The Underlying Desperation at the FCC

by on May 21, 2010 · 8 comments

In what might just be the most audacious bureaucratic punt in recent memory, the Federal Communications Commission said yesterday that the U.S. wireless market was so complicated that it was impossible to conclude whether there was effective competition.

Even after 308 pages of examining the multiple service providers, the extensive wireless coverage areas, the scores of handsets, the diversity of services and the decline of prices, the best Chairman Julius Genachowski could say in the FCC’s 14th annual report of competitive market conditions in the wireless sector was:

This Report does not seek to reach an overly-simplistic yes-or-no conclusion about the overall level of competition in this complex and dynamic ecosystem, comprised of multiple markets. Instead, the Report complies with Congress’s mandate to assess market conditions by providing data on trends in competition and choice over time – an approach that fits best with the role of the FCC as a fact-based, data-driven agency responsible for promoting competition and protecting consumers, and fostering investment and innovation.

Translated from bureau-babble, Genachowski’s statement means, “I’m not going to let the facts get in the way of my aggressive agenda to regulate the entire Internet.”

This year’s report is the first in seven years to fail to state what is obvious to any consumer: that that the wireless industry is effectively competitive. To justify the wishy-washy conclusion, Genachowski says the FCC for the first time took a “comprehensive and granular analysis” that, in the end, made it difficult to make any flat statement on the degree of competitiveness in the sector. Sorry, but I’m not convinced that the sudden moisture between my shoulder blades is merely atmospheric precipitation. A market is competitive or it is not. Choice, decreasing prices, ongoing investment, technology evolution and diversity of applications exist, or they don’t. The U.S. wireless industry is characterized by all the examples above. It is feverishly competitive. Yes, it’s that simple.

Up to now, I had some respect for Genachowski. I think he’s the first commissioner since Michael Powell to truly grasp the impact modern telecommunications technology is having on American life and commerce. Unfortunately, with this report, he has chosen to put his own regulatory agenda ahead of the facts. The entire exercise is an effort to gin up, in the apt words of Kelly Cobb at Americans for Tax Reform, a “phony wireless crisis” to serve as a basis for a sweeping regulatory agenda for broadband and the Internet that, to succeed in the wake of Comcast v. FCC, literally needs an act of Congress, most likely before mid-terms.

Cobb points out that Genachowski ignored much data, including the FCC’s own, on wireless competition.

Today, 74 percent of the U.S. population has a choice between at least 5 wireless carriers, up 9 points from 65 percent last year. 98 percent of the country has access to 3G speeds, up from 63 percent in 2006, and nearly every major wireless carrier is battling to be the first to roll out super fast 4G networks by the end of this year. And that’s less competitive? The FCC also admitted in their report that the cost for cell phone service dropped by 36 percent between 1997 and 2007 at the same time the overall consumer price index rose by 34 percent. But apparently it wasn’t robust competition that brought those prices down.

Interesting thing is, there are a number of areas ripe for regulatory attack—rural phone service, USF, spectrum—but all of them have limited regulatory range when it comes to broadband. On the other hand, wireless, which is on the verge of its transition to fourth-generation systems that promise download speeds as much as 100 Mb/s, is all about broadband, mobility and Web 2.0–stuff that has captured Americans’ imaginations. That’s what makes the FCC’s declaration on wireless competition, or its lack of one, so significant.

Where the National Broadband Plan was eloquent, the FCC’s “third-way” proposal of Title I re-classification and yesterday’s wireless competition report were equally as clumsy. Collectively, they take on the look of a desperate attempt on the part of an activist chairman to ensure his agency’s relevancy in the years ahead.

Put another way, what future does the FCC have if it can’t regulate broadband? Sure, there will always be spectrum issues, the FCC’s raison d’etre going back to 1934. But technology advances that squeeze more and more bandwidth into less and less channel space have made spectrum far less of scarce resource than they were at the dawn of the radio age.

As broadcast networks migrate programming to satellite, cable and the Internet (witness Google’s Web-over-TV demonstration yesterday), there will be fewer “broadcast indecency” cases to bring. Without a broadband mandate, the FCC won’t go away, but it will have a lot less power. All you have to do is look to the state regulatory commissions. As a young reporter for Electronic News, I remember watching New York Telephone Co. executives sweating through a New York State Public Service Commission rate hearing. Today, there are no more such inquisitions. In many states, telecom regulation has disappeared under sunset provisions. It doesn’t take much to imagine a diminished future for the FCC.

For the simple reason that narrowband telephony is disappearing as a one-off service built on unique infrastructure, the FCC needs jurisdiction over broadband to survive as a regulatory body. That’s why, despite its own pile of evidence to the contrary, it came to the off-key conclusion that the wireless industry is not effectively competitive. Right now the debate is over whether the FCC should regulate broadband. I think we should be debating whether we need the FCC at all. The Commission likes the former, but dreads the latter.

  • Mike_Wendy

    I'm not sure they concluded anything – the statute says the agency shall include analysis whether or not effective competition exists. The evidence suggests that it does. But, it made no binary choice as instructed by the statute. That's telling. No matter how they proceed, they seem to be doing a lot without regard to their authority (or lack of it).

  • http://www.wbklaw.com Mike Sullivan

    The FCC's granular analysis of competition attributed all of the MVNOs' customers to the 3 leading carriers — despite the fact that the order also talked about the valuable contributions of MVNOs to competition. Bear in mind that the OECD counts MVNOs as competitors when it finds the US to have the highest level of competition in the world.

    What is particularly perturbing is the fact that the FCC's mathematical analysis of the data is seriously flawed. For example, Tables 28 and 29 list the five top smartphone and handset vendors in terms of the number of models offered, versus the total. What's bizarre is that the models from the top 5, in both charts, add up to well over the total number of handset or smartphone models available. The opposite should be true: the top 5 should occupy some level less than 100%, and cannot possibly occupy a level over 100% of the market.

  • UK Stocks

    I’m not trustworthy they over anything – the statute says the way shall include analysis whether or not useful contention exists. The inform suggests that it does. But, it prefabricated no star pick as schooled by the statute. That’s yarn. No concern how they act, they seem to be doing a lot without greeting to their mortal

    Micheal
    UK Stocks

  • Brett Glass

    This whole mess underscores the very real need to go back to Congress to re-charter and restructure the FCC, define a new schema for protecting markets and consumers, and prevent regulatory overreach and regulatory capture. (The Commission's push for needless “network neutrality” regulation and its refusal to admit to effective wireless competition are the two most salient of many signs that the agency has undergone regulatory capture by Google, which is pushing it to exceed its statutory authority and regulate in such away as to cement Google's monopolies.) Unfortunately, this is unlikely to happen until the Commission's current Quixotic charge is defeated by the windmills of the courts. And in the meantime, American innovation, competitiveness, and access to broadband will suffer.

  • Brett Glass

    This whole mess underscores the very real need to go back to Congress to re-charter and restructure the FCC, define a new schema for protecting markets and consumers, and prevent regulatory overreach and regulatory capture. (The Commission's push for needless “network neutrality” regulation and its refusal to admit to effective wireless competition are the two most salient of many signs that the agency has undergone regulatory capture by Google, which is pushing it to exceed its statutory authority and regulate in such away as to cement Google's monopolies.) Unfortunately, this is unlikely to happen until the Commission's current Quixotic charge is defeated by the windmills of the courts. And in the meantime, American innovation, competitiveness, and access to broadband will suffer.

  • Pingback: Event: The FCC’s Wireless Competition Report: A Preview

  • Pingback: Event: The FCC's Wireless Competition Report: A Preview | fcc

  • Pingback: What is the state of wireless competition?

Previous post:

Next post: