What You Need To Know About the 2017 Wireless Competition Report.

Federal Communications Commission Chairman (FCC) Ajit Pai has put the 20th Wireless Competition Report on the agenda for the FCC’s September Open Meeting. Technically, the Wireless Competition Report is a non-rulemaking agency report to Congress, similar to the many reports the FCC does on everything from the prices paid for cable services to the state of the Satellite industry. But the Wireless Competition Report has become something of a big deal in recent years, owing to the refusal of the FCC since 2010 to find whether or not there is “effective competition” in the wireless industry. At the same time, then-FCC Chair Julius Genachowski moved the Wireless Competition Report (along with a number of other reports) from being a Commission-level item voted on by the full Commission to a Bureau-level item. This torked a bunch of people off. Those who regarded the wireless market as obviously not competitive saw all this as a failure of courage to call out the wireless market for its lack of competition. OTOH, those who consider the wireless market a paragon of competition derided this as a means for the regulation-mad Obama Administration to impose regulation on a clearly competitive and functioning market.

 

Either way, Pai is now putting it back at the Commission level and the Report is once again finding that we have “effective competition” — whatever that means. So it seems like a good time to run through the Wireless Competition Report, what it is, what it means, what it doesn’t mean, and how it gets used and/or abused. And, of course, how it relates to net neutrality, since everything in the freaking world relates to net neutrality these days.

 

Short version: the Report is non-binding on anything but overall provides a picture of the wireless industry by the expert agency charged by Congress to oversee the industry. It is therefore useful evidence for a lot of things ranging from merger approval to future regulatory initiatives. This years report also finds (surprise!) that although speeds have dramatically improved for mobile broadband, as has deployment generally, the level of investment by carriers dropped 9% from 2015 to 2016. How to measure this investment and how this should or should not impact the Title II debate I have dealt with extensively in this blog post, and therefore won’t spend too much time on it here.

 

Longer version below . . .

Why Does the FCC Do This Report?

When Congress updated the Communications Act in 1993 to create the foundation for our current mobile services market, it included a provision (47 USC 332(c)(1)(C)) requiring the FCC to do an annual report to “review competitive market conditions with respect to commercial mobile services.”  The statute actually instructs the FCC to review lots of different aspects of the market, including an analysis of “whether or not there is effective competition.” it also instructs the FCC to look at a lot of things like necessary inputs into the market, the various segments of the market, and all in all try to get an understanding of the details of how the wireless industry works.

 

The report is not a “rulemaking” under the Administrative Procedure Act (APA), and therefore none of the legal deference stuff applies. In theory, this report is supposed to inform the FCC’s decision on whether to forbear from any rules in the wireless market under Section 332’s forbearance authority (which was also part of the 1993 Comm Act Update), or, alternatively, whether the FCC needed to adopt new regulations to promote competition in the wireless market.  I say “in theory” because when Congress revamped the Communications Act again in 1996, it included an even broader general forbearance provision (the 1993 forbearance only applied to wireless) so the FCC can forbear under its Section 10 authority without making a finding of effective competition. In addition to informing the FCC about the wireless industry generally so it can make good policy generally, it also is supposed to inform Congress and the public about the general state of the wireless industry.

 

So Why Do People Care About The Report If It Isn’t Binding Or A Legal Determination?

 

Well, for starters, we actually do want good information about the industry available publicly so we can make policy and so that reporters and scholars and advocates and the American people at large can actually understand what is going on without spending thousands of dollars on proprietary industry reports. In a world where we theoretically want evidence-based policy, we should want reliable information that is freely available to the public. Additionally, since better information is not widely available, and is usually only available as proprietary and non-disclosable, the Report acquires weight because people can actually get at it.

 

Most importantly, because this is the official report of the agency charged with regulatory oversight of the wireless industry, the report carriers “persuasive weight” on decisions ranging from mergers to other forms of regulation. That’s a fancy way of saying that people in Congress, at the Department of Justice, judges reviewing mergers and regulations, take it seriously. This is particularly true if you believe that the only reason to ever regulate is if there is a failure of competition (as opposed to just a general interest in protecting consumers or — God help us — actually affirmatively encouraging competition).

 

For example, if the Commission were ever to find that there is not effective competition, this would arguably be a big deal and would make it harder to approve mergers between wireless companies (the DoJ is not bound by the report, and the FCC could still approve a merger even if the report found there was not effective competition, but both politically and as a matter of meeting the burden to show the merger does not harm competition, a finding that there is not effective competition makes things harder).  Such a finding would also make it at least rhetorically easier for the FCC or Congress to adopt new regulations to promote competition or protect consumers. For example, if we found there was not effective competition, then the FCC would be under pressure to do things like impose a spectrum cap for new 5G spectrum, so as to allow potential new entrants like Comcast to get spectrum and keep existing companies that dominate the wireless market from shutting them out.

 

Buy contrast, a finding of effective competition, while not binding, has the reverse effect. In some ways, a finding of effective competition is less powerful, since merger opponents or advocates for particular rules/policies can always argue that even if the market is competitive now, it will be uncompetitive post-merger, or it will be uncompetitive if we don’t adopt a particular rule. But a finding of effective competition certainly helps rhetorically for those trying to consolidate or trying to deregulate.

 

To illustrate in the merger context, a finding that the market is not competitive (or a failure to find the market competitive) would be bad for a Sprint/T-Mo deal, since that would make the market even *less* competitive. Oh, they could overcome that by saying it would strengthen the weakest competitors and that the overall result would be better and more competitive for consumers. But it makes it harder. By contrast, such a finding would probably make it easier for a Comcast/Sprint deal, since Comcast is a negligible competitor in the wireless market and would argue that acquiring Sprint would let it compete better.

 

What About The Impacts For Net Neutrality.

 

Once again, I’m not going to re-argue the findings about whether investment in the market actually declined, how we ought to measure it, and whether we should care. You can find all that hashed out thoroughly in this blog post here, with links to the various sources. Similarly, while the question of competition doesn’t really bear on the classification argument, you see this argument made all the time.

 

Unsurprisingly, the current Wireless Competition Report makes findings consistent with the arguments that Chairman Pai has previously embraced about investment and competition. Expect lots of people to make the same arguments they always make around this. While a failure to find effective competition, or other findings that arguably contradict what Pai has said in his proposal to roll back Title II and net neutrality, would potentially create some awkwardness, that isn’t going to happen. OTOH, simply saying stuff in the Wireless Competition Report doesn’t really impact the actual legal questions around Title II.

 

Components of the Wireless Marketplace — Where The Fun Actually Happens.

 

What makes the report truly useful and interesting is that it breaks the wireless industry down into its component pieces and analyzes these in turn. you can pick up a lot of really good information about industry trends from this. Additionally, if the FCC does have concerns about possible forming bottlenecks (highly unlikely in this FCC), they will likely get flagged here. For example, the FCC started flagging concerns about the concentration of low-band spectrum in the 2010 Wireless Competition Report, although it didn’t actually adopt a separate low-band kind-of-sort-of screen (along with the Incentive Auction reserve) until 2014.

 

This is where you really have to read the text carefully. Even at the best of times, the FCC is hesitant to come out and declare something a real concern or issue. That simply engenders too much blowback. In an administration that views markets with an enthusiasm that makes Professor Pangloss seem positively pessimistic, we can’t expect any conclusion other than “we live in the best of all possible worlds.” But the Report is pretty good about reporting details on the industry even if it may fudge a conclusion here and there from time to time.

 

What is “Effective Competition” Anyway? And Who Decides?

 

One should not take from my cynical observations that I am ignoring real evidence of actual price competition driven by T-Mobile’s aggressive marketing strategies. After several years of shrugging this off as primarily drawing customers away from Sprint, both AT&T and Verizon are starting to feel enough pressure to respond with The Return of Unlimited Data Plans. So rah, rah and three cheers for the Department of Justice challenging the AT&T/T-Mo deal and putting the squeeze on VZ to divest low-band spectrum to T-Mo as a way to grease the wheels on the VZ/Spectrumco deal. Yes, targeted regulatory intervention in the marketplace does work to promote competition.

 

The problem, as I wrote in this old blog post after the first time the FCC refused to make a finding one way or another, markets are complicated and it’s not a simple either/or. Additionally, the statute requires the FCC to examine whether there is “effective competition.” The question is, “effective for what?” It’s pretty clear that in the last year competition has had a huge impact on how wireless services offer data. T-Mobile’s move to unlimited streaming (and ultimately true unlimited) forced a response from other carriers when they had previously abandoned unlimited in favor of data caps. By contrast, it is not clear that prices have been dropping for lower cost plans that low-income people are dependent upon.

 

Similarly, you have segments of the population in rural areas where cell phone service is lousy. To the extent they have service at all, it is unlikely to be from multiple providers with similar quality networks. Sure, my service map may claim I get service from multiple providers in the area. But I just have to drive up and down Route 1 here in the crowded East Coast to hit areas where the only network that really works is Verizon or AT&T, because the others just never built enough towers for full coverage.

 

So is that “effective” competition? Yes if you are a middle class American with a smart phone. No if you are low-income American with a flip phone. No if you live in a part of America where it is not cost effective to build out.

 

Again, none of this should diminish the very real benefits of four-firm national competition in most of the country and for a huge chunk of the population. That’s very real. We should not ignore that T-Mobile has been genuinely disruptive to the pricing model of the industry, and that the nascent duopoly that was emerging at the end of the Bush Administration and beginning of the Obama Administration was mitigated by a combination of regulatory intervention and T-Mobile’s decision when denied permission to sell out to AT&T to actually fight hard for customers. But we shouldn’t overweight that conclusion either.

 

Chairman Pangloss will no doubt insist we live in the best of all possible wireless worlds, and that government intervention can only mess it up. We should view such a conclusion with extreme skepticism. The Wireless Competition Report is informative and useful, but we need to be careful how we use it.

 

Stay tuned . . .

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