GAO: Wireless Prices Plummeting; Public Knowledge: We Must Regulate!

by on August 26, 2010 · 4 comments

So, the GAO recently released a report on the wireless industry and found that:

The biggest changes in the wireless industry since 2000 have been consolidation among wireless carriers and increased use of wireless services by consumers. Industry consolidation has made it more difficult for small and regional carriers to be competitive. Difficulties for these carriers include securing subscribers, making network investments, and offering the latest wireless phones necessary to compete in this dynamic industry. Nevertheless, consumers have also seen benefits, such as generally lower prices, which are approximately 50 percent less than 1999 prices, and better coverage.

Now, if you are a self-described “consumer advocate,” I would hope the bottom line here is pretty straightforward and refreshing: Prices fell by 50% in 10 years. That alone is an amazing success story. But that’s not the end of the story. The more important fact is that prices fell by that much while innovation in this sector was also flourishing.  Do you remember the phone you carried in your pocket — if you could fit it in your pocket at all — ten years ago?  It was a pretty rudimentary device.  It made calls and… well… it made calls.  Now, think about the mini-computer that sits in your pocket right now.  Stunning little piece of kit. It can text. It can do email. It can get Internet access. You can Twitter on it. Oh, and you can still make calls on it (but who wants to do that anymore!)

The point is, this is a great American capitalist success story that everyone — especially “consumer advocates” – should be celebrating.  So, what does Public Knowledge president Gigi Sohn have to say?

“These trends do not bode well for consumers, despite any benefits of the moment,” she told Ars Technica.

Wait, what?  Apparently no good deed goes unpunished. In the eyes of Public Knowledge, 50% price drops + stunning innovation = we need more regulation!  According to Ars, Gigi called for wireless net neutrality, text messaging regulation, an end to handset exclusivity, and more reasonable early termination fees.

What Gigi appears to be hung up on is the fact that, as the GAO reports, there has been undeniable consolidation in this sector since 2000. (Of course, that scale was essential to spreading faster networks nationwide).  But in Public Knowledge’s world, big is always bad.  All that counts is how atomistic competition is.  If we don’t have lemonade stands* on every corner, then, by God, to hell with the entire system, they say.  It makes no difference to them how well consumers did under that system. That’s the key take-away here.

But how asinine is this?  Again, isn’t consumer welfare what really counts?  Do we really care if we have 4 or 40 competitors? So long as prices are generally reasonable (or in this case constantly plummeting) and innovation is occurring at a healthy clip (which is certainly is here), then who cares how many players are out there?  Who’s to say to say that “X” is exactly the right number of competitors?  Markets determine these things. Public Knowledge apparently doesn’t like the fact that X currently is 4 instead of 40, or whatever it is they think meets their Goldilocks standard.  And, so, to get things just right, they would bring in the regulatory wrecking ball and have FCC bureaucrats start re-engineering this sector according to their own preferred design.

Oh, the rank hubris of it all!

Anyway, you’ll have to excuse me now.  Once I finish up this post to on my Droid (yes, I can blog on my fricking phone!!!!  How amazing is that, Gigi !!) I then need to get back to reading through my day’s Twitter stream (also on my phone) my RSS feeds (also via my phone) and then sort through the tens of thousands of games and apps in the Android marketplace to find my kids some new things to keep them entertained on a long car drive during vacation next week, where I will be using the Droid’s navigation system to find the hotel, while also searching for restaurants to eat at, while also…

Oh, you get the point.  Some people are just never happy.

____

P.S. To understand why “lemonade stand economics” are never going to work out well in high fixed-cost sectors like wireless, please see my post, “Wireless Networks & Lemonade Stand Economics.”   For more facts about how vibrantly competitive and innovative this sector is, please see:

  • http://pulse.yahoo.com/_IBLTVRF2367QCEAUKSVVW6CVR4 Anonymous Mouth

    “Who’s to say to say that “X” is exactly the right number of competitors? Markets determine these things.”

    Wait, what?

    I'm *pretty sure* that the FCC's spectrum policies have quite a bit to do with how many competitors we have.

    I'll let you know how many players there are “supposed” to be in wireless once it's a contestable market, like sneakers and the various industries you cite in the “Lemonade Economics” post.

    Very few markets have legal and “resource”(spectrum) barriers to entry like wireless.

    “Too much capitalism does not mean too many capitalists, but too few capitalists.”

    -G.K. Chesteron

  • http://www.techliberation.com Adam Thierer

    John… You're not really addressing the first, and most important, question: How are consumers doing under the existing system? I would agree with you and Public Knowledge that spectrum policies could probably be improved in some ways, and that our government has a long, lamentable history of spectrum mismanagement. That being said, the imperfect system we have today has delivered some spectacular results.

    And you'll have to explain to me why you've included that nonsensical Chesteron quote. I mean, I know you PK-ers aren't particularly fond of capitalism, but really, what's your point by including that? Please, I really want to know.

  • http://pulse.yahoo.com/_IBLTVRF2367QCEAUKSVVW6CVR4 Anonymous Mouth

    I don’t think the question “How are consumers doing” is that helpful in the context of a discussion of how well they might be doing in an alternate system. If system A (that we have) gets us 10 units of consumer welfare, and I’m saying that system B might give us 11, pointing out that B is better than A isn’t saying that consumers are doing “badly” in some God’s eye view of things. It’s just saying that there’s an opportunity cost in going with A rather than B. What’s wrong with saying, “We could do better”? Your argument could be taken to mean that as long as there is some consumer welfare, there’s no need to look at the underlying, state-created rules of the game. You’re just taking the government-imposed status quo as “natural” and saying that we should go from there.

    The Chesteron quote is one of my favorites, for a lot of reasons, most of which have nothing to do with spectrum policy or telecom. I like Taleb on the misguided emphasis on “efficiency” in economics (which undervalues stability), and I like Chesterton and Belloc on the importance of decentralization in economic arrangements, which they ground in social policy. I don’t think that people that are generally in favor of more “atomistic” competition are somehow against capitalism. In fact, I think that policies that limit concentration help preserve capitalism.

    In a spectrum context: I don’t see how you can say that we have the right number of competitors when the rules of the game are slanted in favor of incumbents. I’ll admit I’m in favor of mild consumer protection regulation in markets that are naturally oligopolistic (and this issue is probably the whole ballgame), but I don’t think we can say (as you do) that wireless markets are necessarily so. It’s not that expensive to start up a WISP, for instance. The fixed costs are getting lower by the year. Spectrum policy is the bottleneck, and it’s cheating to count current auction payments as reflecting some kind of “natural” cost.

    I know that you consider line-sharing to be “paper competition,” but no one was calling for net neutrality in the dial-up ISP age for a reason. Increased consumer choice and a contestable market lessens the need for oversight from my point of view.

    I don’t know why you think that I don’t love capitalism. I do. A lot. (Please ignore my icon. It was a fantasy baseball joke. I actually tried to fix it and my display name through Yahoo to no avail.) But competition is not desirable from a businessman’s point of view. I try not to confuse “what existing businessmen like” with “what is good for capitalism.” That said, capitalism does depend on various rules that are set by the state. I do not think that you can derive those rules from first principles, and instead need to look to what policies produce the desired results.

  • http://pulse.yahoo.com/_IBLTVRF2367QCEAUKSVVW6CVR4 Anonymous Mouth

    Ugh. I just lost my comment in text box confusion.

    Short version: If Policy A gets you 10 units of consumer welfare, why is it out of bounds to suggest that policy B might get you 11? What's wrong with “we could do better”?

    Your view seems to be that if there's *any* consumer welfare under the status quo, why, that's the end of the inquiry. You say that's it's “imperfect” and then jump on attempts to improve it.

    I do like capitalism. Quite a bit, and like Chesteron, I'd like more of it. (I'd ask that you overlook my current avatar, which was a fantasy baseball joke.) As to the Chesteron quote: There are a number of thinkers, Taleb most prominent among contemporaries, who argue that capitalism needs protection from itself, because it can tend to centralization, which is fragile. I look at Chesterton and Belloc as their intellectual precursors, though of course they had a different motivation.

    I think that all that is rather besides the point. Back to spectrum, I think you (and the DOJ comment) don't account for the ever-shrinking costs of wireless gear. Spectrum policy is the bottleneck now to more competition. While I do think that natural monopolies (and oligopolies!) are possible and could merit pro-consumer regulation, I think it's assuming too much to say that the wireless market is naturally concentrated. The amount of available spectrum increases with technology.

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