Reactions to the Release of the 15th CMRS Report

The release of the 15th CMRS Report regarding the state of competition in the wireless industry turned the entire wirelessly focused crowd in Washington into something that can only be compared to children waiting for Santa at Christmas.

Everyone was full of anticipation about what Santa might bring them.

The hope was that we would find out who was naughty and who was nice – and which way the AT&T/T-Mobile merger would go. The logic was that since this report was so late, it would have something juicy in it. Traditionally, the competition report comes out very early in the year and rumor has it that the report made it out of the Wireless Bureau on time but it got stuck on the 8th floor. Considering how much editing must have gone on there, the outcome is a tome that is heavy on facts and numbers and light on opinion.

The operator community reacted with a nod – the facts are well known especially since the focus of the report was 2009. While they feel slightly disappointed that they didn’t get the “wireless industry is competitive” nod from the commission, which the data that the report cites strongly supports, everyone has gotten used to this perceived slight. On the other hand, the consumer advocacy groups reacted with outrage, since their hope of finding support for their positions was dashed.

I guess Santa made nobody really happy this year.

Well, I am actually happy with the report. The FCC is taking the right steps to become a fact-based regulator and the first step in this is to collect the facts – 308 pages of it. Nobody can say that the FCC cut any corners. There are numbers and facts in abundance. Most of the analysis that went into the report was sound and thorough. There were some interesting nuggets that revealed that the commission is looking at the state of the industry with open eyes that study the facts on the ground, rather than from the orthodoxy of the ivory tower.

Although the Herfindahl-Hirshman Index is the established theory around the study of the predicted impact of mergers, the theory clashes with reality. While some people happily discard reality in order to hold onto a comfortable theory, the Commission pointed out that the wireless industry does not behave like the text books predicted.

Industry concentration in 2009 actually declined, even though companies exited the industry – both through divestiture by shutting down entirely. In addition, even though the industry is what is often described as “highly concentrated” by economic theory, the facts show that it is far from being in the clutches of price fixers and evil doers who want to stop innovation.

Prices have declined, wireless data usage has exploded, choices (especially around handsets) have increased substantially, and the number of people who can choose from several providers stayed roughly stable.

Looks like a pretty healthy market to me, even though the theory would predict something else.

I can’t state it better than the FCC: “Shares of subscribers and measures of concentration are not synonymous with a non-competitive market or with market power – the ability to charge prices above the competitive level for a sustained period of time.”

I am looking forward to more of such enlightened fact-based thinking from the FCC.