The anti-trust watchdogs at the Department of Justice/the Federal Communications Commission (FCC) have an eye on the cell phone industry. For the third straight year in their assessment of the wireless industry, known as the Wireless Competition Report, they were unable to certify that the wireless industry has “effective competition.”
The FCC’s Findings
The FCC reports annually to Congress on the state of mobile competition. The report issued also analyzes what percentage of the population is served by five or more carriers. In the 2013 report analyzing mainly 2010 and 2011 data, it found 80.4 percent of the U.S. population was covered by ‘five or more’ providers. This “represents a marked decline from the figure presented in the Fifteenth Report, which reported that 89.6 percent of the U.S. population was covered by at least five providers.”
Is this clear consolidation of the market creating a duopoly with AT&T and Verizon exercising a stranglehold? It sure seems so with the two companies holding 65 percent of the U.S. mobile subscribers and generating close to 85 percent of the industry’s revenue.
What a Duopoly Means for Customers
Just six years ago there were multiple choices — regional and national — in nearly every market. This competition spurred a time of price drops and innovation with the consumer as the primary benefactor. A frenzy of mergers, namely Sprint/Nextel and AT&T/Cingular, ended that.
When two dominant forces control the market, things like pricing, technology, employment, and choice are all at the mercy of those companies. Surcharges and rate hikes are common. Competition benefits the consumer, which in turn benefits the economy. That’s why the government has an interest in regulating (and disbanding) monopolies.
For the third straight year, it seems the market is in danger of reverting to a duopoly like in the early days of mobile. While T-Mobile and other carriers are mounting extensive switch campaigns, AT&T and Verizon still own the lion’s share.
Calls for Government Intervention
Whether a duopoly exists seems to be in question even by the FCC. While it can’t find “effective competition,” it’s also not moving into any anti-trust actions. Yet, if the data holds true this spring, to what it revealed last, analysts expect even less of the population will be covered by ‘five or more’ providers.
Since it doesn’t benefit AT&T or Verizon to break the hold, change must come from elsewhere. The Competitive Carriers Association is asking the FCC to follow-up on their assertions that clear competition can’t be established on the mobile industry through the creation of a Wireless Competition Task Force.
Inevitable Duopoly
The cost to enter the wireless market today is prohibitive. This protects the duopoly. Buying airwaves is extremely costly and that puts newer carriers at a disadvantage. The FCC worked with LightSquared to take cheap spectrum, but that proved an ill-fated attempt at creating competition.
Even Steve Jobs envisioned an alternative with the iPhone, creating a hybrid with Wi-Fi and traditional cell phone technology. After extensive analysis, he too realized breaking into the mobile carrier arena was not an easy jump.
Ending a Duopoly
Outside of government intervention, what can be done to protect the interests of the consumer? Since breaking into the industry requires airwaves/spectrum and resources/capabilities, it makes sense that the solution to breaking the duopoly lies in a player already there.
In a recent interview with NPR, T-Mobile CEO John Legere talked about merging forces with Sprint, and its parent company SoftBank. “We either need more spectrum and capability, a lot more investment, or we need consolidation.”
While that seems like an obvious solution, there are industry experts who believe regulators would block such a merger to protect T-Mobile’s affordable pricing structure. (A recent study by Cowen and Company found that T-Mobile customers enjoy, on average, the least expensive cell phone bills of any of the carriers at  $120 a month.)
Outside of a game-changing merger between Sprint and T-Mobile, or government regulation, it seems the duopoly will continue its stronghold on the market.