U.S. Wireless Market is Competitive, Despite What Son May Say

Wireless market observers have been buzzing about the rumored acquisition of T-Mobile by Sprint for months now. Sprint has not made an official merger offer to T-Mobile, and Softbank and Sprint have repeatedly declined to comment on the possible transaction with T-Mobile. But recent actions by Masayoshi Son, head of SoftBank Corp. and Chairman of Sprint Corp. have certainly shown that Mr. Son means business. After U.S. antitrust officials voiced opposition to the acquisition, Mr. Son announced plans to make a presentation to the Chamber of Commerce in Washington, D.C. on March 11 to argue the merits of a merger between the wireless providers.

It is all well and good for Mr. Son to state his case wherever he wishes. But he has been vocally critical of the U.S. wireless market in making his arguments for approval of the rumored transaction. In particular, he has charged that Verizon Wireless and AT&T dominate the U.S. market and keep the costs of data communications high. The Wall Street Journal [subscription required] recently quoted Son saying, “The U.S. has one of the world’s highest mobile fees,” and the principles of competition aren’t working. Presumably he is tossing out these allegations to support his claims that Sprint needs more scale to compete with the top-two providers.

Unfortunately for Mr. Son, his claims are not supported by marketplace realities. There is plenty of evidence that the U.S. wireless market in fact offers its consumers some of the best prices and value for service in the world. For example, the Organisation for Economic Cooperation and Development (OECD) found in its most recent publication of Communications Outlook 2013 that U.S. pricing was more favorable than Japanese pricing for handsets/smartphones for 10 out of the 11 baskets or service bundles it studied. Further, the most popular mobile service bundle in the U.S. was 290% more expensive in Japan. The only market segment in which Japan led the U.S. in price was for USB sticks, which accounts for less than 3% of U.S. mobile connections. Overall, Japanese prices averaged 55% higher than U.S. prices.

The results of the mobile baskets price comparison compiled from the relevant tables in OECD’s publication are presented the chart below.

* Source: OECD Communications Outlook 2013, available at http://www.keepeek.com/Digital-Asset-Management/oecd/science-and-technology/oecd-communications-outlook-2013_comms_outlook-2013-en#page3. This chart is compiled from the various numbered charts in the left-hand column.

In addition to offering better price options for mobile baskets than Japan, the U.S. wireless market also offers consumers more advanced networks to support their wireless service. For instance, competition for speed and data-hungry consumers has driven service providers to invest $34 billion in network upgrades and development to build out 4G LTE networks in 2013 alone. This historic level of investment ranked 4th in the world according to OECD, and amounted to more than any other U.S. industrial sector invested in 2013. In contrast, Japan ranked 12th in investment according to OECD.

U.S. investments led to over half of the world’s 4G LTE subscribers being here in the U.S., despite the fact that only 5% of the world’s wireless subscribers in the U.S – nearly double that of Japan. And over 97% of the world’s smartphones sold in 2013 run on operating systems developed by U.S. companies.

Finally, despite whatever Mr. Son may say, competition is alive and well in the U.S. wireless market. The remarkable investment in U.S. wireless 4G LTE and broadband networks have enabled providers to offer consumers a wide range of choice in networks, devices, applications, and subscription plans. The FCC reported that at by the end of 2012, the U.S. had more facilities-based wireless service providers that own and manage network equipment than any other country in the world, and nearly all U.S. consumers have a choice of three or more mobile voice carriers; 97.2% of the U.S. population is covered by three or more mobile voice carriers and 92.8% is covered by four or more mobile voice providers. 

Regarding mobile broadband, 91.6% of the U.S. population is served by three or more mobile wireless broadband providers and 82% are served by four or more providers. Additionally, U.S. consumers have a choice of nearly 300 different handsets, and more than 3.5 million apps for 14 different mobile device operating systems. And recent trends indicate that investment, consumer demands, and disruptive technologies will continue to drive fierce competition in the wireless marketplace in the future.

All this is to say, when Mr. Son comes to town on March 11, skepticism is warranted regarding his claims that U.S. wireless consumers somehow are less well off than those in Japan, or anywhere else in the world for that matter. If Mr. Son wants to argue in favor of a merger between Sprint and T-Mobile, he can surely do so. But despite whatever Mr. Son may say, the U.S. wireless market is dynamic, competitive, and offers consumers some of the best prices and value for service in the world. 

Strong IP Protection Leads to Economic Growth and Innovation, Just as Our Founding Fathers Said – Part I

On January 29, the Global Intellectual Property Center of the Chamber of Commerce held a conference to celebrate the launch of its Second Annual International IP Index, Charting the Course. The Index provides an in-depth look at the IP environments of 25 countries, and offers proposals for improvement. Panelists at the GIPC event presented responses to the findings, as well as additional evidence on the impact of IP protection systems. The resounding message of the Index and panelists, based on empirical evidence in the Index and independent research, was that strong IP systems foster economic growth and development.

Senator Orrin Hatch took this message further, advocating for strong IP protection, but also recognizing that before evidence supported the theory of strong IP rights, the Founding Fathers explicitly provided protection for authors’ works as a founding principle of our nation. He credited this constitutional basis of intellectual property for leading the U.S. toward the strong IP environment in place today. In Part II of this blog on the GIPC event, I will discuss Senator Hatch’s comments and the constitutional foundations of intellectual property in further detail.

The Index ranks the IP environments of 25 countries that vary in market size, income level, and development. The Index uses 30 key metrics, which indicate whether an environment fosters growth and development and which provide a dynamic view of the strengths and weaknesses of each country’s IP protection system. The Index also includes proposals for improving economies, creating jobs, promoting innovation, ensuring safety, and providing access to creations and inventions through enhanced IP protections and supporting mechanisms.

The Index reports that most high-income economies, with some exceptions, have “robust national IP environments in place,” while the “weakest total national IP environments are in the lower-middle-income countries.” The Index ranks the U.S. first in the world in overall IP strength, and first in most other categories including Patents, Related Rights and Limitations, Copyrights, Related Rights and Limitations, Trademarks, Related Rights, and Limitations, and Trade Secrets and Market Access. The U.S. led the UK and France in all of these categories. The U.S., the UK, and France were equal in the Membership and Ratification of International Treaties category. The UK and France only out-ranked the U.S. in the Enforcement category, one of the weakest categories for all countries examined in the Index due to high rates of piracy worldwide.

The country with the weakest IP environment is India. This ranking was based on India’s continued use of compulsory licenses, patent revocations, and weak legislative and enforcement mechanisms. Other countries, like China, received low rankings due to their practice of conditioning market access on the forced sharing of protectable content, trade secrets, and sensitive technologies, despite its otherwise strong economic environment. Other countries that were among the lowest ranked on the Index include Indonesia, Vietnam, and Thailand.

Based on the Index findings and independent studies, the speakers at GIPC’s launch event delivered a unified response: Strong IP protection systems lead to strong economies, growth, and innovation. Panelists included members of Congress, government employees, interest group representatives, economists, and private industry stakeholders. Each advocated the importance of an empirical, fact-based analysis of an IP system’s impact, and presented evidence showing the indisputable link between strong IP protection and increases in innovative output, foreign direct investment, job creation, and other metrics indicative of economic growth and development.

For instance, Douglas Lippoldt, Senior Economist and Trade Policy Analyst at the Organisation for Economic Co-operation and Development (OECD) presented evidence demonstrating the link between strong patent protection and economic development. He found countries that increased their legal frameworks for patent protection after the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) experienced a clear increase in expenditure on research and development as a share of national GDP, in-flows of foreign direct investment, and increased output in creation and invention. He also noted an increase in foreign patent application filings, which indicated that increased patent protection attracted market entry.

Additionally, Michael Schlesinger, Counsel at the International IP Alliance and Aaron Brickman, Deputy Executive Director of SelectUSA, provided statistics proving the merits of the strong IP protection system in the U.S. Mr. Schlesinger noted that copyright-intensive industries grew by 4.73% in 2012 – more than double the growth in the rest of the U.S. economy. Those industries added $1 trillion to the U.S. economy in 2012, and employed 5.4 million workers. Further, those workers earned an estimated $85,000 on average, which is 33% higher than the average U.S. annual wage. Mr. Brickman stated that 1/3 of U.S. GDP is impacted by IP-intensive industries, and those industries are responsible for 1/3 of U.S. employment. He found that the U.S. IP framework is the reason the U.S. is the most attractive market for foreign direct investment, with approximately 1/3 of global research and development taking place in the U.S.

These numbers seem to clearly demonstrate that the U.S. IP environment leads the world, and that strong IP protections do indeed contribute to economic growth and innovation. However, Senator Orrin Hatch, Ranking Member of the Senate Committee on Finance, recognized that many economic and strategic competitors to the U.S. fail to understand that strong IP protections in the U.S. are to thank for much of its economic success. And, that the basis for protection of IP in the U.S. is the constitution. In his keynote address, Senator Hatch focused on the importance of strong intellectual property protections like other panelists, but he was the only presenter to recognize the role of the Founding Fathers in building the the U.S. system of intellectual property protection.

I will discuss Senator Hatch’s comments and the fundamental influence of the Founding Fathers on the U.S. intellectual property rights system in Part II of this blog series.