More Available Wireless Spectrum and Higher Market Entry Barriers

The tremendous demand for, and profitability of mobile telephony supports legislative and regulatory efforts to refarm spectrum with an eye toward reallocating as much as possible for wireless telephony and data services. But there is a downside that no one seems to acknowledge.

In light of past FCC practice and the behavior of incumbent wireless carriers I expect two anticompetitive outcomes to occur with the onset of any more spectrum. To maximize current contributions to the national treasury the FCC won’t likely encumber any spectrum with open access requirements much less reserve some of the new spectrum for new bidders. Years ago the FCC removed a spectrum cap on any single carrier ostensibly to enable to improve service and accrue scale economies. We can expect the Big Four incumbent wireless carriers, now sharing over 90% market share, to acquire most of the spectrum.

In the 700 MHz spectrum auction (reallocation of UHF television spectrum) AT&T and Verizon spent $16 billion of the $19.6 billion collected by the U.S. government:

“According to an analysis by The Associated Press, the two telecom companies bid more than $16 billion, constituting the vast majority of the overall $19.6 billion that was bid in the FCC auction. With Verizon Wireless and AT&T dominating the auction so completely, hopes that the auction would allow for the creation of a new nationwide wireless service provider were dashed.” W. David Gardner, Verizon, AT&T Big Winners in 700 MHz Auction, INFORMATIONWEEK (March 20, 2008) available at http://www.informationweek.com/news/mobility/showArticle.jhtml?articleID=206905000; see also, Saul Hansell, Verizon and AT&T Win Big in Auction of Spectrum, THE NEW YORK TIMES (March 21, 2008), available athttp://www.nytimes.com/2008/03/21/technology/21auction.html; FCC, Auction 73, 700 MHz Band, Fact Sheet, available at http://wireless.fcc.gov/auctions/default.htm?job=auction_factsheet&id=73.

Can anyone refute the conclusion that as incumbent carriers control more spectrum, the prospects for market entry and commensurately greater competition wanes? Regardless whether incumbent carriers warehouse the spectrum, or put it to immediate use, their opportunity to consolidate market control grows. Who would have the financial and management resources to take on the incumbents?

So 4 is the highest number of facilities-based carriers we can expect for most markets. If you think a regional carrier or pre-paid reseller can match the expanding service wingspan from the Big Four, think again.