Evidence of competition in the US mobile telephone sector

A standard claim in most antitrust, consumer class action, regulatory and other dispute matters is that the U.S. mobile industry is not competitive. For instance, Professor Timothy Wu recently (July 7, 2007) claimed in a congressional hearing that net neutrality and legislation on handset network and software locking and early termination fees is necessary as there is not sufficient competition in the wireless industry. Calling it a “spectrum based oligopoly,” Mr. Wu blames the lack of U.S. leadership in wireless on the lack of competition and urges Congress to intervene with policy. Similarly, reacting to the findings of the Consumer Reports’ Annual Survey of Cell-Phone Service (see December 5, 2007 blog), a spokeswoman for the The Utility Network in San Francisco was quick to explain the results on the alleged lack of competition in the wireless sector. According to the San Francisco Chronicle, Mindy Spatt from TURN finds that the alleged low performance score demonstrate that “the industry is not responding to competition or its customers so much as to the threat of lawsuits and legislation.”

I am a consumer too and I do understand the frustration that consumers experience when they do not receive the service they were expecting, whether that is mobile telephone service or a middle seat on a transatlantic flight. We are quick at pointing fingers and claiming that a lack of competition must be at work as else such behavior would not be present and demand that the government steps in to clean up the mess.

However, it is not that easy. The U.S. mobile industry has repeatedly been shown competitive by the FCC and many economists and empirical evidence supports these findings. Take for instance Google’s recent effort to form the Open Handset Alliance and develop an open mobile platform, Android. Google quickly signed up Sprint Nextel and T-Mobile as alliance members. In late November 2007, Verizon followed suit, which reportedly will allow consumers to use any compatible cellphone on its network and allow open access to the Web and third-party applications. Immediately following Verizon’s announcement, speculations ran high as to whether AT&T, the only major U.S. mobile carrier that had not yet joined in the effort, will have to give in and open its network. If either Professor Wu or Ms. Spatt’s allegation of insufficient or lack of competition were true, then AT&T would see not incentive or necessity to open its network. However, if there was competition, then AT&T, as price taker, would be forced to do so.

Today the verdict came in: AT&T announced that starting immediately, it will allow any GSM device and software application, regardless of manufacturer or vendor, on their network, without having to sign a contract. AT&T’s move is a clear sign of competition and further supports the findings of the FCC and the economists who have found robust competition in this sector.

Open Handset Alliance: http://www.openhandsetalliance.com/

San Francisco Chronicle article: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/04/BU2UTNFDM.DTL&hw=mobile+satisfaction+early+termination&sn=001&sc=1000

Professor Wu’s testimony before Congress: http://www.youtube.com/watch?v=ACfn_KjDRU0