Wireless Oligopoly?

by on February 12, 2007 · 4 comments

I haven’t had time to read Tim Wu’s new paper, but something struck me from reading Hance’s summary. Wu describes the wireless market as “a textbook oligopoly with four major players, premised on a bottleneck resource.” That didn’t strike me as being quite right, so I did a quick check on Wikipedia. Wu is right that the four largest carriers are AT&T, Verizon, Sprint, and T-Mobile. But these are not, as he implies, the only carriers. If Wikipedia is to be believed, at least, Alltel is #5 with 15 million customers in 36 states. U.S. Cellular is #6 with 5.7 million customers in 26 states. There are also a variety of smaller carriers. Most of them are Mobile virtual network operators piggy backing on networks owned by the big four, but you’ve also got Cellular South, Centennial Wireless, and SunCom, all of which appear to be non-trivial wireless carriers, although none of them come close to being national networks.

And then we must keep in mind that many customers still use landlines through their Baby Bell or cable company for their phone service. The Baby Bell option doesn’t add much competition since most people have either Verizon or AT&T for a Baby Bell. But most peoples’ cable companies are independent companies, and I don’t believe that Qwest owns any of the major wireless providers.

So depending on how you count, and what part of the country you’re in, the average consumer has between 5 and 8 choices for wireless phone service. Update: Oops, I meant to say “phone” here–including cable and Baby Bells as options

Now that’s obviously not as competitive as say, the PC industry. But it’s certainly comparable to a lot of industries we don’t generally think of as problematic. Your average metropolitan area only has 3 or 4 major supermarket chains, for example. Obviously, it’s always nice to have more competition, and we should be looking at policies that might open up the market to more players. But 5 to 8 major providers strikes me as a reasonably healthy industry by almost any standard.

  • http://tieguy.org/blog/ Luis Villa

    the average consumer has between 5 and 8 choices for wireless service.

    The existence of 5-8 wireless providers in the country does not mean that the average consumer has 5-8 wireless providers to choose from, any more than the existence of 5-8 rolls royces in a given county means that everyone has 5-8 rolls royces, or that 5-8 good restaurants in a city means that everyone has access to healthy food. (You’ve made this same mistake in defending the landline oligopoly, by the way, arguing that since a large number of counties are served by more than one broadband provider, a large number of people in those counties are served by more than one broadband provider. Again, fallacy.)

    To put it another way, both I and my parents are blessed to live in wealthy, high-density neighborhoods (which one would presume would be best served by wireless). And yet all three of us have at least one major carrier that I’m aware of that doesn’t get usable reception in our homes (Cingular doesn’t work in my apartment building; T-mobile in either of theirs). Those are of the major carriers. Alltel doesn’t even pretend to serve California, New York, New England or vast swathes of Texas or Florida- to claim that they serve the ‘average’ consumer, when they don’t even claim to serve the 1st and 3rd most populous states, and only barely serve the 2nd and 4th most populous or the entire region of New England, is disingenuous. I can only imagine that the situation for the 6th-8th is even worse. If these dense, wealthy neighborhoods can only meaningfully get coverage from three providers, I have to imagine that most of the country gets at best good coverage from three providers, and likely two.

  • http://tieguy.org/blog/ Luis Villa

    the average consumer has between 5 and 8 choices for wireless service.

    The existence of 5-8 wireless providers in the country does not mean that the average consumer has 5-8 wireless providers to choose from, any more than the existence of 5-8 rolls royces in a given county means that everyone has 5-8 rolls royces, or that 5-8 good restaurants in a city means that everyone has access to healthy food. (You’ve made this same mistake in defending the landline oligopoly, by the way, arguing that since a large number of counties are served by more than one broadband provider, a large number of people in those counties are served by more than one broadband provider. Again, fallacy.)

    To put it another way, both I and my parents are blessed to live in wealthy, high-density neighborhoods (which one would presume would be best served by wireless). And yet all three of us have at least one major carrier that I’m aware of that doesn’t get usable reception in our homes (Cingular doesn’t work in my apartment building; T-mobile in either of theirs). Those are of the major carriers. Alltel doesn’t even pretend to serve California, New York, New England or vast swathes of Texas or Florida- to claim that they serve the ‘average’ consumer, when they don’t even claim to serve the 1st and 3rd most populous states, and only barely serve the 2nd and 4th most populous or the entire region of New England, is disingenuous. I can only imagine that the situation for the 6th-8th is even worse. If these dense, wealthy neighborhoods can only meaningfully get coverage from three providers, I have to imagine that most of the country gets at best good coverage from three providers, and likely two.

  • http://www.techliberation.com/ Tim Lee

    Luis,

    I think wireless is a little different from the Bells or cable because the wireless market isn’t segmented into neat, contiguous geographic territories. You might be right that any given consumer only has 2 or 3 good choices for wireless (although I’ve lived in three apartments and had 2 jobs in two different metropolitan areas since I got my T-Mobile phone three years ago, and it’s worked flawlessly in all five places, so in my experience the coverage maps aren’t that spotty), but it matters that the feasible set is different, and essentially random, for each consumer. I might be choosing among T-Mobile, Cingular, or Alltel, and my friend a few blocks away might be choosing among Cingular, Verizon, and Comcast.

    This is very different from the situation in which there were just three national telecom companies that together controlled 100 percent of the market. Because if Cingular, say, wants to engage in some kind of monopolistic behavior, they can’t just make a backroom deal with the other two companies. They have to negotiate a backroom deal with all 8 (or whatever) companies that offer service in a given metropolitan area. Because although not every consumer has the option of choosing among all 8 of those carriers, there is a non-trivial number who are choosing among any given pair of carriers. And because the coverage maps are so fine-grained and random, it doesn’t really work to limit the monopolistic policies on a geographic basis. The map’s just too complicated for a discriminatory policy to work.

    Also, again, you have to consider the local Bell and cable company in the equation as well. In your case, it sounds like you have four options for phone service: Verizon (both landline and wireless), T-Mobile, Sprint, and your local cable company.

    Finally, all of these companies have a strong incentive to expand their coverage areas. Unlike, the telephone and cable industries, which have substantial regulatory barriers to companies offering service outside of their traditional territories, there’s no particular barrier to Cingular upgrading their network to improve coverage in your neighborhood.

    The Wikipedia article on T-Mobile, for example, says that T-Mobile bought a bunch of spectrum in 2006 and will be deploying it this year. So I think we can expect all of the wireless companies’ coverage maps to improve over time. This doesn’t seem like a market crying out for regulatory intervention.

  • http://www.techliberation.com/ Tim Lee

    Luis,

    I think wireless is a little different from the Bells or cable because the wireless market isn’t segmented into neat, contiguous geographic territories. You might be right that any given consumer only has 2 or 3 good choices for wireless (although I’ve lived in three apartments and had 2 jobs in two different metropolitan areas since I got my T-Mobile phone three years ago, and it’s worked flawlessly in all five places, so in my experience the coverage maps aren’t that spotty), but it matters that the feasible set is different, and essentially random, for each consumer. I might be choosing among T-Mobile, Cingular, or Alltel, and my friend a few blocks away might be choosing among Cingular, Verizon, and Comcast.

    This is very different from the situation in which there were just three national telecom companies that together controlled 100 percent of the market. Because if Cingular, say, wants to engage in some kind of monopolistic behavior, they can’t just make a backroom deal with the other two companies. They have to negotiate a backroom deal with all 8 (or whatever) companies that offer service in a given metropolitan area. Because although not every consumer has the option of choosing among all 8 of those carriers, there is a non-trivial number who are choosing among any given pair of carriers. And because the coverage maps are so fine-grained and random, it doesn’t really work to limit the monopolistic policies on a geographic basis. The map’s just too complicated for a discriminatory policy to work.

    Also, again, you have to consider the local Bell and cable company in the equation as well. In your case, it sounds like you have four options for phone service: Verizon (both landline and wireless), T-Mobile, Sprint, and your local cable company.

    Finally, all of these companies have a strong incentive to expand their coverage areas. Unlike, the telephone and cable industries, which have substantial regulatory barriers to companies offering service outside of their traditional territories, there’s no particular barrier to Cingular upgrading their network to improve coverage in your neighborhood.

    The Wikipedia article on T-Mobile, for example, says that T-Mobile bought a bunch of spectrum in 2006 and will be deploying it this year. So I think we can expect all of the wireless companies’ coverage maps to improve over time. This doesn’t seem like a market crying out for regulatory intervention.

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