However, on July 7, The Wall Street Journal reported that the U.S. Department of Justice was taking a look at telecommunications firms: “The review is expected to cover all areas from land-line voice and broadband service to wireless,” including exclusivity deals between wireless carriers and cell phone/handheld device makers.
On the previous day, U.S. Senator Herb Kohl, chairman of the Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent a lengthy letter to Christine Varney of the DoJ’s Antitrust Division and Julius Genachowski, chairman of the Federal Communications Commission. Kohl declared: “I am concerned that the concentrated nature of the cell phone marketplace could lead to future price increases for [text messages] and other cell phone services relied upon by millions of Americans.” While saying he supported more choice and competition, he got much his market information wrong (such as the actual prices of texting) and went on to support or call for rules and regulations that would restrain investment in wireless and other broadband infrastructure; have spectrum allocated according to political preferences rather than sound economics; and reduce investment and innovation in phones/handsets (such as iPhone, BlackBerry, et al). That’s anti-competition, and anti-consumer.
Just a glance at the industry makes clear that phone and cable companies are fighting hard for customers – both residential and business – in terms of land-lines, while the wireless market has exploded from 100 million customers eight years ago to in excess of 270 million today. There are nine independent firms each serving at least 4 million customers, and about 95 percent of Americans can choose among at least three competitors and more than half of the population picking among at least five. And while other industries are experiencing a dramatic falloff in investment during the current recession, telecom firms, unlike other industries in the current economy, continue to make large investments.
Senator Kohl, the DoJ and FCC should take note of a report from USTelecom released on July 16 titled “High-Capacity Services: Abundant, Affordable and Evolving.” Among the key points in an accompanying summary were:
• Newer competitive entrants, including cable and fixed wireless, are being drawn to the growth opportunity in high-capacity services. In addition to growing fiber-based competing carriers, the top five cable operators have announced plans to invest several billion dollars to expand high-capacity services for business customers. They already report annual revenues from these services of approximately $3 billion, with at least 15-20% annual growth. There also are more than a dozen fixed wireless companies providing high-capacity services throughout the country.
• There is an average of more than 9 fiber competitors in the top 10 metropolitan areas and an average of six fiber competitors in the top 50 metropolitan areas.
• Wireless backhaul is fast emerging as a competitive growth opportunity. With increased wireless data usage, analysts estimate the wireless backhaul market will triple in the next two to four years. Substantial new investment will be required to deploy the technology necessary to meet this demand. Dozens of competitive fiber suppliers, cable operators and fixed wireless providers either already serve this market or are actively targeting this opportunity. Wireless companies also have expanding self-supply options.
• Special access prices have continued to fall since pricing flexibility was granted in competitive markets. Previous independent studies (GAO, 2006 and NRRI, 2009) confirm that prices for special access declined from 2001 to 2007. More recent data supplied by participants in this study show that special access channel termination prices for major ILECs declined by 11% to 23% in inflation-adjusted terms from 2005 to 2008.
• High-capacity deployment and innovative offerings continue to proliferate. More offerings continue to come online from diverse competitors even as prices decline. Suppliers are deploying innovative solutions, such as carrier Ethernet and wireless broadband, to efficiently transport exploding volumes of traffic. Intense competition in retail areas that use high-capacity services—from corporate enterprise communications to consumer wireless services—further illustrate the competitiveness of high-capacity services.
These are big positives for consumers – most certainly including entrepreneurs and small businesses – and the economy. Elected officials and regulators must avoid imposing rules and regulations that will dampen investment, constrain competition, and thereby, reduce the innovations, improvements, choices and services enjoyed by individuals and businesses. The message to the government is simple: Don’t mess with what is so clearly working.
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
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