GAO Asks FCC to Enhance Data on Wireless Competition

GAO urged the FCC to “assess whether expanding original data collection of wireless industry inputs and outputs -- such as prices, special access rates, capital expenditures, and equipment costs -- would better satisfy its requirement to review competitive market conditions” for commercial wireless. More data also is needed on industry practices that may stop consumers from changing carriers, it said. The FCC took no position on the recommendation, GAO said.

The FCC agrees with GAO’s conclusion that “data-driven” analysis of the wireless industry is essential, said Rick Kaplan, aide to FCC Chairman Julius Genachowski. “Wireless connectivity is a key economic driver that creates enormous opportunities for consumers, innovators, and businesses,” Kaplan said. “The FCC has taken proactive steps to improve our data and analysis, including collecting new and better data for this year’s Mobile Wireless Competition Report. We're pleased that GAO has recognized the need for the FCC to collect more comprehensive data on special access and will soon be taking steps to address many of the issues raised in the report."

The FCC should investigate ETFs, handset exclusivity, spectrum acquisition and industry consolidation, said Rep. Ed Markey, D-Mass., who originally requested the report when he was chairman of what’s now called the Communications Subcommittee. House Commerce Chairman Henry Waxman, D-Calif., said it’s “time for the FCC to complete its evaluation of special access pricing.” Better prices and coverage is “good news for consumers,” but the FCC should consider GAO’s recommendation to improve data collection, said Communications Subcommittee Chairman Rick Boucher, D-Va.

"Real challenges remain,” said Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va. “In too many rural areas ... reliable wireless signals are scarce. And across the country, too many consumers are baffled by the charges on their wireless bills. I call on the FCC to do more to address these problems so that all Americans have fair access to the wireless services that are an essential part of the way we communicate.” Sen. Amy Klobuchar, D-Minn., said the GAO report highlighted her concerns about ETFs. Sen. Ron Wyden, D-Ore., said the commission “needs to police anti-competitive practices,” including high ETFs and restrictive contracts. Meanwhile, Congress should “protect this important medium from multiple and discriminatory state and local taxes that unfairly burden the wireless users who can least afford it,” he said.

"The GAO report appears to give the FCC added political cover to continue scrutinizing wireless consumer issues, like early termination fees, and issues raised by small and regional wireless carriers such as data roaming, handset exclusivity and spectrum access,” Medley Global Advisors analyst Jeff Silva told us. “The report offers the agency some level of vindication in light of criticism in some quarters that its fact-based, data-driven approach to decision-making has seemed excessive at times.” On special access, “Waxman seemed to be saying there is a time to collect data and study an issue, and there is a time to act,” Silva said. “The problem is that any substantive regulatory action on special access in the near term could prove counterproductive to FCC efforts for forge a consensus on broadband framework/net neutrality with AT&T, Verizon and other major stakeholders."

CTIA noted parts of the GAO report that point to growing wireless competition. “In finding that wireless consumers are seeing ‘lower prices and better coverage,’ today’s GAO report confirms what we've been saying for a long time -- that the U.S. wireless industry is extremely competitive and continues to respond to increasing consumer demand by delivering real benefits for American consumers,” said President Steve Largent. “It is significant that the GAO reports that the cost of wireless service in 2009, adjusted for inflation, is about 50 percent less than in 1999."

Falling wireless prices point to falling special access prices, said USTelecom Senior Vice President Jonathan Banks. “The GAO report makes it clear that providing these services to wireless companies is a complex market with a broad range of competitors.” USTelecom supports gathering detailed data about special access, he said.

Others point instead to competition issues raised by GAO. “GAO’s Report ... supports everything rural wireless carriers have been telling the FCC and Congress about consolidation in the wireless industry,” said Carri Bennett, counsel to the Rural Telecommunications Group. “Congress and the FCC must take action to ensure that rural and small wireless companies survive or innovation will be lost as the big two become more entrenched.” Big carriers’ market dominance and especially their handset exclusives have hurt small rural companies, said Rural Cellular Association CEO Steven Berry. He urged immediate action by the FCC.

"The GAO’s findings, together with the FCC’s recent report on wireless competition, paint a clear picture of an increasingly concentrated industry, in which competitors and consumers pay high prices to pad the high profit margins of AT&T and Verizon,” said Free Press Policy Counsel Chris Riley. “Inflated backhaul costs, misguided spectrum policies and exclusive rights to popular devices have fostered an environment where companies cannot compete on a level playing field."

Sprint Nextel worked with GAO on the report and supports its conclusions, said Senior Vice President Vonya McCann. “At Sprint, we have cooperated fully with the FCC in its proceeding and look forward to the Commission taking quick action to fix this broken market,” she said. “We urge other carriers -- both special access providers and purchasers -- to provide additional data to the FCC to bring this proceeding to a rapid conclusion. Further delay only maintains inflated rates that harm both the wireless industry and virtually every sector of the economy which depends on high speed broadband connections. Ultimately, this harms consumers and limits the growth of our nation’s broadband-based economy."

The GAO report shows the need for the FCC to impose net neutrality rules for wireless, said Public Knowledge President Gigi Sohn. “The report shows the large companies continue to pile up advantages in gaining more spectrum, in exclusive deals for handsets and in locking in consumers with high termination fees,” she said. “At the same time, there is the equally disturbing trend that the investments larger carriers are making in their networks are a smaller proportion of their service revenue than the expenses of smaller carriers. High special access rates imposed by the wireline affiliates of the larger carriers also hamper competition."

Wireless Usage Spiked

The top four cellphone carriers serve more than 90 percent of all wireless subscribers, but none individually serve more than a third, the GAO report said. Mergers and spectrum acquisition through auctions and license transfers have helped the top four increase market share, it said. The total number of wireless subscribers increased to 285 million in 2009 from 3.5 million in 1989, said GAO. From 2000 to 2009, wireless penetration increased to 91 percent from 38 percent, it said. The industry generates more than $150 billion yearly, it said. Meanwhile, prices have dropped, GAO said. According to the Consumer Price Index, the overall average price for wireless service declined each year from 1999 to 2008. The average price in 2009 was half that of 1999.

GAO found a dramatic increase in the number of consumers who have cut the cord, saying nearly 40 percent of households now use wireless phones primarily or exclusively. From 2003 to 2009, the number of adults living in wireless-only households increased to 23 percent from 5 percent, it said. Prepaid subscriptions are also on the rise, and new prepaid subscribers comprised two-thirds of 4.2 million net subscribers added by U.S. carriers in Q4 2009, GAO said.

Voice usage was higher in 2009 than 2003, but the number of minutes used has started to drop, GAO said. Data usage meanwhile continues to skyrocket, it said. The increasing popularity of smartphones has driven the shift, it said, http://xrl.us/bhxdxj. -- Adam Bender, Howard Buskirk