Georgetown UniversityGeorgetown University

Congruity and Incongruity in the Congruity and Incongruity in the Evolving Telecommunications IndustryEvolving Telecommunications Industry

John W. MayoJohn W. MayoGeorgetown UniversityGeorgetown Universitymayoj@georgetown.edumayoj@georgetown.edu

(202) 687-6972(202) 687-6972

Phoenix Center 2007 Annual U.S. Telecoms Symposium

November 28th, 2007

Background:The Telecommunication Act of 1996

the purpose of the Act is: "to provide for a pro-competitive, de-regulatory national policy framework”

The FCC and states shall “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans …

Congruity and IncongruityCongruity and Incongruity

Today’s emerging telecommunications Today’s emerging telecommunications debates create the very real prospect of debates create the very real prospect of incongruous policies that will undermine incongruous policies that will undermine the prospect of accomplishing the goals of the prospect of accomplishing the goals of the Telecommunications Actthe Telecommunications Act

The discipline of clear-headed economic The discipline of clear-headed economic analysis (and common sense) create the analysis (and common sense) create the pathway for policy congruity.pathway for policy congruity.

Issues of the DayIssues of the Day

How to maximize inter-modal competition?How to maximize inter-modal competition?– Municipal franchise reformMunicipal franchise reform– Free spectrumFree spectrum

Should we impose regulation on wireless?Should we impose regulation on wireless?– Force unbundling of hardware and wireless service?Force unbundling of hardware and wireless service?– Force access to platform for software applications?Force access to platform for software applications?

Should we regulated broadband providers?Should we regulated broadband providers?– Force “a bit is a bit” treatment within networks? (Net Neutrality)Force “a bit is a bit” treatment within networks? (Net Neutrality)– What should we do, if anything, to promote broadband in rural areas? What should we do, if anything, to promote broadband in rural areas?

Promoting supply to match exploding demand for Promoting supply to match exploding demand for broadband?broadband?– One hour HD TV download = 17,000 typical webpagesOne hour HD TV download = 17,000 typical webpages

The Wireless IndustryThe Wireless Industry

4-5 national carriers, regional carriers and 4-5 national carriers, regional carriers and numerous wireless resellersnumerous wireless resellers

Yet, …not unlimited choices…Yet, …not unlimited choices…– ““the Soviet Ministries” [Mossberg (2007)]the Soviet Ministries” [Mossberg (2007)]– “a tarpit of misery, pain and destruction.”

[applications provider, quoted by Wu(2007)– “a spectrum-based oligopoly, not …[a]…

‘fiercely competitive’ market” Wu (2007)

The Soviet Ministries? Really?The Soviet Ministries? Really?

Has a “short-sighted and often just plain stupidHas a “short-sighted and often just plain stupid federal government” permitted wireless carriers federal government” permitted wireless carriers to trap its citizens in “a backward, stifling system”?to trap its citizens in “a backward, stifling system”?

The Economists’ LensThe Economists’ Lens

Monopolies raise prices, reduce output, restrict choices

Competition pushes prices toward costs, pushes costs down, raises output, expands output and choices

Soviet Ministries?Soviet Ministries?

The Emergence and Evolution of The Emergence and Evolution of Wireless TelephonyWireless Telephony

1947 – Cellular Concept developed

1983 – Ameritech initiates service

The Invention of Cellular TelephonyThe Invention of Cellular Telephony

Text and Figure from D.H. Ring’s original 1947 memorandum

Growth of Wireless SubscribersWireless Subscribers in the U.S.

0

50000000

100000000

150000000

200000000

250000000

300000000

Source: Eleventh Annual Report and Analysis of Competitive market Conditions with Respect to Commercial Radio Services, FCC, September 29, 2006 (FCC Competition Report), and CTIA’S Semi-Annual Wireless Industry Survey Results, 2007.

Mobile Usage: Mobile Usage: 12 hours a month???!!!12 hours a month???!!!

Average Mobile Minutes per Month

0

100

200

300

400

500

600

700

800

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Prices in the CMRS market

Price per Minute of Wireless Usage

$0.00

$0.05

$0.10

$0.15

$0.20$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: FCC

Mobile Telephone Prices in the US and EuropeMobile Telephone Prices in the US and Europe

Cellular Prices Per Minute

0

0.05

0.1

0.15

0.2

0.25

0.3

$/M

OU

Source: FCC, Eleventh Annual CMSR Competition Report

Wireless as an Innovator and CompetitorWireless as an Innovator and Competitor

Source: FCC: “High-Speed Services for Internet Access: Status as of December 31, 2006.”

High Speed Wireless Lines

0

5000000

10000000

15000000

20000000

25000000

2004 2005 2005 2006 2006

The Future of Wireless?The Future of Wireless?

The Coupe

2007 – 700 hundred handsets, scores of features

2008 –

“Any Apps, any Device”

Soviet Ministries?Soviet Ministries?

No!

Where are we headed?Where are we headed? Today, behavior is very competitiveToday, behavior is very competitive Consumers are benefiting from lower prices, Consumers are benefiting from lower prices,

higher speeds, expanding outputhigher speeds, expanding output Could market become less competitive and need Could market become less competitive and need

greater regulatory oversight?greater regulatory oversight?– Theoretically, yesTheoretically, yes

Is there a need to rush to (big R) Regulate?Is there a need to rush to (big R) Regulate?– Observed behavior suggests “no” Observed behavior suggests “no” – Policies to enable markets (reducing barriers to entry)Policies to enable markets (reducing barriers to entry)– Available tools: antitrust/regulationAvailable tools: antitrust/regulation

“Anyone who has the power to make you believe absurdities has the power to make you commit injustices.” Voltaire

Conclusion: Avoiding the Incongruities….