Telecommunications:

Enhanced Data Collection Could Help FCC Better Monitor Competition in the Wireless Industry

GAO-10-779: Published: Jul 27, 2010. Publicly Released: Aug 26, 2010.

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Americans increasingly rely on wireless phones, with nearly 40 percent of households now using them primarily or solely. Under federal law, the Federal Communications Commission (FCC) is responsible for fostering a competitive wireless marketplace while ensuring that consumers are protected from harmful practices. As requested, this report discusses changes in the wireless industry since 2000, stakeholders' perceptions of regulatory policies and industry practices, and the strategies FCC uses to monitor competition. To conduct this work, GAO collected and analyzed data and documents from a variety of government and private sources; conducted case studies in both rural and urban areas of four states; and interviewed stakeholders representing consumers, local and state agencies and officials, and various segments of the industry.

The biggest changes in the wireless industry since 2000 have been consolidation among wireless carriers and increased use of wireless services by consumers. Industry consolidation has made it more difficult for small and regional carriers to be competitive. Difficulties for these carriers include securing subscribers, making network investments, and offering the latest wireless phones necessary to compete in this dynamic industry. Nevertheless, consumers have also seen benefits, such as generally lower prices, which are approximately 50 percent less than 1999 prices, and better coverage. While views differed among stakeholders, some carriers and consumer groups perceive certain FCC wireless policies as having prevented the entry and growth of small and regional carriers, though it is difficult to assess some of these issues without better data. In particular, many stakeholders outside of the top national carriers who we spoke with noted that policies for making spectrum available for commercial use, as well as policies governing some essential elements of wireless networks, favor large national carriers, potentially jeopardizing the competitiveness of the wireless industry. One such essential element is special access to infrastructure that connects cell phone towers to wireline phone networks. Better data on rates governing those elements would clarify the extent to which competition is hindered. Additional data are also necessary to determine whether consumers are hindered from moving between wireless carriers by particular industry practices. Many small carriers and consumer groups perceive early termination fees associated with wireless service contracts and exclusive handset arrangements as creating switching costs that serve as barriers to consumer movement. FCC uses three strategies to oversee and monitor competition in the wireless phone industry: reviews of proposed mergers, investigations of competitive challenges, and its annual wireless competition report to Congress. In assessing mergers, FCC balances potential public interest benefits and harms. FCC has also undertaken a variety of investigations and inquiries related to competitive challenges, generally in response to complaints. The primary tool that FCC uses is the annual wireless competition report. While FCC recently undertook steps that significantly improved this report, it still does not fully assess some key industry inputs and outputs. FCC generally has not collected data on many industry investments or consumer switching costs because of the complexity and burden associated with gathering these data. However, FCC has recently undertaken ad hoc inquiries to collect such data and, despite challenges and costs, this information could help FCC better fulfill its statutory reporting requirement. In particular, additional data could help assess the competitiveness of small and regional carriers, as well as shed light on the impact of switching costs for consumers. FCC should assess whether expanding original data collection of wireless industry inputs and outputs--such as prices, special access rates, capital expenditures, and equipment costs--would help the Commission better satisfy its requirement to review competitive market conditions with respect to commercial mobile services. FCC took no position on GAO's recommendation, but provided technical changes to this report that were incorporated as appropriate.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Federal Communications Commission (FCC) is responsible for fostering a competitive wireless marketplace while ensuring that consumers are protected from harmful practices. The Omnibus Budget Reconciliation Act of 1993 required FCC to submit an annual report that analyzes competitive conditions in the wireless industry. This report is a key basis on which federal wireless policies and regulations are developed and the primary tool used by FCC to monitor competition in the wireless industry. We found that FCC collects little original data on some industry inputs and consumer switching costs, generally using third-party data to report on industry wide trends. In particular, FCC lacks original data collection on prices, special access, capital expenditures, and devices and equipment. This hinders FCC's ability to examine the extent of competition in specific markets and sections of the industry. Therefore, we recommended that FCC assess whether expanding its original data collection of wireless industry inputs and outputs--such as prices, special access rates, capital expenditures, and equipment costs--would help it better satisfy its requirement to review competitive market conditions with respect to commercial mobile services. According to FCC staff, the Commission is taking appropriate steps to improve and streamline its data practices. First, on June 29, 2010, FCC established a pleading cycle for comments on its review of the Wireless Telecommunications Bureau's data practices. In particular, the Bureau sought comment on (1) the utility and rationale for each of its existing data collections, (2) additional data it needs to inform FCC policymaking activities, (3) how it can improve collection and analysis processes for existing collections, and (4) how it can improve dissemination of reports and analysis it produces. Second, on February 8, 2011, FCC sought comment on improving its broadband data collections, which included wireless data. FCC sought comment on several categories of data, including price, deployment, and service quality and customer satisfaction. Finally, on February 15, 2012, FCC proposed to reduce and remove several reporting requirements associated with licensing of cellular service. FCC proposed to streamline the application requirements for site-based Unserved Area applications and to delete obsolete and outdated provisions, such as those requiring certifications associated with cessation of analog service; FCC noted that these proposals were consistent with its regulatory reform agenda and its Data Innovation Initiative. Efforts to improve its data practices will help ensure that FCC and the Congress have sufficient information to make policy decisions concerning the wireless industry

    Recommendation: FCC should assess whether expanding its original data collection of wireless industry inputs and outputs--such as prices, special access rates, capital expenditures, and equipment costs--would help it better satisfy its requirement to review competitive market conditions with respect to commercial mobile services.

    Agency Affected: Federal Communications Commission

 

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