Award Winning Blog

Tuesday, February 23, 2010

Measuring Competitiveness in Wireless and Broadband

The FCC, plenty of sponsored researchers, and countless industry players spread the gospel “truth” that the wireless and broadband markets are robustly competitive. But what empirical data confirms this? The usual measures of competitiveness, such as number of operators and market share, do not corroborate the competitiveness conclusion unless you make unreasonable assumptions. I would agree that my local markets are competitive using the FCC’s measure of competitors, but these calculations are totally bogus thanks to creative counting, based on single presence in a zip code and the use of a 200 kilobit per second broadband floor.

So where is the competition? I see wireless competition in advertising, handset options, and claims of superior performance. Do wireless carriers compete on price? Perhaps one way to answer that is to assess just how often these carriers reduce their prices and how many different price points exist for roughly the same service. Using these two criteria, we see that wireless carriers do not change their prices often, don’t offer sales, typically offer the same service package for the same price, and take pains to mask costs by bundling handsets and service.

In broadband we see the same parallel pricing, with few price changes. A fairly well kept secret is the triple digit margins generated by broadband. At a recent national cable television annual conference I heard a Cox Cable Vice President crow about his company’s 100+% margins in offering broadband with no apparent need to drop prices as the market matures, or in light of competition. DSL offers one fourth the bit rate of cable modem service at about one fourth the price. Broadband rates do not typically drop, but in some instances the offered bit rate does rise for the same monthly rate.

So I guess competition, or its appearance depends on the assumptions made and the agenda, sponsor or employer of the analyst.

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