The FCC Gets Real on Wireless Competition

Originally published at Morning Consult

Each year, the Federal Communications Commission provides a report to Congress on the state of competition in the nation’s mobile wireless market, including “an analysis of whether or not there is effective competition.” In contrast to the past eight years, this year’s draft report provides both a comprehensive analysis of the state of the wireless industry and a clear answer to the question.

The answer should be a no-brainer to anyone familiar with the constant bombardment of advertising – including sometimes very sharp comparative advertising – from the nation’s four major commercial wireless providers, as well as from smaller companies. Competition is also abundantly evident in the dueling wireless stores at the nearest mall or on major shopping avenues. The competition is vibrant, constant, and “effective.” Some may even think it’s intrusive.

To start, look at the basic numbers. Approximately 396,000,000 wireless subscriptions existed in the United States at the end of 2016 – more than one per person. The report cites data from CTIA, the wireless association, that wireless data use reached 13.7 trillion MB in 2016 – an astounding 42-percent increase from 2015 alone and a 238-percent increase from 4.1 trillion in 2014. In light of this growth, it’s not surprising that monthly data usage per smartphone subscriber also rose, to 3.9 GB — about 39 percent higher than in 2015.

Wireless data is one of America’s fastest-growing markets. It shows no signs of slowing down. Companies are eager to win wireless customers and to outcompete the others. So appropriately, the Commission’s draft report shows that competition extends to a range of areas, including “price, service characteristics, service quality, advertising and marketing, investment, network coverage and technology, and speed of service” – the things in all those ads.

The intense wireless competition is producing notable consumer benefits. The draft report finds that “providers continue to expand and adjust data plans and pricing; including adding new plans and reintroducing unlimited data plans to the marketplace.” In addition, “the mean LTE download speed increased well over 60 percent from the first half of 2014 to the first half of 2017,” which is clearly the result of “capital investments of more than $200 billion over the past seven years,” even with the downturn in investment from 2015 to 2016 after the FCC classified broadband as a “telephone service,” regulating it with monopoly-era rules.

Perhaps most important for competition, the FCC finds that “approximately 98 percent of the population living in non-rural areas was covered by at least four service providers.” This number drops to about 70 percent in rural areas, but many of those consumers still have access to a choice of carriers, including smaller and regional providers.

This data is extremely positive and demonstrates an intensely competitive market with phenomenal growth. To finish the case, let’s look at the metrics Wall Street analysts use.

One important metric for wireless companies is average revenue per user, which fell about 7 percent in 2016.  So average revenue per user declines while the number of subscriptions, download speeds and data usage accelerate upward, providing a strong indication of a competitive market that is good for consumers. The FCC also estimated carriers’ revenue per MB and found a decrease of approximately 28-33 percent compared to 2015 and 89 percent compared to 2012. Revenue for service providers on a unit basis is declining even as usage is rising.

If the market were not competitive, carriers would be raising prices in response to huge increases in demand. They are not – instead, they are investing heavily, including those huge multi-billion dollar spends on advertising, and accepting declines in revenue metrics to maintain market share in an environment of steady competition.

So it’s clear – and, from the economic case, unsurprising – that for the first time since 2009, the FCC’s draft report finds that there is effective competition in the mobile wireless market. While earlier reports declined to take a stand on whether there actually was effective competition, the FCC’s draft this year makes the case clearly.

It’s good for consumers that there is effective wireless market competition. And it’s good for the country that the FCC’s report is grounded in sound economic analysis.