More litigation for the US Wireless Industry

On 9 September 2008, US Senator Herb Kohl (D-WI), chairman of the Senate Antitrust Subcommittee, sent a letter to the CEOs of Verizon Wireless, AT&T Mobility, Sprint Nextel, and T-Mobile (the four largest US mobile carriers) demanding an explanation for recent price increases for text messaging. Only days after Senator Kohl’s letter was released, consumer class action lawsuits began to be filed in various jurisdictions. For instance, a class action complaint was filed in the US District Court, Northern District of Ohio, Western Division (“Ohio suit”) alleging an “illegal scheme of price-fixing conspiracy ….” A similar suit was also filed in the Northern District of Illinois, Eastern Division. As of the writing of this paper, there have been 20 related consumer class action lawsuits filed. In an upcoming paper, Innocent Until Proven Guilty– Or Not, I take a hard look at the economics of Senator Kohl’s investigation and the allegations in the price fixing lawsuits.  Based on information publicly available through mid-October, I find that the claims of price fixing among the leading mobile carriers are incomplete, counterfactual, and unfounded. Competition in the US wireless industry seems to be healthy, and carriers compete on all aspects of their service offerings, including text messaging. Specifically, the study finds:

* The market power and price fixing allegations regarding the provision of text messaging services by US mobile operators appear to be incomplete and not supported by economic and marketplace evidence.

* Price increases are not anticompetitive and do not necessarily represent the exercise of market power.

* Text messaging prices among US operators do vary.

* US texting rates seem to be in line with international benchmarks.

* Cost data for text messaging is of little value for assessing prices.

* Data on texting utilization and price comparisons are burdensome to collect and analyze and is most likely of no consequence.

* Investigations and lawsuits will take significant time and effort at great cost to both sides and most likely will not help consumers.

The paper will be downloadable from www.telecomeconomics.com and from www.nera.com.