FCC inquiry into competition is complicated, to say the least

A few of the recent events coming into play are going to force the Federal Communications Commission into a no-win situation regarding its inquiry into whether the wireless industry is competitive. At first blush, the inquiry into whether the wireless market is competitive, innovative and will sustain continued investment assumes at least on some level that the answer is “no.” Otherwise, why the need for an investigation?
But make no mistake, the wireless industry is competitive; witness the rash of pricing changes taking place in the last few weeks. AT&T Mobility launches a favorite-number calling plan in response to others on the market only to be superseded by Sprint Nextel’s unlimited mobile-to-mobile calling plan shortly thereafter.
Is the industry innovative? Of course it is. You can watch TV, surf the Internet, post a photo to Facebook – all from a handset. It’s hard to imagine an industry more innovative than wireless. What about the level of financial investment in the wireless industry, a third area the FCC is investigating? Let’s see — Intel Corp. and its partners just invested $3 billion in Clearwire Corp. and a new technology designed to compete head-to-head with existing wireless players. Carriers are spending hundreds of millions of dollars on new network technologies. Compare that to utilities, for example, where the delivery mechanism has remained largely unchanged for 100 years.
And yet, there’s no denying that the wireless industry today is dominated by two carriers, Verizon Wireless and AT&T Mobility. The big do keep getting bigger, for the most part. Thus, this week’s speculation that Deutsche Telekom may want to buy Sprint Nextel was met with caution among wireless pundits who think it would be difficult for any proposed acquisition to pass muster at the FCC.
A successfully combined Sprint Nextel/T-Mobile USA may have the best chance to compete with Verizon and AT&T. (Whether the nation’s No. 3 and 4 carriers can be successfully combined is fodder for another time.) It would be counterintuitive for regulators to agree to more consolidation to make the industry more competitive. But Sprint Nextel, T-Mobile and Alltel Corp. (before Verizon Wireless acquired it) have a track record of stepping up competition in the industry through their innovative offerings, whether a pricing plan or an application.
The “problem” with competition in the wireless space is the chasm between the top carriers and the rest. Regional and flat-rate prepaid carriers are seeing increased competition from nationwide carriers that stepped up their marketing to appeal to that audience once the segment started to gain traction. The trend is well documented—smaller, more nimble carriers come up with great ideas that are borrowed by larger carriers. The consumer benefits, the marketplace evolves. The FCC can help the smaller players with mandates like data roaming and artificial rules about handset exclusivity, but those changes won’t change the overall landscape too drastically.
What about competition from outside the traditional space? Cable companies and satellite TV provider EchoStar have bought spectrum to offer wireless service. Will they bring more competition to the industry? The telecom act of 1996 was supposed to bring competition to the cable, telephone and wireless industries. Initially, it just sparked a huge round of consolidation. Nearly a dozen years later, wireline and cable companies are in competition for customers.
Competition for consumers’ wallets is alive and well. Crafting rules to continue to ensure that competition continues is a bit trickier and potentially much more dangerous.