Questions Sponsored Wireless Competition Researchers Don’t Ask

          The Federal Communications Law Journal recently published a comprehensive assessment of the U.S. wireless marketplace with an eye toward challenging the FCC’s qualified concerns about the adequacy of competition.  See Gerald R. Faulhaber, Robert W. Hahn and Hal. J. Singer, Assessing Competition in U.S. Wireless Markets: Review of the FCC’s Competition Reports, 64 FED. COMM. L. J. 319 (2012) available at: http://www.law.indiana.edu/fclj/pubs/v64/no2/Vol.64-2_2012-Mar_Art.-03_Faulhaber.pdf.

        The authors have produced high quality sponsored research and I appreciate their disclosure of AT&T’s financial underwriting.  You’d be surprised about the surfeit of undisclosed results driven research sponsored by a major stakeholder.  These authors go so far as to ask “Are we missing something?” 

            I’ll take it on good faith that they are sincere in wanting to confirm what they consider obvious—that the U.S. wireless marketplace is robustly competitive, innovative and not so concentrated as to warrant antitrust concerns.  So even if they are overconfident—as many economists surely are—and disinclined to consider the questions from someone like me I’ll pose five of the many I have anyway.

1)         You substantially rely on downward prices in the wireless marketplace to support your robust competition finding. How much of the decline results from competition as opposed to the nature of the wireless business which has substantial sunk costs and low incremental costs?  For good measure as the wireless marketplace has matured don’t businesses have to “sharpen their pencil” to attract late adopters?

2)         Speaking of pricing, you and others place heavy emphasis on a calculated per minute of use rate.   One can calculate for the U.S. globally lowest per minute cost based on globally highest usage.  But what about subscribers who have no need or interest in talking for even 450 minutes a month, or who don’t want to send several thousand texts per month?  Their per unit rates are much higher, especially the occasional user who does not see the need for an unlimited $20-30 a month texting plan, but who questions how a carrier can justify charging 20 cents a text for something that uses the built-in polling system carriers use to track operating handsets.

          If you are one of those snarky types, you might read the above paragraph and ask “is there a question here?” Yes; I’ll rephrase it:  Wouldn’t your evidence of declining cost be less substantial if you did not apply a single average and instead considered an average for each of several tiers of available minutes?  For example, in my unsponsored ignorance I would have tried to calculate the average actual monthly usage for subscribers in each of the tiers that currently exist, e.g., 450, 900, unlimited for AT&T Wireless.

3)      You may not have noticed this but all wireless carriers seem to have the same basic price points for the same type of service.  Your Appendix 1 shows an example of this: the 4 national carriers all offer 450-500 monthly voice minutes for $39.99 plus fees.  Are all the wireless carriers price takers having no carrier-specific efficiencies?  Antitrust specialists might infer something they call “conscious parallelism.”  How is that not happening in the U.S. wireless marketplace?

4)     Your paper shows declines in Average Revenue Per User (“ARPU”) as additional evidence of a robustly competitive market, yet you don’t acknowledge that the figures (and much higher ones I have found) range near the top globally.  I appreciate that high usage, stimulated by large baskets and by unlimited All You Can Eat plans, generate higher monthly revenues.  However you don’t separate ARPUs by type of user.  What do you think of Craig Moffett’s research that reports significantly higher ARPUs for smartphone users with minor declines in the last few years?  In a June 25, 2012 report this prominent Wall Street buy side analyst at Bernstein Research estimates AT&T’s first quarter 2012 ARPUs for 3 categories: $80.44 a month for postpaid smartphone users down 4.4% year over year, $42.34 for non-smartphone post paid users and  $64.46 average for all postpaid users.

           Do you think ARPUs will continue to decline when more subscribers add data plans?

5)        I’m confused about your views on spectrum and its impact on the wireless marketplace.  The conventional wisdom is that wireless carriers simply don’t have enough spectrum available, the product of government regulation and I’ll add the spectrum management and allocation process of the International Telecommunication Union.  But I got the sense from your paper that there is at least enough spectrum to support 5 or more facilities-based, robustly competitive carriers in most markets. So do you think there’s enough spectrum to support competition and more might promote greater competition, or would access to more spectrum simply help incumbents erect greater barriers to market entry by new competitors? 

        By the way, don’t you think you overstated the impact of the non-national carriers?  Clear’s data service is so far limited to personal computers with dongles, not smartphones.  Neither Sprint, T-Mobile or the super regionals have had much success offering an attractive alternative to the positive networking externalities that accrue when more and more subscribers pick the same network and when most developers offer their next killer app solely on the platform support by AT&T and Verizon.

         I’m sure you can easily answer and dismiss my questions, but with all due respect I see the wireless marketplace from a much different perspective.  I see the carriers basking in the limelight and exploiting the networking externalities of handset manufacturers, content creators and applications developers.  I don’t see them devoting sleepless afternoons competing.

       In the marketplace of ideas and consulting you surely win, perhaps because there doesn’t seem to be anyone interested in sponsoring research that answers the kinds of questions posed here.