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Hidden in Plain Sight: FCC Chairman Pai’s Strategy to Consolidate the U.S. Wireless Marketplace

While couched in noble terms of promoting competition, innovation and freedom, the FCC soon will combine two initiatives that will enhance the likelihood that Sprint and T-Mobile will stop operating as separate companies within 18 months. In the same manner at the regulatory approval of airline mergers, the FCC will make all sorts of conclusions sorely lacking empirical evidence and common sense.

FCC Chairman Pai’s game plan starts with a report to Congress that the wireless marketplace is robustly competitive. The Commission can then leverage its marketplace assessment to conclude that even a further concentration in an already massively concentrated industry will not matter. Virtually overnight, the remaining firms will have far less incentives to enhance the value proposition for subscribers as T-Mobile and Sprint have done much to the chagrin of their larger, innovation-free competitors AT&T and Verizon who control over 67% of the market and serve about 275 million of the nation’s 405 million subscribers.

Like so many predecessors of both political parties, Chairman Pai will overplay his hand and distort markets by reducing competition and innovation much to the detriment of consumers. He can get away with this strategy if reviewing courts fail to apply the rule of law and reject results-driven decision making that lacks unimpeachable evidence supporting the harm free consolidation of the wireless marketplace. Adding to the likely of successful overreach, is the possibility of a muted response in the court of public opinion.

So how will the Pai strategy play out? First, the FCC soon will invite interested parties to provide evidence supporting or opposing a stated intent to deem the wireless marketplace sufficiently accessible and affordable throughout the nation. The FCC has lots of evidence to support its conclusion, but plenty of countervailing and inconvenient facts warrant a conditional conclusion, particularly in light of future market consolidation. Wireless carriers have invested billions in network infrastructure and spectrum. Rates have significantly declined as the industry has acquired scale and near full market penetration. Bear in mind that all of this success has occurred despite, or possibly because of a federal law requiring the FCC to treat wireless carriers as public utility telephone companies. Congress opted to treat wireless telephone service as common carriage, not because of market dominance, but because it wanted to maintain regulatory parity with wireline telephone service as well as apply essential consumer safeguards.

How ironic—perhaps hypocritical—of Chairman Pai and others who surely know better to characterize this responsibility as the product of overzealous FCC regulation that has severely disrupted and harmed ventures providing wireless services. Just how has common carrier regulation created investment disincentives for wireless carriers when operating as telephone companies? Put another way, how would removal of the consumer safeguards built into congressionally-mandated regulatory safeguards unleash more capital investment, innovation and competitive juices?

U.S. wireless carriers regularly report robust earning and average revenue per user that rival any carrier worldwide. Of course industry consolidation would further improve margins while relaxation of network neutrality and privacy protection safeguards would create new profit centers. T-Mobile shareholders get a big payout, while the remaining carriers breath a sigh of relief that their exhaustively competitive days are over.

Will the court of public opinion detect and reject the FCC’s bogus conclusion that common carrier regulation has thwarted wireless investment and innovation? That requires a lot of vigilance and memories of the bad old days when no carrier opted to play the role of maverick innovator and marketplace disrupter. With T-Mobile or Sprint merged or acquired, the remaining ventures have ever more incentives not to spend sleepless afternoons competing and devising new ways to stimulate customer interest in changing carriers. T-Mobile and Sprint have offered just about every value enhancement in recent years such as carry forward minutes, reduced roaming charges, unlimited service, new bundles and use your own device at much lower monthly rates. Would these options exist if only three carriers served 95% of the market?

If you think the recent spate of airline mergers has enhanced competition and the air travel experience, then a wireless marketplace with 3 national carriers will work out just peachy.

By Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law

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Dr. Frieden,Do you see the marketplace as Frank Bulk  –  May 21, 2017 10:15 PM

Dr. Frieden,

Do you see the marketplace as four strong competitive providers, or two strong ones and two weaker ones?  Or someone different?  And if Sprint and TMO combined, do you think the combined entity would be in a stronger or weaker position to compete against VZW and ATT?

Maverick or Copy Cat? Rob Frieden  –  May 21, 2017 10:36 PM

Hello Frank:

Thanks for your interest.  When presented with the opportunity to avoid sleepless afternoons competing many ventures opt for the path of least resistance.  The term consciously parallel conduct refers to the willingness of former Mavericks to avoid provocative and consumer welfare enhancing conduct opting instead to follow the lead and umbrella pricing of market leaders.

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