What Does 'Effective Competition' Mean for Sprint/T-Mobile -- And You?

Submitted on September 28, 2017

You’re reading the Benton Foundation’s Weekly Round-up, a recap of the biggest (or most overlooked) telecommunications stories of the week. The round-up is delivered via e-mail each Friday; to get your own copy, subscribe at www.benton.org/user/register

Robbie's Round-Up for the Week of September 25-29, 2017

Mentioning the public interest just once, the Federal Communications Commission adopted its 20th wireless competition report this week. As mandated by law, each year the FCC is tasked with reviewing the competitive market conditions with respect to commercial mobile services (voice, messaging and wireless broadband) including the number of competitors, an analysis of whether any competitors have a dominant share of the market, and a statement of whether additional providers or classes of providers would be likely to enhance competition. Each year, the headline-grabbing decision before the FCC is whether or not there is “effective competition.” This week, for the first time in eight years, the FCC concluded that there is “effective competition.”

In recent years, the FCC resisted drawing an overall conclusion about whether there was effective competition because of, according to Mariam Baksh in Morning Consult, “concerns that the complexities surrounding the interconnected nature of the telecommunications industry would make such a conclusion misleading.”

That changed this week with the Trump FCC’s 3-2, party-line vote. “Looking at the bigger picture, most reasonable people see a fiercely competitive marketplace,” FCC Chairman Ajit Pai said. “It’s been eight long years since the FCC has done what Congress directed us to do. Today, we are finally getting back on track.”

In voting to adopt the report, Pai and his fellow Republican Commissioners, Mike O’Rielly and Brendon Carr, said consumer demand and output continue to increase, average prices have been falling, and service providers have enhanced the performance, coverage, and capacity of their networks. “[S]ince the FCC’s last report in 2016, all four national carriers have rolled out new or improved unlimited plans. This is strong, incontrovertible evidence,” Chairman Pai said. “To be sure," he continued, "some strenuously resist this conclusion, and have for many years. At its core, it’s hard to say that resistance is inspired by a careful review of the facts. Instead, it’s all about ideology. To those who want to impose more regulation upon the wireless marketplace, the reality of effective competition is an inconvenient truth that must be discounted or ignored.”

Defining “Competition”

The FCC report acknowledges that the effective competition determination is subjective and that, “there is no single definition of effective competition that is generally accepted by economists or competition policy authorities.” For this report, the FCC decided to focus only on competition in the provision of mobile wireless services, rather than attempting to examine the broader “mobile wireless ecosystem,” which the FCC previously found to be too complex to make a meaningful finding regarding effective competition. The FCC did not attempt to do a full market definition or market power analysis because this would involve an extremely-detailed analysis of supply and demand factors at the national and local level. Instead, the FCC considered a number of facts and characteristics of the provision of mobile wireless services -- which taken together, the majority declared -- indicate that there is effective competition.

FCC Commissioner Mignon Clyburn was critical of this approach. “For the past six years, the commission has approached this annual review with a focus on assessing competition in the entire mobile wireless ecosystem,” she said. This report “takes a decidedly myopic view of the ecosystem, and instead focuses only on ‘competition in the provision of mobile wireless services.’ This is like a doctor looking at one organ and pronouncing a patient fit as a fiddle.”

And Then There Were Three? Looming Concentration in the Wireless Market

Deutsche Telekom would have a majority stake in the combined company, while Sprint’s owner, SoftBank, would have somewhere between 40 and 50 percent. T-Mobile CEO John Legere would lead the combined company.

Another key criticism of the Trump FCC’s decision concerns potential new concentration in the market.

Recent news reports indicate that T-Mobile and Sprint, the 3rd- and 4th-largest national carriers, are close to merging.

Despite President Trump’s anti-trust campaign rhetoric regarding Amazon and AT&T/Time Warner, his FCC's conclusions in the wireless competition report could smooth the regulatory review of the Sprint/T-Mobile deal. “A potential merger of T-Mobile and Sprint could fare well with the Trump administration, which has telegraphed for months that it isn’t resolutely opposed to the combination,” Tony Romm wrote for Vox.

If the deal is approved, 98.8 percent of the U.S. market would be controlled by just three carriers. “I don’t think any regulator who embraces regulatory humility and intellectual honesty about economics can say whether three or four or five [carriers] is the optimal number,” Chairman Pai said earlier in 2017. “What I do want to see is a competitive wireless marketplace.”

“While this report celebrates the presence of four nationwide wireless providers, let’s be mindful that a transaction may soon be announced that combines two of these four,” said FCC Commissioner Jessica Rosenworcel. “While the commission should not pre-judge what is not yet before us, I think this agency sticks its collective head in the sand by issuing this report and implying ‘move along, nothing to see here.’”

Harold Feld, senior vice president at Public Knowledge, said:

It is ironic that at the very moment the public is debating whether reliance on four-firm competition is enough to protect small businesses and consumers, the FCC declares ‘mission accomplished.’

We shouldn’t ignore how four-firm competition, data roaming rules, spectrum screens and other regulations adopted by previous Administrations continue to benefit consumers. At the same time, we cannot ignore the continuing problems of concentration -- particularly in rural markets and for low-income Americans.

The purpose of the Competition Report is to provide an important tool for Congress and the American people to understand the wireless market. It is not intended to put a happy face on an industry that remains concentrated by conventional antitrust metrics.

Matt Wood, policy director at Free Press, said, “The competition between T-Mobile and Sprint is particularly important for lower-income families who favor these carriers over AT&T and Verizon. Many people in these households rely on mobile as their only internet connection. If T-Mobile and Sprint merge, prices will spike and the digital divide will widen.”

When asked Tuesday what impact that rumors of potential future mergers had on the report’s conclusion, Chairman Pai said, “The key word is ‘rumored.’ Congress has tasked us with the state of ‘effective competition,’ and that does not include rumors of mergers that may or may not happen.”

Conclusion

For now, the Sprint/T-Mobile merger is widely-reported speculation. If the companies do come to terms, the merger will then come before the FCC, which must review it to determine if it’s in the public interest. The Department of Justice would also review on anti-trust grounds.

Public interest advocates are concerned this week’s report could play a role in the FCC's review of the merger once it is announced. The FCC opposed T-Mobile's proposed sale to AT&T in 2011, stating the merger would bring "significant harms to competition" if the number of national players was reduced from four to three carriers. Will the Pai-led FCC come to a similar decision when reviewing a T-Mobile/Sprint hookup? The declaration this week of effective competition casts doubt on the Pai-FCC reaching that same conclusion.

Be sure to follow all Trump-FCC developments at Headlines.