitor. And the proposed merger would provide New T-Mobile an accelerated pathway for nationwide 5G network coverage that neither provider would have by themselves."

Again, if you're interested in knowing more about the dynamics of competition in the wireless marketplace, I commend to you Michelle Connolly's newly-published paper, Competition in Wireless Telecommunications: The Role of MVNOs and Cable's Entry into Wireless. And while you're at it, you might also read the Free State Foundation's comments and reply comments submitted in the FCC's T-Mobile/Sprint merger proceeding.