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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
July 2010:
Telecommunications:
Enhanced Data Collection Could Help FCC Better Monitor Competition in
the Wireless Industry:
GAO-10-779:
GAO Highlights:
Highlights of GAO-10-779, a report to congressional requesters.
Why GAO Did This Study:
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.
What GAO Found:
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.
What GAO Recommends:
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.
View [hyperlink, http://www.gao.gov/products/GAO-10-779] or key
components. For more information, contact Mark Goldstein at (202) 512-
2834 or goldsteinm@gao.gov.
[End of section]
Contents:
Letter:
Background:
Since 2000, the Wireless Industry Has Consolidated and Usage Has
Increased, Creating Challenges for Small and Regional Wireless
Carriers and Some Benefits for Consumers:
Some Stakeholders Perceive Certain Regulatory Policies and Industry
Practices Jeopardizing the Competitiveness of the Wireless Industry:
FCC Employs Various Strategies to Monitor Competition in the Industry,
but Its Annual Report Is Missing Some Data on Inputs and Outputs:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Stakeholders Interviewed for this Report:
Table 2: Cellular Market Areas (CMA) Used as Case Studies:
Figures:
Figure 1: Key Components of a Mobile Phone System:
Figure 2: Mergers of Select Wireless Carriers, 2000-2009:
Figure 3: Wireless Subscriber Market Share:
Figure 4: Estimated Wireless Penetration Rate:
Figure 5: Estimated Wireless Phone Subscribers:
Figure 6: Estimated Wireless Voice Minutes of Use:
Figure 7: Net Subscriber Additions by Carrier:
Figure 8: Wireless Subscriber Churn:
Figure 9: Capital Expenditures as a Percentage of Revenue:
Figure 10: Average Revenue per User:
Figure 11: Consumer Price Index for Telephone and Wireless Services:
Figure 12: Spectrum License Maps:
Figure 13: Proposed Cap of Spectrum Below 2.3 GHz:
Figure 14: Disguised Cellular Tower in Eureka, California:
Abbreviations:
ARPU: Average Revenue per User:
CDMA: Code-Division Multiple Access:
CMA: Cellular Market Area:
DOJ: Department of Justice:
ETF: early termination fee:
FCC: Federal Communications Commission:
GHz: gigahertz:
GSM: Global System for Mobile Communication:
HHI: Herfindahl-Hirschman Index:
ILEC: Incumbent Local Exchange Carrier:
LNP: local number portability:
MHz: megahertz:
MSA: Metropolitan Statistical Area:
MVNO: mobile virtual network operators:
REA: Regional Economic Area:
RSA: Rural Service Area:
USF: Universal Service Fund:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 27, 2010:
Congressional Requesters:
Wireless phone use in the United States has risen dramatically over
the last 20 years, and Americans increasingly rely on wireless phones
as their sole or primary means of telephone communication. According
to industry data, the total number of wireless phone service
subscribers nationwide has grown from about 3.5 million in 1989 to
about 285 million by the end of 2009.[Footnote 1] Today, nearly 40
percent of households rely primarily on wireless devices, and the
industry generates revenues in excess of $150 billion a year. Further,
consumers use their mobile devices for more than phone calls and text
messages; devices are increasingly becoming a primary link to the
Internet. As consumer reliance on mobile devices for Internet access
(e.g., for e-mail and maps) grows, so does the need for wireless data
service. Indeed, the Federal Communications Commission's (FCC)
National Broadband Plan[Footnote 2] noted that "mobile broadband is
the next great challenge and opportunity for the United States" and
identified a goal of making the United States the world leader "in
mobile innovation, with the fastest and most extensive wireless
networks of any nation."[Footnote 3]
Members of Congress and public interest groups have raised concerns
about the competitiveness of the wireless industry in recent years.
Consolidation through mergers and acquisitions has created a market
for wireless services in which four companies--AT&T Inc. (AT&T),
Sprint Nextel (Sprint), T-Mobile USA Inc. (T-Mobile), and Verizon
Wireless (Verizon)--have the vast majority of subscribers. Such
consolidation has created concerns that there may be a lack of
competitiveness, which could lead to deteriorating service and higher
prices for consumers. Under federal law, FCC is responsible for
fostering a competitive wireless marketplace while ensuring that
consumers are protected from harmful practices. FCC has generally
taken a deregulatory approach to the wireless industry in order to
foster competition and innovation, though it monitors the industry
through its annual report on wireless competition. The Department of
Justice Antitrust Division, along with FCC, reviews and approves
wireless industry mergers and acquisitions.
In November 2009, we reported on the need for FCC to improve its
oversight of wireless phone service quality and consumer issues.
[Footnote 4] In response to your request, this report examines other
changes and issues in the wireless industry and whether there are
additional actions FCC could take to ensure effective competition. In
particular, this report discusses (1) the ways in which the wireless
industry has changed since 2000 and the implications of those changes
on competition and consumers, (2) stakeholders' perceptions of the
effect of various regulatory policies and industry practices on the
wireless industry and consumers, and (3) the strategies FCC has
employed to monitor and oversee competition in the wireless industry.
To determine the ways in which the industry has changed since 2000, we
identified and analyzed quantitative data--such as the number of
wireless subscribers and prices--from UBS Investment Research (a
financial services firm); FCC; the Bureau of Labor Statistics; as well
as survey data collected by CTIA, an industry association; and data
from a commercial database. The metrics we used in this report are
those that are commonly used to discuss the state of competition in
the wireless telephone industry recommended by a variety of
stakeholders with whom we spoke. Due to the proprietary nature of some
information, we were limited in the data we could collect, which
limited our ability to analyze competition in various segments of the
wireless industry. To complement these data, we examined public
comments submitted in response to FCC's August 2009 Notice of Inquiry
on its annual mobile wireless competition report. To determine the
implications for consumers and competition, as well as stakeholders'
perceptions of the effect of various industry practices and regulatory
policies, we spoke with a variety of stakeholders in order to gain a
broad perspective on the issues; these stakeholders included all of
the 4 large national carriers, 11 regional and small carriers, 4
device manufacturers and network operators, 3 tower companies, 7
industry associations, 6 consumer groups, 8 academic and industry
experts, and numerous local and state officials as part of our case
studies. We conducted case studies in both urban and rural cellular
market areas in four states, as well as the District of Columbia,
[Footnote 5] speaking with local government officials,
telecommunications and economic development experts, and wireless
companies. We selected the case study sites based on population, the
number of competing carriers, the number of wireless carriers
receiving Universal Service Fund (USF) High-Cost program subsidies,
[Footnote 6] and suggestions from experts. The case studies serve as
illustrative examples; they are a nonprobability sample and,
therefore, cannot be generalized to all cellular market areas. To
determine the strategies employed to oversee and monitor competition,
we spoke with a variety of FCC officials as well as the Department of
Justice Antitrust Division about their specific roles in the oversight
of competition in the wireless industry. We also reviewed FCC reports,
orders, and merger documentation related to the wireless industry. We
also spoke with stakeholders about the impact of FCC's current
strategies to oversee and monitor competition in the industry.
We conducted this performance audit from August 2009 to July 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Appendix I
provides a detailed discussion of our scope and methodology.
Background:
Components of a Mobile Phone System. Mobile phones are low-powered
radio transceivers (a combination radio transmitter and receiver) that
use radio waves (spectrum)[Footnote 7] to communicate with base
stations. These include traditional voice-only cellular phones, as
well as "smart" phones that generally have large viewscreens, along
with enhanced data and messaging capabilities. Wireless phone service
carriers deliver mobile phone service by subdividing large geographic
areas into smaller overlapping sections called cells. Each cell has a
base station equipped with an antenna to receive and transmit radio
signals to mobile phones within its coverage area. This area can vary
in size from under a mile to 20 miles from the base station. A mobile
phone's communications are generally associated with the base station
of the cell in which it is presently located.
When a call is initiated, the base station assigns a radio frequency
to the mobile phone from among the group of frequencies that the
station controls. The number of frequencies available at a base
station will depend primarily on the amount of radio frequency
spectrum obtained by the carrier from FCC, the number of base stations
in the carrier's service area, and the type of technology that the
carrier uses[Footnote 8]. Each base station is linked to a mobile
phone switching office, which is also connected to the local wireline
telephone network. As a result, the majority of wireless traffic
actually flows over the wireline telephone system, with only the last
segment--traveling to and from mobile phones to towers--operating
wirelessly. The mobile phone switching office directs calls to the
desired locations, whether to another mobile phone or a traditional
wireline telephone. This office is responsible for switching calls
from one cell to another in a smooth and seamless manner as consumers
change locations during a call. Special access services are used to
provide backhaul, the wireline infrastructure that, among other
things, connects cell phone towers to switching stations and,
ultimately, to other phone[Footnote 9]s. Special access services
employ dedicated facilities that run directly from cell phone towers
to wireline networks. Figure 1 illustrates the components of a mobile
phone system.
Figure 1: Key Components of a Mobile Phone System:
[Refer to PDF for image: illustration]
Depicted on the illustration are the following components:
Cells;
Base station with antenna;
Local wireless phone company;
Mobile phone switching station;
Mobil phone;
Backhaul.
Source: GAO.
[End of figure]
Wireless Industry Background. In the wireless phone industry, four
large national wireless phone service carriers--AT&T, Sprint, T-
Mobile, and Verizon--currently operate alongside small and regional
carriers of various sizes.[Footnote 10] The four large, national
carriers serve more than 90 percent of wireless subscribers, though no
single competitor has more than one-third of the market share of the
national market. According to industry data, currently more than 140
companies offer wireless services. Many carriers, such as AT&T and
Verizon, are considered "facilities-based" in that they both own and
operate elements of their wireless network. In addition to these
facilities-based carriers, the wireless industry includes mobile
virtual network operators (MVNO), such as TracFone. While many
wireless carriers acquire spectrum licenses from FCC, MVNOs are
resellers of wireless services; they do not hold spectrum licenses,
but lease network space wholesale from other providers. According to
FCC, there are currently at least 60 MVNOs in the United States.
To subscribe to wireless phone service, a consumer must select a
wireless phone service carrier and either sign a contract and choose a
service plan or purchase prepaid minutes and buy a phone that works
with the prepaid service. Most consumers sign contracts that specify
the service plan, the number of voice minutes, and the number of text
messages the consumer is buying for a monthly fee; consumers can also
purchase data plans which allow them to access the Internet for a
monthly fee. New consumers who sign contracts for wireless phone
service sometimes pay upfront fees for "network activation" of their
phones and usually agree to pay an "early termination fee" (ETF) if
they should quit the carrier's network before the end of the contract
period. In return for signing a contract, consumers often receive
wireless phones at a discount or at no additional cost. Some carriers
also permit consumers to purchase their own handsets without requiring
that they enter into long-term contracts. While there are a variety of
handsets consumers can purchase, some are exclusively linked to one
carrier.
Regulatory History. When establishing the rules for cellular service
in 1981, the commission decided that it would only grant two licenses
to carriers in each cellular market to build facilities and offer
cellular telephone service. One license was reserved for the existing
local telephone company and the other was initially reserved for
applicants that were not affiliated with any wireline telephone
carrier.[Footnote 11] The commission relied on comparative hearings
and lotteries to assign these licenses to new carriers. However, in
our 1992 report, we noted that this market structure provided only
limited competition. We recommended that FCC consider establishing a
policy that supports new entrants into the wireless market by giving
first preference to firms not offering cellular telephone service when
allocating spectrum.[Footnote 12] Later, when the FCC allocated more
spectrum, it opened the wireless market to more carriers.
In the 1990s, Congress enacted two laws--the Omnibus Budget
Reconciliation Act of 1993 (1993 Act)[Footnote 13] and the
Telecommunications Act of 1996 (1996 Act)[Footnote 14]--that sought to
increase competition among carriers through a deregulatory framework.
The 1993 Act preempted state and local governments from regulating the
entry of or the rates charged by commercial mobile service carriers.
[Footnote 15] In addition, the 1993 Act gave FCC authority to set up
spectrum auctions for the distribution of licenses, replacing the
lottery system. The purpose of the auction system was to award
licenses to those who would use them most efficiently. The 1993 Act
also required FCC to provide annual mobile wireless competition
reports to Congress. In the 1996 Act, a law that deregulated various
aspects of the telecommunications industry, the Congress provided FCC
with additional tools that could be used to promote competition in the
mobile phone service industry. In order to enhance competition, the
1996 Act authorized FCC to exempt telecommunications carriers,
including wireless carriers, from any requirements that are not
necessary to protect consumers, ensure that service provided be just
and reasonable, and not unjustly or unreasonably discriminatory.
[Footnote 16] The 1996 Act also required that every 2 years FCC engage
in a review of its rules, including those related to mobile phone
service, to determine whether any of them are no longer necessary as a
result of meaningful competition among carriers.[Footnote 17]
Ahead of the first spectrum auctions, FCC decided to introduce caps on
the amount of spectrum any one carrier could hold in a market
(spectrum cap) to ensure that a number of carriers would be able to
compete in a given market and that no one carrier would thereby gain
dominant market share.[Footnote 18] In 2001, the Commission decided to
end the practice of spectrum caps--phasing it out completely in 2003--
in part, because it believed there was general competition in the
marketplace and that a case-by-case approach to proposed transactions
could protect competition while also enabling greater economic
efficiencies, which would benefit consumers.[Footnote 19] Instead, the
FCC began a practice of applying, on a market-by-market basis, a two-
part "screen"--examining (1) market concentration and (2) the input
market for spectrum--to determine whether a particular proposed
transaction required more in-depth, case-by-case review to assure that
no competitive harm would result (or to require divestitures where
necessary).
The 1993 and 1996 Acts led to other FCC actions as well. FCC has
traditionally regulated the rate ILECs can charge for special access
services. In 1991, FCC moved the Bell Operating Companies and GTE from
rate-of-return regulation to price-cap regulation and gave other ILECs
the option of moving to price-cap regulation.[Footnote 20] As noted
earlier, wireless carriers are one consumer of such special access
services. These services are generally provided by incumbent
telecommunications companies, which can be large, multistate firms
(e.g., AT&T, Qwest Communications, and Verizon). These incumbent firms
have an essentially ubiquitous local network that generally reaches
all of the business locations in their local areas. Because the 1996
Act encouraged a deregulatory approach to telecommunications, the
commission implemented the Pricing Flexibility Order in 1999, which
permitted the deregulation of special access rates in metropolitan
areas where local firms could show that certain "competitive triggers"
had been met and that there was competition for special access
services.[Footnote 21] FCC granting either partial-or full-pricing
flexibility to the price-cap incumbent carriers depends on the extent
of competitive co-location of special access facilities in a
particular metropolitan area.
Since 2000, the Wireless Industry Has Consolidated and Usage Has
Increased, Creating Challenges for Small and Regional Wireless
Carriers and Some Benefits for Consumers:
A number of quantitative metrics demonstrate the evolution of the
wireless industry.[Footnote 22] Data show that the biggest changes
since 2000 have been consolidation among wireless carriers and
increased use of wireless services by consumers. Industry
consolidation has created some challenges for small and regional
carriers to remain competitive; these challenges include securing
subscribers, making network investments, and accessing handsets. While
the industry has consolidated since 2000, consumers have seen some
benefits, such as lower prices and better coverage.
Data Indicate that the Primary Changes in the Wireless Industry are
Consolidation of Carriers and Increased Use of Wireless Services by
Consumers:
Consolidation of Carriers. The primary change in the wireless industry
since 2000 has been the consolidation of wireless carriers. The
Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of
market concentration used by both the Department of Justice Antitrust
Division and FCC. The average HHI score for the wireless industry, as
calculated by FCC, has increased by over 30 percent since first
reported by FCC in 2004.[Footnote 23] This suggests that the market
shares of the largest national carriers generally have increased. In
addition to changes in market shares, there are other factors that
could explain changes in the HHI score, including a decrease in the
number of carriers through mergers or other exits from the market.
Over the past 10 years, consolidation in the wireless industry has
generally been accomplished through a series of mergers and
acquisitions. Figure 2 illustrates the major mergers and acquisitions
among some of the major wireless carriers since 2000. The major
transactions that have helped create the four large national carriers
are Cingular's acquisition of AT&T in 2004,[Footnote 24] Sprint's
acquisition of Nextel in 2005, AT&T's acquisition of Dobson in 2007, T-
Mobile's acquisition of SunCom in 2008, Verizon's acquisition of
ALLTEL in 2008, and AT&T's acquisition of Centennial Communications
Corporation (Centennial) in 2009. Many of the other transactions since
2000 have been larger carriers acquiring smaller competitors. As a
result, the market share of the large national carriers has generally
increased, as illustrated in figure 3. Indeed, one stakeholder
mentioned that while he has worked with several local cellular
companies in the past, most of them have now been bought by large,
national carriers. In West Virginia, according to state officials with
whom we spoke, 90 percent of the wireless market is held by five
carriers, but of that, 44 percent is held by one national carrier. In
some cases, mergers have resulted in only one carrier with extensive
coverage in a particular market. In Northwest Minnesota, according to
some stakeholders with whom we spoke, Verizon Wireless became the only
carrier available to most of the population after its purchase of the
Rural Cellular Corporation, although other carriers hold spectrum
licenses. Nevertheless, national figures can sometimes mask the
regional strength of some smaller carriers, according to one carrier
with whom we spoke. U.S. Cellular, for example, has a relatively large
market share in some Midwest markets.
Figure 2: Mergers of Select Wireless Carriers, 2000-2009:
[Refer to PDF for image: illustration]
Wireless Company[A]: Verizon:
2000:
Centaur Partnership; Blackwater Cellular Corp.; Cell-Tell.
2001:
HLD Corp; Bravo Cellular Holding.
2002:
Price Communications; Alabama Wireless.
2004:
Mountain Cellular.
2005:
Cellular 2000; Valley Telecom.
2006:
Cal-One Cellular; Mid Missouri Cellular.
2007:
West Virginia Wireless; Ramcell.
2008:
Rural Cellular Corp; SureWest.
2009:
ALLTEL.
Wireless Company[A]: AT&T;
2003:
Telecorp.
2006:
Highland Cellular; Bell South.
2007:
Dobson Communications.
2008:
Edge Wireless; McBride Spectrum Partners I.
2009:
Centennial Communications.
Wireless Company[A]: Sprint Nextel;
2000:
Chadmoore.
2002:
Georgia PCS Management.
2005:
US Unwired; Horizon PCS; IWO Holdings; Gulf Coast Wireless; Enterprise
Communications; Velocita Wireless; Nextel Communications.
2006:
G&S Television Network; Nextel Partners; Alamosa Holdings; Ubiquitel,
Inc.
2007:
Northern PCS Services.
2008:
Helio.
2009:
Virgin Mobile USA; IPCS,
Wireless Company[A]: T-Mobile;
2000:
Cook Inlet; Voice Stream; PowerTel.
2008:
SunCom Wireless Holdings.
Wireless Company[A]: U.S. Cellular;
None.
Wireless Company[A]: MetroPCS;
None.
Wireless Company[A]: Leap/Cricket;
2007:
Alaska Native Broadband; Hargray Wireless.
2008:
ComScape Telecom.
2009:
Daredevil Communications.
Wireless Company[A]: Cellular South;
2009:
Corr Wireless Communications.
Source: GAO analysis of SNL Kagan data.
[A] These are the wireless carrier names as of May 2010. This graphic
does not reflect the mergers of companies prior to their acquisition
by the eight existing carriers identified here. For example, prior to
its merger with Verizon in 2009, ALLTEL acquired Midwest Wireless
(2005), Western Wireless (2005), Cellular One of Amarillo (2006), and
First Cellular of Southern Illinois (2006), among other transactions.
[End of figure]
Figure 3: Wireless Subscriber Market Share:
[Refer to PDF for image: 2 pie-charts]
2006:
AT&T: 26.2%;
Verizon: 25.3%;
Sprint Nextel: 22.8%;
T-Mobile: 10.7%;
U.S. Cellular: 2.5%;
MetroPCS: 1.3%;
Leap/Cricket: 1%;
All other carriers: 10.2%.
2009:
Verizon: 31.9%;
AT&T: 29.8%;
Sprint Nextel: 16.8%;
T-Mobile: 11.8%;
MetroPCS: 2.3%;
U.S. Cellular: 2.1%;
Leap/Cricket: 1.7%;
All other carriers: 3.6%.
Source: GAO analysis of SNL Kagan data.
[End of figure]
In addition to mergers, the acquisition of spectrum licenses through
spectrum auctions and license transfers has allowed large national
carriers to get bigger. License transfers can happen when carriers
resell their licenses or portions of their licenses to other carriers.
For instance, AT&T currently owns five licenses in the Minneapolis-St.
Paul, Minnesota, market, two of which it initially won in auctions and
three of which it acquired through other transactions[Footnote 25].
Such transactions can facilitate the growth of carriers by allowing
them to construct and operate larger networks, thereby supporting more
subscribers and market share. License transfers can also happen in
order to secure merger approval from the Department of Justice (DOJ)
and FCC. For example, before merging in 2008, Verizon and ALLTEL were
required by FCC to divest their assets in 5 markets and in another 100
markets by DOJ, based on the conclusion that the merger would decrease
the level of competition in those markets. MetroPCS, nTelos, and a
number of other small and rural carriers filed Petitions to Deny the
license divestiture procedures, urging FCC to take steps to ensure
that small and rural carriers and new entrants had opportunities to
gain the divested spectrum licenses. FCC denied all petitions to set
conditions on license transfers stating that applications for license
transfers were required to be individually reviewed, decreasing the
potential for competitive harm.[Footnote 26] DOJ further stated that
the carrier that purchased the license needed to be an "effective
competitor." However, some stakeholders referred to the results of
such divestitures as "spectrum swapping," with licenses simply being
transferred from one large carrier to another. Since the 2008
divestiture of Verizon and ALLTEL spectrum assets, many of the
licenses are being transferred to a subsidiary of AT&T.
Increased Use of Wireless Services by Consumers. Since 2000, the
number of wireless consumers has increased significantly. One measure
of consumer use is the wireless "penetration rate," generally defined
as the number of wireless subscribers as a percentage of the total
U.S. population. Based on industry data, the penetration rate, as of
December 2009, was 91 percent.[Footnote 27] As figure 4 shows, the
wireless penetration rate was only 38 percent in 2000, showing that
wireless use has grown significantly in the past decade. Furthermore,
the percentage of households that are wireless-only has been steadily
increasing. The number of adults living in households with only
wireless telephone service has increased from less than 5 percent in
2003 to nearly 23 percent in 2009. According to one study of wireless
use, wireless connections in California now exceed the combined
connections of both wireline and broadband services.[Footnote 28] Our
data also show that, as the penetration of wireless services has grown
over the past few years, the growth in the number of new wireless
subscribers has slowed. As a result, carriers are now mainly competing
for existing subscribers because there are few potential new
subscribers available.
Figure 4: Estimated Wireless Penetration Rate:
[Refer to PDF for image: line graph]
Year: 2000: 38%.
Year: 2001: 44.2%.
Year: 2002: 48%.
Year: 2003: 53.6%.
Year: 2004: 61%.
Year: 2005: 69%.
Year: 2006: 76.6%.
Year: 2007: 83.2%.
Year: 2008: 87.8%.
Year: 2009: 91%.
Source: CTIA-The Wireless Association, used with permission.
[End of figure]
The number of wireless subscribers who use prepaid services has
increased. In the wireless market, it is possible for consumers to
purchase services with a contract (postpaid subscribers) or without,
simply purchasing services month-to-month (prepaid). The number of
prepaid subscribers, as a portion of all wireless subscribers, has
grown in the past five years (see figure 5). New prepaid cell phone
subscribers accounted for nearly two-thirds of the 4.2 million net
subscribers added by U.S. phone carriers in the fourth quarter of
2009. According to some analysts, this recent trend has been driven by
a desire for flexibility on the part of consumers as well as economic
issues. This increase in prepaid subscribers has taken some
subscribers away from the large, national carriers that have
traditionally relied on postpaid subscribers, according to industry
analysts with whom we spoke. The four largest national carriers are
now present in the prepaid market, as well as the postpaid market.
Figure 5: Estimated Wireless Phone Subscribers:
[Refer to PDF for image: stacked vertical bar graph]
Year: 2002;
Total subscribers: 128.8 million;
Pre-Paid subscribers: 12.0 million.
Year: 2003;
Total subscribers: 146.8 million;
Pre-Paid subscribers: 11.9 million.
Year: 2004;
Total subscribers: 170.3 million;
Pre-Paid subscribers: 11.8 million.
Year: 2005;
Total subscribers: 192.3 million;
Pre-Paid subscribers: 15.6 million.
Year: 2006;
Total subscribers: 209.7 million;
Pre-Paid subscribers: 23.3 million.
Year: 2007;
Total subscribers: 228.6 million;
Pre-Paid subscribers: 26.8 million.
Year: 2008;
Total subscribers: 240.0 million;
Pre-Paid subscribers: 30.3 million.
Year: 2009;
Total subscribers: 251.8 million;
Pre-Paid subscribers: 34.0 million.
Year: 2010;
Total subscribers: 251.8 million;
Pre-Paid subscribers: 34.0 million.
Source: SNL Kagan and UBS Investment Research, US Wireless 411 (March
2010).
[End of figure]
The increase and change in the use of wireless services by consumers
is evidenced not only by a change in the number of subscribers, but
also the changes in the average use of voice minutes and use of data
services. While average voice minutes used has decreased recently,
data usage is increasing, both in the number of users of data services
and the amount being used. From 2000 until 2007, the average number of
voice minutes used per month increased from approximately 250 minutes
to over 750 minutes. In recent years, though, voice minutes have
decreased slightly (see figure 6). On the other hand, data use,
including text messaging, as well as accessing the Internet, has been
increasing. For instance, there were over 152 billion text messages
sent in December 2009, compared to over 110 billion messages in the
month of December 2008. This shift to a datacentric market has been
driven, in part, by the increase in the number and popularity of smart
phones.
Figure 6: Estimated Wireless Voice Minutes of Use:
[Refer to PDF for image: line graph]
Year: 2000;
Average monthly minutes of use per subscriber: 255.
Year: 2001;
Average monthly minutes of use per subscriber: 380.
Year: 2002;
Average monthly minutes of use per subscriber: 427.
Year: 2003;
Average monthly minutes of use per subscriber: 507.
Year: 2004;
Average monthly minutes of use per subscriber: 584.
Year: 2005;
Average monthly minutes of use per subscriber: 708.
Year: 2006;
Average monthly minutes of use per subscriber: 714.
Year: 2007;
Average monthly minutes of use per subscriber: 769.
Year: 2008v
Average monthly minutes of use per subscriber: 704.
Year: 2009;
Average monthly minutes of use per subscriber: 696.
Source: CTIA-The Wireless Association, used with permission.
[End of figure]
Industry Consolidation Has Made it More Difficult for Small and
Regional Carriers to be Competitive:
Through their growing share of the overall wireless market, large
national wireless carriers have been able to exploit significant
economies of scale. While these economies of scale can facilitate the
continued growth of the top carriers, they can also create challenges
to the growth and competitiveness of small and regional carriers. In
particular, small and regional carriers, as well as other
stakeholders, noted their difficulties in securing subscribers,
network investments such as chipsets, and handsets.[Footnote 29]
Subscribers. Due in part to the consolidation of carriers and
spectrum, the top national carriers have increasingly dominated the
acquisition of subscribers. One metric of competition is net adds, or
the change in the number of subscribers a carrier has within a
specific period, which takes subscriber turnover into consideration.
Figure 7 illustrates the net adds, by carrier, since 2005. These data
show that over the past 4 years, net subscriber additions have
primarily and consistently accrued to the top national carriers. Data
from the second quarter of 2009 alone show that the top national
carriers accrued about four times the number of net adds as the next
carrier. Indeed, some stakeholders stated that a reason for the high
number of net adds is because the large national carriers have
exclusive handsets and consumers are choosing those carriers because
of their offerings. Without net adds, small and regional carriers can
face challenges securing investments because non-negative net adds are
indicative of a steady revenue source.
Figure 7: Net Subscriber Additions by Carrier:
[Refer to PDF for image: vertical bare graph]
Carrier: Verizon;
Net Subscriber Additions:
2005: 7,521,000;
2006: 7,691,000;
2007: 6,646,000;
2008: 5,779,000;
2009: 5,874,000.
Carrier: AT&T[A];
Net Subscriber Additions:
2005: 0;
2006: 0;
2007: 7,315,000;
2008: 6,699,000;
2009: 7,278,000.
Carrier: Sprint Nextel;
Net Subscriber Additions:
2005: 6,759,000;
2006: 3,016,000;
2007: 773,000;
2008: -4,582,000;
2009: -1,132,000.
Carrier: T-Mobile;
Net Subscriber Additions:
2005: 4,376,000;
2006: 3,351,000;
2007: 3,644,000;
2008: 2,940,000;
2009: 1,033,000.
Carrier: Leap/Cricket;
Net Subscriber Additions:
2005: 117,000;
2006: 592,000;
2007: 634,000;
2008: 942,000;
2009: 1,109,000.
Carrier: MetroPCS;
Net Subscriber Additions:
2005: 299,000;
2006: 452,000;
2007: 184,000;
2008: 249,000;
2009: 520,000.
Carrier: US Cellular;
Net Subscriber Additions:
2005: 477,000;
2006: 310,000;
2007: 281,000;
2008: 91,000;
2009: -55,000.
Source: SNL Kagan.
Note: These figures do not include subscriber additions that resulted
from mergers and acquisitions.
[A] Data for AT&T are unavailable prior to 2007.
[End of figure]
The trend in subscriber turnover, though incorporated into net
subscriber additions, on its own also indicates that subscribers are
mostly accruing to the top national carriers. Subscriber turnover is
most commonly measured as the churn rate, which is the number of
subscribers disconnecting from service during a given period as a
percentage of the average total number of subscribers for a carrier.
As the penetration rate moves past 90 percent, there are fewer new
consumers to gain. The difficulty for small and regional carriers is
retaining the subscribers that they have. As figure 8 indicates, the
top two national carriers have generally had lower average monthly
churn rates than the next two national carriers, as well as small and
regional carriers. While a low churn rate could be due to a number of
different factors, these data indicate that over the past three years,
small and regional carriers as well as some national carriers have had
difficulty retaining subscribers.
Figure 8: Wireless Subscriber Churn:
[Refer to PDF for image: vertical bar graph]
Quarter: 2007, Q4:
Verizon: 1%;
AT&T: 2%;
Sprint Nextel: 2%;
T-Mobile: 3%;
Leap/Cricket: 4%;
MetroPCS: 5%;
US Cellular: 2%.
Quarter: 2008, Q4:
Verizon: 1%;
AT&T: 2%;
Sprint Nextel: 2%;
T-Mobile: 3%;
Leap/Cricket: 4%;
MetroPCS: 5%;
US Cellular: 2%.
Quarter: 2009, Q4:
Verizon: 1%;
AT&T: 1%;
Sprint Nextel: 2%;
T-Mobile: 3%;
Leap/Cricket: 5%;
MetroPCS: 5%;
US Cellular: 2.
Source: SNL Kagan and UBS Investment Research, US Wireless 411 (March
2010).
[End of figure]
Network Investments. The size and scale of large national carriers
gives them the advantage of being able to deploy faster networks ahead
of their competitors, thus reinforcing their competitive advantage.
Developing and expanding networks require significant capital
investment. Without pressure to keep their networks and, therefore,
their services competitive, carriers may not be willing to undertake
this investment. Therefore, capital expenditure is one way to measure
the level of competition in a given market. We encountered divergent
views on the extent of investment being made by wireless carriers.
While some stakeholders maintained that their investment in wireless
networks remains a significant portion of their costs, others pointed
to data showing that some wireless carriers do not appear to be
investing aggressively, based on capital expenditures as a percentage
of revenue. According to some industry analysts, carriers generally
continue to invest significant capital in networks, despite the recent
economic downturn. In the past 3 years, large national carriers have
been able to invest more money in their networks than other carriers.
AT&T and Verizon, for example, both spent over $2 billion in the
fourth quarter of 2009, representing about two thirds of total
industry expenditures. U.S. Cellular and Leap Wireless each spent
under $200 million in the same time frame. However, as the data in
figure 9 show,[Footnote 30] the capital investments of some large
national carriers have been smaller portions of their service revenue
than investments on the part of some of the smaller regional carriers.
For instance, even though it spent approximately 18 times less than
AT&T on total capital investments, Leap Wireless spent more as a
proportion of its service revenue.
Figure 9: Capital Expenditures as a Percentage of Revenue:
[Refer to PDF for image: multiple line graph]
Year: 2007, 1Q;
AT&T: 5.9%;
Sprint Nextel: 15.7%;
T-Mobile: 15.2%;
Verizon: 19.1%;
US Cellular: 12.7%;
Leap/Cricket: 40.9%;
MetroPCS: 35.5%.
Year: 2007, 2Q;
AT&T: 6.3%;
Sprint Nextel: 15.3%;
T-Mobile: 12.7%;
Verizon: 17.7%;
US Cellular: 15.1%;
Leap/Cricket: 30.6%;
MetroPCS: 39.8%.
Year: 2007, 3Q;
AT&T: 10.7%;
Sprint Nextel: 9%;
T-Mobile: 11.3%;
Verizon: 15.5%;
US Cellular: 13.7%;
Leap/Cricket: 30.3%;
MetroPCS: 38.5%.
Year: 2007, 4Q;
AT&T: 15.4%;
Sprint Nextel: 17%;
T-Mobile: 22.7%;
Verizon: 16.2%;
US Cellular: 19.6%;
Leap/Cricket: 42.9%;
MetroPCS: 49.5%.
Year: 2008, 1Q;
AT&T: 7.1%;
Sprint Nextel: 11.9%;
T-Mobile: 14.8%;
Verizon: 14.6%;
US Cellular: 11.6%;
Leap/Cricket: 39.4%;
MetroPCS: 32.7%.
Year: 2008, 2Q;
AT&T: 14.1%;
Sprint Nextel: 5.4%;
T-Mobile: 21.5%;
Verizon: 12.5%;
US Cellular: 14%;
Leap/Cricket: 43.4%;
MetroPCS: 34.2%.
Year: 2008, 3Q;
AT&T: 14.5%;
Sprint Nextel: 3.1%;
T-Mobile: 19.1%;
Verizon: 11.6%;
US Cellular: 14.4%;
Leap/Cricket: 43.7%;
MetroPCS: 42.9%.
Year: 2008, 4Q;
AT&T: 16.3%;
Sprint Nextel: 4.5%;
T-Mobile: 17.8%;
Verizon: 13.9%;
US Cellular: 19.4%;
Leap/Cricket: 58.3%;
MetroPCS: 43.3%.
Year: 2009, 1Q;
AT&T: 7.5%;
Sprint Nextel: 3%;
T-Mobile: 23.2%;
Verizon: 11.9%;
US Cellular: 14%;
Leap/Cricket: 39.3%;
MetroPCS: 43%.
Year: 2009, 2Q;
AT&T: 11.2%;
Sprint Nextel: 3.5%;
T-Mobile: 22.3%;
Verizon: 13.4%;
US Cellular: 9.4%;
Leap/Cricket: 41.4%;
MetroPCS: 18.6%.
Year: 2009, 3Q;
AT&T: 12.1%;
Sprint Nextel: 4.8%;
T-Mobile: 16.5%;
Verizon: 13.3%;
US Cellular: 13.1%;
Leap/Cricket: 28%;
MetroPCS: 22.3%.
Year: 2009, 4Q;
AT&T: 17.4%;
Sprint Nextel: 6.7%;
T-Mobile: 14.8%;
Verizon: 14.9%;
US Cellular: 19.2%;
Leap/Cricket: 22.3%;
MetroPCS: 27.7%.
Source: UBS Investment Research, US Wireless 411 (March 2010).
[End of figure]
The acquisition of spectrum and access to equipment is also necessary
for carriers to expand networks and develop faster networks, making
the carrier a more attractive choice for consumers. As noted above,
small and regional carriers generally have fewer resources to draw
upon than large national carriers, making it difficult for these
carriers to expand and develop their networks as quickly. For example,
because of their scale, large national carriers can purchase necessary
network equipment, such as chipsets, before their smaller competitors.
Small and regional carriers generally do not have the number of
subscribers necessary to obtain, at any price, the necessary
equipment. As a result, this equipment is often only designed to
utilize the large national carriers' spectrum holdings. Large national
carriers, for instance, have been able to provide 3G networks, and are
poised to deploy new 4G networks, before small and regional carriers.
[Footnote 31]
Handsets. Advanced handsets, or "smart" phones, are a growing source
of revenue for the industry. The economies of scale produced by
industry consolidation have allowed the large national carriers to
gain large subscriber bases, which according to stakeholders, have
allowed those carriers to enter into exclusive contracts with handset
manufacturers for the latest, most advanced handsets. As a result,
regional carriers have not been able to take as much advantage of new
data revenue streams because of their lack of access to the latest
handsets, jeopardizing their competitiveness in an industry where
handsets are of growing importance. Figure 10 shows the average
monthly revenue for the industry overall, from voice services only,
and from data services only over the course of each year. Since 2004,
the industry's Average Revenue per User (ARPU) for voice services has
been in decline. In that same time period, there has been an increase
in the revenue received for data services. This is true more so for
the top national carriers than for small or regional carriers. Verizon
and AT&T each reported data ARPU in the fourth quarter of 2009 in the
mid-teens, whereas nTelos and U.S. Cellular both reported data ARPU of
about $10.
Figure 10: Average Revenue per User:
[Refer to PDF for image: multiple line graph]
Year: 2000;
Industry total ARPU: $46.29;
Industry data ARPU: $0.28;
Industry voice ARPU: $46.01.
Year: 2001;
Industry total ARPU: $46.87;
Industry data ARPU: $0.38;
Industry voice ARPU: $46.49.
Year: 2002;
Industry total ARPU: $48.46;
Industry data ARPU: $1.02;
Industry voice ARPU: $47.44.
Year: 2003;
Industry total ARPU: $49.96;
Industry data ARPU: $1.76;
Industry voice ARPU: $48.2.
Year: 2004;
Industry total ARPU: $50.97;
Industry data ARPU: $2.53;
Industry voice ARPU: $48.44.
Year: 2005;
Industry total ARPU: $49.25;
Industry data ARPU: $3.89;
Industry voice ARPU: $45.37.
Year: 2006;
Industry total ARPU: $48.04;
Industry data ARPU: $5.76;
Industry voice ARPU: $42.29.
Year: 2007;
Industry total ARPU: $48.08;
Industry data ARPU: $8.09;
Industry voice ARPU: $39.98.
Year: 2008;
Industry total ARPU: $46.29;
Industry data ARPU: $10.25;
Industry voice ARPU: $36.04.
Year: 2009;
Industry total ARPU: $45.64;
Industry data ARPU: $12.67;
Industry voice ARPU: $32.98.
Source: SNL Kagan and UBS Investment Research, US Wireless 411 (March
2010).
[End of figure]
Stakeholders consistently noted that consumers are increasingly basing
their wireless decisions on the availability of particular advanced
handsets. According to stakeholders with whom we spoke, competition in
the wireless industry, which traditionally centered on network quality
and price, has shifted to handset devices, which small and regional
carriers cannot access quickly. One regional carrier mentioned that
though the time between when new devices are launched and their
availability to small and regional carriers has shortened, by the time
small carriers are able to offer the handset in their store, a newer
version is usually being offered by the large national carriers.
According to one stakeholder, some consumers do not consider these
small and regional carriers as options because of the exclusive
arrangements that large, national carriers have for these advanced
handsets.
Wireless Prices have Declined Over the Last Decade and Coverage has
Improved:
Although consolidation has increased the difficulty for small and
regional carriers to compete in the wireless industry, a high
concentration of firms in an industry does not necessarily mean that
the interests of consumers are poorly served.[Footnote 32] In
particular, by enabling large national carriers to exploit economies
of scale, consolidation can create greater productivity and economic
efficiency. This industry consolidation may have especially improved
the efficiency of the large national carriers, allowing them to offer
more wireless services for similar or lower prices. Indeed, one way
that wireless carriers can compete is through differentiated price
plans. The Consumer Price Index, which shows the changes in the
average prices of goods and services, indicates that the overall
average price (adjusted for inflation) for wireless services declined
each year from 1999 to 2008 (see figure 11); the average price for
wireless service in 2009 was approximately 50 percent of the price in
1999. This illustrates that consumers are generally getting more
wireless services (such as more voice minutes of use) for lower costs
than they were 10 years ago.[Footnote 33]
Figure 11: Consumer Price Index for Telephone and Wireless Services:
[Refer to PDF for image: vertical bar graph]
Inflation-adjusted percentage change from previous year:
Year: 1999;
Telephone Service: -2.81%;
Wireless Services: -12.9%.
Year: 2000;
Telephone Service: -4.93%;
Wireless Services: -13.91%.
Year: 2001;
Telephone Service: -2.02%;
Wireless Services: -13.15%.
Year: 2002;
Telephone Service: -1.18%;
Wireless Services: -2.71%.
Year: 2003;
Telephone Service: -3.68%;
Wireless Services: -3.11%.
Year: 2004;
Telephone Service: -5.25%;
Wireless Services: -3.58%.
Year: 2005;
Telephone Service: -4.32%;
Wireless Services: -5.24%.
Year: 2006;
Telephone Service: -2.26%;
Wireless Services: -3.87%.
Year: 2007;
Telephone Service: -0.27%;
Wireless Services: -3.13%.
Year: 2008;
Telephone Service: -1.57%;
Wireless Services: -4.04%.
Year: 2009;
Telephone Service: 2.26%;
Wireless Services: 0.35%.
Source: GAO analysis of Bureau of Labor Statistics data.
[End of figure]
A few stakeholders with whom we spoke noted that national wireless
networks, which some carriers have developed through mergers and
acquisitions, can provide benefits to consumers. First, they can
provide smoother, more uninterrupted service. In northern Minnesota,
an area with low population density, economic development officials
noted that since the area has consolidated under one carrier, there
have been fewer "dead spots" in the coverage. Second, national price
plans have become commonplace, and all of the national wireless
carriers offer unlimited voice plans. Further, according to one
stakeholder, consumers have also seen a reduction in roaming fees with
the advent of national networks and pricing plans.[Footnote 34]
Some Stakeholders Perceive Certain Regulatory Policies and Industry
Practices Jeopardizing the Competitiveness of the Wireless Industry:
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 claims without better data. In
particular, many stakeholders outside of the top national carriers
with whom we spoke noted that spectrum and special access policies
favor large national carriers, potentially jeopardizing the
competitiveness of the wireless industry. Better data on special
access rates, in particular, would clarify the extent to which these
policies hinder competition. Additional data are also necessary to
determine whether consumers are hindered from moving between wireless
carriers and services by particular industry practices. Many small
carriers and consumer groups with whom we spoke perceive early
termination fees and exclusive handset arrangements as creating such
anticompetitive switching costs. Most stakeholders also noted that
local government policies and procedures for constructing
infrastructure can delay the development of wireless networks.
Many Stakeholders Outside Top National Carriers Maintained that FCC
Wireless Policies Have Hindered the Competitiveness of Small and
Regional Carriers:
Spectrum Auction Policies. As an essential input necessary for
wireless services, FCC has developed a variety of mechanisms to ensure
wide distribution and effective use of spectrum. FCC has auctioned
spectrum licenses covering a variety of geographic areas, attached
construction benchmarks to those licenses, provided auction bidding
credits to certain entities, and in the past capped the amount of
spectrum any one entity could hold in a region. However, many
stakeholders outside of the top national carriers with whom we spoke
expressed concern that, despite these FCC policies, the processes for
making spectrum available for commercial use have facilitated
consolidation, prevented new carriers from entering the market, and
hindered the growth of small and regional carriers.
* According to some small carriers and other stakeholders with whom we
spoke, the size of spectrum blocks has had the effect of pricing small
and regional carriers out of recent auctions, making it difficult for
these carriers to enter into new markets or expand their services. FCC
auctions licenses for the exclusive use of frequencies in a variety of
designated geographic regions. As figure 12 shows, there are different
ways in which FCC divides the country into spectrum licenses,
including relatively small multicounty areas (Cellular Market Areas)
as well as large multistate regions (Regional Economic Areas).
[Footnote 35] Though large national carriers have won a significant
portion of licenses in recent auctions, it is not clear if this is
because of the license sizes.[Footnote 36] For example, in the most
recent large wireless spectrum auction, Verizon and AT&T won 336 of
the 1091 licenses. Though these represented 31 percent of the
available licenses, they covered nearly the entire country and were
viewed by stakeholders as some of the most valuable licenses
available. Additionally, Verizon won all of the licenses covering
Regional Economic Areas in the continental United States, despite bids
from smaller entities. However, both AT&T and Verizon also purchased
numerous licenses covering Cellular Market Areas, the smallest license
size available. One small carrier with whom we spoke said that
auctioning spectrum in smaller blocks has not necessarily helped small
carriers because they are still competing with large carriers that
have significantly more resources. In the aforementioned auction,
Verizon and AT&T spent $9.4 billion and $6.6 billion, respectively,
much more than other carriers. Nevertheless, according to one
association with whom we spoke, a consequence of having some licenses
cover large regions is that carriers who want spectrum to build out
metropolitan areas must purchase a license covering entire regions and
states. As a result, the association noted that some of these carriers
leave the rural, underserved, or unserved areas of their licenses
unbuilt. According to one regional carrier with whom we spoke, this
trend will have negative consequences for wireless service in rural
areas, as large national carriers will not have an incentive to
continue to provide extensive or up-to-date coverage in areas with low
population density. Some small and regional carriers with whom we
spoke also said that they would further develop their networks in
those rural and underserved areas, but are prevented from doing so by
their inability to afford the entire spectrum license. Some carriers,
though, are already offering some service in rural areas. Indeed, as
the FCC showed in their most recent mobile wireless competition
report, approximately 98.5 percent of the U.S. population living in
rural census blocks have one or more different carriers offering
mobile telephone service where they live.
Figure 12: Spectrum License Maps:
[Refer to PDF for image: 2 U.S. maps]
First map depicts Regional Economic Areas (REA):
Northeast;
Southwest;
Great Lakes;
Mississippi Valley;
Central;
West;
Alaska;
Hawaii;
Guam and the Northern Mariana Islands (not shown);
Puerto Rico and U.S. Virginia Islands;
American Samoa (not shown).
Second map depicts Cellular Market Areas (CMA):
Indicated on the map are Metropolitan Statistical Areas (MSA) and
Rural Service Areas (RSA) for each REA.
Source: FCC.
[End of figure]
* Stakeholders had differing views on the effectiveness of FCC's
efforts to ensure spectrum is utilized efficiently. In order to
prevent spectrum from remaining unused, particularly in rural and
underserved areas, FCC told us that they have attached construction
benchmarks to all 44,229 licenses auctioned since July 1994. For
example, spectrum auctioned in 2006 only required that there be
"substantial service" by the end of the license term in 2021.[Footnote
37] FCC officials noted that substantial service is difficult to
define and it has not had an opportunity to interpret it yet since
these licenses have yet to come to term. The most recent large
wireless spectrum auction included more specific benchmarks such as 35
percent geographic coverage within four years. According to FCC's
electronic reporting system, most license holders have met these
benchmarks to date.[Footnote 38] Nevertheless, some small and regional
carriers and other stakeholders said that these requirements have been
too lenient. They maintained that some carriers have been able to
satisfy the construction benchmarks by building out only in densely
populated metropolitan areas and along highways, leaving much spectrum
underutilized, and coverage relatively poor in some rural areas. For
example, many officials we spoke with in Minnesota maintained that
many rural areas of Minnesota, such as stretches of roads between
towns, lack wireless coverage because of lenient build-out
requirements and economic limitations to building out in these areas.
* Some stakeholders we interviewed, particularly small carriers and
consumer groups, said that a spectrum cap should be reinstituted in
some form, preventing carriers with large amounts of spectrum from
participating in certain auctions. According to these stakeholders,
limiting the amount of spectrum any one entity can hold in particular
markets can create opportunities for small and regional carriers to
obtain spectrum. In 2001, FCC began eliminating its practice of
spectrum caps in order to facilitate greater economic efficiencies.
While FCC told us it is difficult to identify the specific impact of
eliminating the caps, some stakeholders we spoke with said that it has
facilitated the consolidation of spectrum with the large national
carriers. Other stakeholders, particularly large national carriers,
maintained that spectrum caps were an artificial barrier to the growth
of the wireless industry. In particular, they noted that as the need
for more wireless capacity grows, networks require greater amounts of
spectrum. Therefore, a spectrum cap could stifle innovation by
precluding the deployment of next generation networks that provide
faster connections to the Internet, but require large contiguous
blocks of spectrum. Designing a practical spectrum cap could also be
challenging. Not all spectrum is of equal utility to wireless
carriers, since some frequencies travel farther distances and can
better penetrate buildings, making those frequencies more valuable
than others. Nevertheless, in response to the concerns of small
carriers and consumer groups, the Rural Telecommunications Group
petitioned FCC in 2008 to reimpose a spectrum cap (see figure 13 for
an illustration of this proposal). In October 2008, FCC sought
comments on the petition for rule making, and it continues to review
these comments.[Footnote 39] As the Congressional Research Service
recently reported, implementing spectrum caps as a tool for regulating
competition would represent a significant shift in policy for FCC,
were it to take that course.[Footnote 40]
Figure 13: Proposed Cap of Spectrum Below 2.3 GHz:
[Refer to PDF for image: horizontal bar graph]
Spectrum holdings: Currently licensed[A]: 372 MHz;
Spectrum holdings: Proposed cap: 110 MHz.
Source: GAO analysis of FCC data.
[A] This includes bands below 2.3 gigahertz (GHz) that potentially may
be used to provide mobile voice and data services: 50 megahertz (MHz)
of Cellular spectrum; 19 MHz of Specialized Mobile Radio spectrum; 120
MHz of Broadband Personal Communications Service spectrum; 90 MHz of
Advanced Wireless Services spectrum; 70 MHz of 700 MHz; 13 MHz in the
1.4 and 1.6 GHz bands; and 10 MHz at 1910-15/1990-95 MHz (currently
held by Sprint Nextel as a result of the 800 MHz Band Reconfiguration).
[End of figure]
* According to some stakeholders, including wireless carriers of
various sizes with whom we spoke, spectrum auction bidding credits
have been ineffective to date, partly as a result of their poor
implementation. Bidding credits are a percentage discount applied to
the high bid amount for a license if the bidder meets specific
designated entity criteria--designed to make spectrum available to new
entrants--established in the auction rules. Some stakeholders said
that, in the past, large national carriers have used entities eligible
for the credits as proxies, allowing eligible entities to win certain
licenses and then acquiring the desired licenses from them later. For
example, according to one small carrier with whom we spoke, a large
regional carrier used a proxy with bidding credits to secure many
spectrum licenses covering Iowa in a recent auction. This could result
in it being even more difficult for the small carriers in Iowa to
compete. In 2006, in part to address criticisms and concerns that
FCC's policies for awarding auction bidding credits were being
manipulated to allow larger entities to finance smaller businesses as
fronts to obtain access to spectrum at discounted rates, FCC
strengthened its rules. These changes were designed to better achieve
a balance between preventing the use of proxies and providing eligible
entities with reasonable flexibility to obtain needed financing from
investors.[Footnote 41] However, many midsized and regional carriers
cannot use these bidding credits because, according to one
stakeholder, they are not small enough to qualify, though they lack
the resources to make them competitive with large national carriers.
Finally, some new entrants into wireless markets have been unable to
effectively utilize their spectrum. One new carrier that won spectrum
licenses through its use of bidding credits declared bankruptcy
shortly after winning the licenses. The Supreme Court later ruled that
those licenses could not revert back to FCC to be reauctioned.
[Footnote 42]
Special Access Policies. Many stakeholders outside of the top national
carriers with whom we spoke expressed concern about the
competitiveness of the market for special access services, a critical
input for the provision of wireless services. Many wireless carriers
are reliant on the special access capacity of a single provider in
some markets in which they operate. In some cases, this provider is
also a competitor in the wireless industry. As noted above, starting
in 1999, FCC permitted the deregulation of special access rates in
metropolitan areas where local firms could show that certain
"competitive triggers" had been met. While competitors have entered
segments of the special access market with their own wireline
networks, our past work, as well as many stakeholders with whom we
spoke, noted that competition has not expanded significantly in the
wake of deregulation of special access markets.[Footnote 43] Indeed,
we previously reported that competitive alternatives for special
access have declined in some metropolitan areas since the removal of
price caps. As a result, according to some stakeholders with whom we
spoke, the current structure of the market for special access services
has a significant negative effect on competition in the wireless
industry, particularly for carriers that rely on other companies to
provide special access services. Some of these stakeholders told us
that they are charged high special access rates or provided
substandard service. However, industrywide data on the location,
quantity, and capacity of available special access facilities and
applicable rates are not consistently available, and would help to
provide a factual basis for the extent to which, or whether, wireless
competition is hindered by the market for these services.
According to some stakeholders with whom we spoke, there is a notable
lack of competition for special access in rural areas. However, it is
not clear whether the resulting high prices of special access services
in rural areas are due solely to the low population density and long
distances between facilities and, therefore, high costs of providing
the services, or whether they also reflect excessively high special
access prices as some parties have alleged. For example, stakeholders
with whom we spoke in northern California stated that special access
services can be of poorer quality for the incumbent's competitors, and
competitors pay five times as much for services from Humboldt County
to the city of Santa Rosa (north of San Francisco) as from Santa Rosa
to San Diego. Some carriers have opted to self-provision through
microwave backhaul facilities rather than use existing wireline
infrastructure. One carrier stated that they have a department that
seeks backhaul alternatives in each market due to the high special
access rates.
Some Stakeholders Noted that Consumer Switching Costs May be
Exacerbated by Particular Industry Practices:
A key element of competitive markets is that consumers will switch
among competitors in response to differences in services. In this
regard, competition that benefits wireless users depends upon the
likelihood that consumers can and will switch their service provider.
However, according to some small carriers and consumer groups with
whom we spoke, the process of switching wireless service providers can
be an expensive process that deters consumers who might otherwise
consider changing to a new carrier. Consumer switching costs,
generally defined as the actual or perceived costs that customers
associate with the process of changing from one carrier to another,
occur in many markets and for a variety of reasons. In examining this
issue, FCC has concluded that "consumers continue to pressure carriers
to compete on price and other terms and conditions of service by
freely switching providers in response to differences in the cost and
quality of service."[Footnote 44] FCC cited customer churn and the
implementation of wireless local number portability (LNP) as the basis
for its conclusion.[Footnote 45] Though LNP removed an important
impediment to switching wireless carriers, it does not necessarily
mean that customers are able to switch freely among carriers. Indeed,
some stakeholders with whom we spoke perceive early termination fees
and exclusive handset arrangements as creating such anticompetitive
switching costs. However, additional data are needed to fully assess
the extent to which consumers are hindered from moving between
wireless carriers.
Early Termination Fee Practices. Stakeholders with whom we spoke had
divergent views on the benefits and harms of ETF associated with
wireless service contracts, with some expressing concern about the
costs they impose on consumers. Some large national carriers
maintained that ETFs are essential for carriers to be able to offer
advanced handsets at lower upfront prices. Other stakeholders noted
that ETFs are important enforcement mechanisms for wireless contracts;
without such penalties, carriers would not be able to offer the latest
handsets at low upfront costs and would not be able to recoup their
handset subsidy costs. For example, the Nexus One, a smart phone
introduced in early 2010, was initially made available for $530
without a contract or for $180 for those signing a 2-year contract
with T-Mobile. As part of that contract, though, consumers were
initially subject to a $350 "equipment recovery fee" from Google and a
$200 fee charged by T-Mobile when breaking a contract within the first
few months of service. Google later lowered its fee to $150. Some
carriers have begun to prorate their ETFs. However, according to
consumer groups with whom we spoke, lengthy standard contracts
containing high ETFs present substantial obstacles for consumer
movement between carriers. Officials with whom we spoke in Iowa noted
that consumers are now facing higher than ever ETFs, which "take
people out of the market" by locking them in to specific carriers. One
consumer group with whom we spoke also noted that many consumers are
unaware when their contracts are renewed or whether they are even
under a contract. Similarly, our previous work suggested that some
wireless phone consumers have experienced problems with billing,
certain service contract terms, and customer service.[Footnote 46]
Specifically, our previous survey results indicated that about 34
percent of adult wireless phone users responsible for paying their
bill received unexpected charges and about 31 percent had difficulty
understanding their bill at least some of the time. Among wireless
users who wanted to switch carriers during this time but did not do
so, we estimated that 42 percent did not switch because they did not
want to pay an ETF.[Footnote 47] A recent FCC survey also found that a
majority of personal cell phone users said the ETF was at least
somewhat influential in keeping service with their current carrier.
Such obstacles can limit the choice and movement of consumers,
lessening the competitive pressure on these large carriers while also
making it difficult for small and regional carriers to secure new
subscribers. Several state consumer advocates with whom we spoke also
noted that consumers often are unaware of the ETFs they are subject
to, and generally find the terms and conditions of wireless contracts
confusing. FCC recently announced that it is exploring whether
wireless carriers should be required to warn subscribers when they are
incurring roaming charges or overage fees.[Footnote 48] Furthermore,
in response to specific concerns with Verizon's ETFs, FCC sent a
letter of inquiry to the company in fall 2009. Not satisfied with the
response, FCC sent out more letters in late January 2010 to the large
national wireless carriers and Google, asking for detailed information
and data on ETFs. FCC received responses in February 2010 and is
currently examining that information in preparation for a Notice of
Proposed Rulemaking dealing with a number of consumer issues,
including ETFs.
Exclusive Handset Practices. Stakeholders, particularly economists and
some large carriers, with whom we spoke maintain that exclusive
handset arrangements benefit consumers by facilitating innovation. For
instance, when a carrier can guarantee a particular sales volume to a
manufacturer, it facilitates that manufacturer's investments in
research and development. Carriers can also contribute to innovation
through direct collaboration with manufacturers on design elements.
Exclusive contracts may also help provide better services to consumers
by ensuring that carriers invest in specific facilities or human
capital needed to support new devices. Additionally, such deals, and
the close collaboration that results, may also facilitate the
coordination of marketing efforts and assurance of product quality.
Other stakeholders disputed the notion that carriers contribute much
to the innovation and quality of new wireless devices when entering
exclusive arrangements with manufacturers and said that such deals can
hinder competition. For example, one manufacturer stated that such
contracts only help them determine when they will enter the U.S.
market, as they conduct research independently and operate on a global
scale. According to some small carriers and other stakeholders,
exclusive handset deals are largely the result of the largest
carriers' ability to exploit their market power in the mobile wireless
market by requiring that device manufacturers enter into exclusive
arrangements. Others noted, though, that manufacturers can be the ones
to exert market power when offering popular and innovative devices
that carriers would like to offer. The lack of availability of
particular handsets to all consumers can also have the practical
effect of limiting competition, especially from small and regional
carriers, since these carriers are forced to offer handsets to
consumers that may not provide as much functionality as those offered
by the large national carriers. Finally, many consumer groups with
whom we spoke noted that such deals hinder consumer choice by limiting
particular handsets to specific carriers.
Local Government Policies Can Delay the Development of Wireless
Networks:
According to many national wireless carriers, tower companies, and
other stakeholders with whom we spoke, the most common barrier to
building out a wireless network is local zoning policies and
procedures which can delay or otherwise hinder the physical
construction and improvement of wireless networks. Wireless carriers
must generally obtain state and local zoning approvals before building
wireless towers or attaching equipment (co-location) to preexisting
structures. Although these zoning processes do not always pose a
challenge to wireless carriers and tower companies, in some instances
they can encumber buildout by denying zoning permits or by making the
process for constructing cellular towers and antennas cost
prohibitive. Many stakeholders with whom we spoke said that in
California, for example, there continues to be significant public
concern over the aesthetic and health impacts of wireless
infrastructure. As a result, locating wireless facilities can be
challenging in cities such as San Diego and San Francisco. Other
stakeholders told us that, as wireless networks have expanded into
residential areas, residents have raised concerns about aesthetics and
safety, making it difficult to provide the capacity necessary to serve
the growing demand for wireless services. Washington, D.C., and other
cities with unique or historic buildings and skylines can also impose
limitations on network build out, such as height restrictions on
towers.
Local jurisdictions with whom we spoke noted their obligation to
balance their communities' desire for wireless coverage with
aesthetic, historical, environmental, cultural, and health priorities.
While improved wireless coverage is a desire of many areas, the
perceived impacts of wireless infrastructure and services can be
concerns of local residents. Such concerns can, in some cases,
outweigh the benefits of wireless coverage, particularly when there
are other options for locating infrastructure.
Local governments and wireless entities have generally been able to
reach agreements on the conditions of wireless network construction,
despite the challenges noted above. Some local jurisdictions have
developed ordinances specifically for wireless infrastructure in order
to make their preferences and requirements clear to carriers and tower
companies. Carriers have also developed and adopted a variety of
disguising or "stealthing" technologies that help mask towers and
other infrastructure. Figure 14 shows a stealth tower in Eureka,
California, where the antennas were hidden inside a bell tower on
church grounds. In San Francisco, to avoid aesthetic concerns and
procedural challenges, wireless carriers have developed Distributed
Antenna Systems in recent years. Instead of using large towers or
antennas on buildings, these systems involve a series of small
antennas, deployed low to the ground, often on utility poles, that
together provide wireless coverage.
Figure 14: Disguised Cellular Tower in Eureka, California:
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
Some wireless carriers and tower companies maintained that national
efforts, to date, to facilitate the siting of wireless infrastructure
have been of limited utility. The National Broadband Plan noted that
securing rights to telecommunications infrastructure is often a
difficult and time-consuming process that discourages private
investment. It calls for the government to do more to reduce the costs
incurred by private industry when using public infrastructure. To
encourage the expansion of wireless networks, Congress has required
local jurisdictions to act "within a reasonable period of time" on
zoning requests.[Footnote 49] FCC recently defined time frames for
such action on wireless facilities siting requests, while also
preserving the authority of states and localities to make the ultimate
determination on local zoning and land use policies.[Footnote 50] This
"shot clock" ruling found that a "reasonable period of time" for a
state or local government to act on a personal wireless service
facility siting application is 90 days for infrastructure being placed
on existing structures and 150 days for new facility applications.
State or local governments must also declare an application "complete"
within 30 days. The lack of a decision within these time frames
constitutes a "failure to act," based on which a wireless carrier may
commence an action in court. However, this recourse can be very
expensive, according to some stakeholders. Some stakeholders praised
this ruling, but said that they expected it to have little impact,
either because local processes already fell within these time limits
or because local jurisdictions would find other ways to delay or deny
wireless infrastructure applications. Some local jurisdictions also
noted that the ruling fails to recognize the role carriers play in
delays and challenges associated with infrastructure. For example,
inflexibility on the part of carriers or incomplete applications can
hinder zoning decisions.
Challenges to wireless network buildout in rural areas tend to be more
financial than procedural. For example, most of the local government
officials with whom we spoke in West Virginia said that they encourage
co-location of wireless antennas on existing structures, as this
process is simpler and less disruptive than building a new tower.
However, they and others in rural markets maintained that, in general,
they welcomed new wireless facilities and the coverage they bring. In
Red Lake County, Minnesota, companies can simply build towers where
they want because the county, and its cities and townships, have no
ordinances or procedures for tower construction. Nevertheless, many
local government and other officials with whom we spoke in rural areas
said that a major challenge for building wireless networks in these
areas is the cost. Constructing and maintaining the infrastructure can
be cost prohibitive due to low population density, difficult
topography, or lack of existing infrastructure such as power sources
and wireline infrastructure. In West Virginia, for instance, one of
the biggest issues limiting the provision of wireless service is the
mountainous terrain, because most wireless service depends on line-of-
sight. Two carriers told us that, in effect, they subsidize this
infrastructure with revenues generated in metropolitan areas. When it
is not possible or desirable for a carrier to build out in these
areas, coverage can be inconsistent or nonexistent. To address this
challenge, the state of West Virginia, for example, has established a
fund for subsidizing wireless infrastructure projects in underserved
areas. Subsidies from the Universal Service Fund High-Cost program,
which helps carriers provide services to rural and high-cost areas,
have also helped some wireless carriers provide services in
unprofitable areas, according to some stakeholders. For example, one
carrier with whom we spoke said that these subsidies have made it
possible for it to build out its network in rural Iowa. Without such
funds, the infrastructure in these areas would not be sustainable.
FCC Employs Various Strategies to Monitor Competition in the Industry,
but Its Annual Report Is Missing Some Data on Inputs and Outputs:
FCC uses three strategies to oversee and monitor competition in the
wireless phone industry: its annual wireless competition report to
Congress, its review of proposed mergers, and its investigations of
competitive complaints. The primary tool that it uses is the annual
mobile wireless competition report, which relies on limited data
sources and does not assess some industry inputs and outputs. In
assessing mergers, FCC balances potential public interest benefits and
harms. Generally in response to complaints, FCC has also undertaken a
variety of investigations and inquiries related to competitive
challenges.
FCC Conducts Annual Reviews of Competition Based Primarily on Third-
Party Data, But Does Not Collect or Assess Detailed Data on Some
Inputs and Outputs:
In the Omnibus Budget Reconciliation Act of 1993, Congress established
the promotion of competition as a fundamental goal for wireless policy
formation and regulation. To measure progress toward this goal, the
1993 Act required FCC to submit an annual report that analyzes
competitive conditions in the wireless industry.[Footnote 51] This
report remains 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. As discussed above, the cost and
challenges associated with investments, including special access,
capital expenditures, and equipment, could affect the prices charged
to consumers and the number of competitors in the wireless industry.
[Footnote 52] For its latest annual report, released in May 2010, FCC
undertook a process that significantly improved its report.[Footnote
53] For example, FCC based its analysis of competitive market
conditions on a range of indicators, including some new data on
"downstream segments" of the industry, such as spectrum and equipment.
However, FCC collects little original data on some industry inputs and
consumer switching costs, generally using third-party data to report
on industrywide trends. This hinders FCC's ability to examine the
extent of competition in specific markets and sections of the
industry. By collecting and analyzing more detailed data on industry
outputs (such as prices) and inputs (such as special access rates),
FCC could better assess competition in the wireless industry. Indeed,
the recently released National Broadband Plan calls for collecting,
analyzing, benchmarking, and publishing "detailed, market-by-market
information on broadband pricing and competition."
We identified four industry measures that lack original data
collection on the part of FCC:
* Prices. As discussed earlier, the prices of wireless voice, text,
and data services are indicators of competition. As noted above, the
Consumer Price Index indicates that wireless prices have generally
declined since the late 1990s. However, this industrywide data masks
variations in wireless plan prices. A more detailed analysis of prices
charged could help better measure competition and efficiency in the
market.
* Special Access. Rates for special access are a significant expense
for wireless carriers because connections to backhaul provided by
special access are an integral component of wireless networks. While
FCC acknowledges that it has authority to collect special access rate
data, it does not regularly monitor and measure the development of
competition for special access.[Footnote 54] However, FCC is examining
the current state of competition for special access services to
determine the level of competition and ensure that rates for these
services are just and reasonable.[Footnote 55] To the extent rates are
not just and reasonable, special access may serve as a barrier to
entry and growth for some wireless carriers. As noted above, the
current structure of the market for special access services may have
significant negative effect on competition in the wireless industry.
Without data on these rates, it is difficult to assess the extent to
which the special access market creates barriers to entry and growth.
* Capital Expenditures. Without better information on carrier
investment in networks and innovation, it is difficult to determine
whether markets are truly competitive and growing, or dominated by
large carriers facing little competitive pressure to invest.
Additionally, better data on capital expenditures could help identify
underserved areas, such as rural markets receiving little new wireless
construction.
* Devices and Equipment. Because the cost and availability of this
equipment is a challenge for small and regional carriers, it may
create barriers to entry and growth since these are critical inputs to
the industry. Obtaining more data to gain a better understanding of
the role equipment costs and ETFs play in making carriers competitive
and hindering customers' movement between carriers is important.
In the past, FCC has generally not collected data on many industry
investments and metrics because of the complexity and burden
associated with gathering this data from wireless carriers.
Additionally, FCC has generally taken a deregulatory approach to the
industry, imposing few reporting requirements on wireless carriers.
FCC officials stated that they must balance the benefit of collecting
detailed industry data with the burden it places on carriers.
Nevertheless, in August 2009, FCC released a Notice of Inquiry on its
annual mobile wireless competition report seeking to expand and
enhance its analysis of competitive conditions, both to improve its
assessment of the current state of competition in the entire mobile
wireless marketplace and to better understand the net effects on the
American consumer.[Footnote 56] FCC received a variety of comments
from industry stakeholders and incorporated new data into the latest
mobile wireless competition report on spectrum holdings, wireless
usage (including messaging and data services), devices, and
expenditures. FCC has also undertaken ad hoc inquiries, described
later, that have resulted in some original data collection. These
actions illustrate that FCC is rethinking the relative benefits and
costs of data collection. However, FCC still lacks detailed data on
prices charged and costs incurred by wireless carriers. Without such
information, FCC is missing important information that can shed light
on the state of competition in the wireless industry, which can
ultimately lead to missed opportunities to protect and enhance
consumers' experience in the market.
FCC Considers Potential Benefits and Harms to the Public Interest When
Assessing Mergers:
In evaluating proposed mergers involving transfers of control of
spectrum licenses, FCC conducts a "public interest" inquiry to assess
whether the public interest, convenience, and necessity will be served
by a proposed merger as part of its duties to monitor the wireless
industry. The public interest inquiry is informed by, but not
restricted to, traditional antitrust principles.[Footnote 57]
According to FCC officials, through this test, it seeks to understand
how the transaction will benefit the public. More specifically, FCC
first assesses whether the proposed transaction complies with the
specific provisions of the Communications Act, other applicable
statutes, and the Commission's rules. If the transaction does not
violate a statute or rule, FCC next considers whether it could result
in public interest harms. FCC then employs a balancing test weighing
any potential public interest harms of the proposed transaction, such
as a reduction in the number of competitors in a particular market,
against any potential public interest benefits, such as enhanced
wireless coverage and efficiencies. Under the Commission's review, the
burden is on the applicants to show that the transaction will serve
the public interest. FCC's public interest evaluation includes, among
other things, a preference for preserving and enhancing competition in
relevant markets, accelerating private sector deployment of advanced
services, promoting a diversity of license holders, and generally
managing the spectrum in the public interest. As part of its
considerations, FCC puts all proposed mergers out for public comment.
FCC is able to attach conditions to approved mergers.[Footnote 58]
Such conditions are tailored to address the anticipated public
interest harms based on economic analysis, examination of documents
submitted in response to FCC inquiry, and public comments contained in
the record. The conditions can include divestiture of spectrum
licenses in particular markets or other requirements designed to
mitigate public interest harms. For example, while FCC approved AT&T's
acquisition of Centennial in November 2009, it concluded that the
"transaction would likely pose significant competitive harms in seven
local mobile telephony/broadband services markets" and that these
"potential harms would not be outweighed by the proposed transaction's
alleged public interest benefits."[Footnote 59] FCC required AT&T and
Centennial to divest Centennial's assets in those seven markets. The
Commission also required that AT&T honor all of Centennial's existing
roaming services agreements with other carriers.
FCC enforces merger conditions in various ways. To ensure proper
divestiture of assets, FCC imposes time limits on the sale of spectrum
licenses. It also individually reviews and approves these
transactions. FCC officials told us that, to date, all such
applications have been approved. When other requirements are imposed,
such as roaming conditions, FCC relies on complaints from wireless
carriers to identify failures to comply with merger conditions. One
regional carrier with whom we spoke noted that roaming conditions
placed on a carrier they worked with were not being honored in a
timely manner, creating challenges for its business in a particular
area. While the carrier said that it brought this issue to the
attention of FCC, the Commission maintained that it received no
complaints concerning this matter.
FCC Has Undertaken a Variety of Investigations of Competitive
Challenges:
A third means by which FCC monitors competition is its ability to
conduct investigations of practices that may affect competition in the
wireless industry, as well as resulting enforcement actions. These
investigations can be self-initiated or undertaken in response to
complaints from consumers or the industry. FCC Enforcement Bureau
officials told us that they worked on over 2,300 wireless-related
investigations between January 2008 and April 2010. Most of these
investigations were based on complaints, though about 8 percent were
self-initiated and about 12 percent were referrals from other FCC
bureaus. Such investigations can involve technical issues such as
spectrum interference, as well as anticompetitive practices and
consumer concerns. These investigations can result in actions against
specific entities or findings of no harm caused. While it cannot
conduct investigations itself, the FCC Wireless Bureau has carried out
requests for information in order to determine whether investigations
or rule makings are needed. As noted above, FCC is currently examining
information collected about ETFs in preparation for a Notice of
Proposed Rulemaking.
Conclusions:
FCC's annual mobile wireless competition report is the main vehicle by
which it monitors the wireless industry; as such, it is the primary
source of information and analysis of competition in the retail market
for consumers and wholesale markets for carriers. Concerns have been
raised about the competitiveness of these markets in recent years, and
changes in the industry such as consolidation have created new issues
and challenges for consumers and carriers. Recognizing these concerns
and changes, FCC recently undertook a process that significantly
improved its annual mobile wireless competition report. However, FCC
could do more to examine whether or not there is effective competition
in the wireless industry. By collecting and analyzing more detailed
data on industry inputs and outputs that reflect industry dynamics,
FCC could better assess competition conditions throughout the
industry. Specifically, FCC could collect more detailed data on such
issues as prices, special access rates, and capital expenditures and
include analysis of that information in its annual report. These
metrics help measure the competitiveness of small and regional
carriers, can shed light on the impact of switching costs for
consumers, and are, therefore, relevant to monitoring competition in
the industry. Despite challenges and costs in gathering these data,
such information could help FCC better fulfill statutory reporting
requirements. With consumers increasing reliance on wireless services
as their primary telephone and Internet connection, more is needed to
ensure that FCC and the Congress have sufficient information to make
policy decisions concerning the wireless industry.
Recommendation for Executive Action:
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 Comments:
We provided a draft of this report to FCC for its review and comment.
FCC took no position on our recommendation but provided technical
changes which were incorporated as appropriate.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from the date of this letter. The report also is
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are
listed in appendix II.
Signed by:
Mark L. Goldstein:
Director, Physical Infrastructure:
List of Requesters:
The Honorable John D. Rockefeller, IV:
Chairman:
Committee on Commerce, Science, and Transportation:
United States Senate:
The Honorable Henry A. Waxman:
Chairman:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Rick Boucher:
Chairman:
Subcommittee on Communications, Technology, and the Internet:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Daniel K. Inouye:
United States Senate:
The Honorable Amy Klobuchar:
United States Senate:
The Honorable Ron Wyden:
United State Senate:
The Honorable Edward J. Markey:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To determine the ways in which the industry has changed since 2000, we
identified and analyzed quantitative data from a commercial database
purchased from SNL Kagan, as well as data from the Bureau of Labor
Statistics, UBS Investment Research's March 2010 Wireless 411 report,
and the year-end 2009 CTIA semiannual survey of wireless carriers. Due
to the proprietary nature of some information about the wireless
industry and specific carriers, we were limited in the data we could
collect and publish. Where there were data available from multiple
sources, we combined data (noted in the figures) to provide as
complete a picture of changes in the industry as possible. We first
determined, however, whether there were any inconsistencies between
the data sets. Working with a design methodologist we developed a
decision rule to use when attempting to combine data from the
different data sets. If there were inconsistencies but the percentage
difference was below 10 percent, we combined the data; if the
difference exceeded 10 percent we did not use the secondary data set.
We took several steps to ensure the reliability of the data including
determining where the original data came from, and the procedures and
controls for ensuring the accuracy of the data available. As our
primary data source, we also obtained a copy of SNL Kagan's data
collection procedures. As part of our data reliability assessment, we
found that the multiple data sets corroborated each other and all of
the data to be sufficiently reliable for our purposes. To complement
the quantitative data, we analyzed public comments submitted in
response to the Federal Communications Commission's (FCC) August 2009
Notice of Inquiry on the annual mobile wireless competition report.
To determine the implications of industry changes on consumers and
competition, as well as stakeholders' perceptions of the effect of
various industry practices and regulatory policies, we interviewed a
variety of stakeholders. These stakeholders included FCC Wireless
Telecommunications, Wireline Competition, and Enforcement Bureau
officials, device manufacturers, tower companies, industry
associations, consumer groups, and academic and industry experts. We
also interviewed the top seven wireless carriers, by subscribers,
smaller carriers operating in or near our case study markets, and some
regional carriers recommended to us by experts and associations. These
stakeholders are listed table 1; this list does not include government
officials with whom we spoke, such as FCC representatives and local
planning departments. Many of these stakeholders, as well some our
internal stakeholders, provided us with relevant literature on the
wireless industry, including studies of spectrum policies and handset
exclusivity.
Table 1: Stakeholders Interviewed for this Report:
Consumer groups:
AARP.
Consumers Union.
Free Press.
Media Access Project.
Public Knowledge.
The Utility Reform Network.
Wireless industry associations:
ACG - Associated Carrier Group.
CTIA - The Wireless Association.
NTCA - National Telecommunications Cooperative Association.
PCIA - The Wireless Infrastructure Association.
RCA - Rural Cellular Association.
RTG - Rural Telecommunications Group.
WCAI - Wireless Communications Association International.
Wireless phone service carriers:
AT&T.
Cellular One of East Central Illinois.
Cellular South.
Chat Mobility.
Garden Valley Telephone Company (Telispire).
Gardonville Cooperative Telephone Association (GC Cellular).
Golden State Cellular.
Leap Wireless (Cricket).
MetroPCS.
nTelos.
Premier Communications.
Sprint Nextel.
T-Mobile.
Verizon.
U.S. Cellular.
Tower companies:
Crown Castle.
Global Tower Partners.
Milestone Communications.
Device manufacturers and network operators:
Cisco.
Ericsson.
FiberTower.
Google.
Research institutions:
Center for Business and Public Policy at Georgetown University.
Columbia Institute for Tele-Information.
Information Economy Project at George Mason University.
Information Sciences Institute.
Phoenix Center.
Source: GAO interviews.
[End of table]
We also conducted case studies in both an urban and rural cellular
market area in four states as well as the District of Columbia (see
table 2). In these case study markets, we spoke with regional
representatives of some large carriers and tower companies, city and
county government officials, state utility commissions and consumer
groups, telecommunications and economic development experts, and some
small wireless carriers. Because local jurisdictions do not have the
authority to regulate wireless services, our case study interviews
primarily focused on tower permitting processes and officials'
perceptions of the local manifestation of national trends in areas
such as consolidation and special access services.
Table 2: Cellular Market Areas (CMA) Used as Case Studies:
CMA: San Francisco-Oakland, Calif. (CMA#7);
Constituent counties: Alameda, Contra Costa, Marin, San Francisco, San
Mateo;
Major cities: Berkeley, Oakland, San Francisco.
CMA: Washington, D.C. (CMA#8);
Constituent counties: Arlington (Va.), Charles (Md.), Fairfax (Va.),
Loudoun (Va.), Montgomery (Md.), Prince George's (Md.), Prince William
(Va.);
Major cities: Alexandria, Washington.
CMA: Minneapolis-St. Paul, Minn. (CMA #15);
Constituent counties: Anoka, Carver, Chisago, Dakota, Hennepin,
Ramsey, Scott, St. Croix (Wis.), Washington, Wright;
Major cities: Minneapolis, St. Paul.
CMA: Des Moines, Iowa (CMA #102);
Constituent counties: Dallas, Polk, Warren;
Major cities: Des Moines.
CMA: Charleston, W.Va. (CMA #140);
Constituent counties: Kanawha, Putnam;
Major cities: Charleston.
CMA: Del Norte, Calif. (CMA#336);
Constituent counties: Del Norte, Humboldt, Siskiyou, Trinity;
Major cities: Arcata, Eureka, McKinleyville.
CMA: Lyon, Iowa (CMA#427);
Constituent counties: Cherokee, Lyon, O'Brien, Osceola, Plymouth,
Sioux;
Major cities: Cherokee, Le Mars, Orange City.
CMA: Kittson, Minn. (CMA #482);
Constituent counties: Kittson, Marshall, Pennington, Red Lake, Roseau;
Major cities: Roseau, Thief River Falls.
CMA: Mason, W.Va. (CMA #701);
Constituent counties: Calhoun, Jackson, Mason, Roane;
Major cities: Point Pleasant, Ripley.
Source: GAO analysis and interviews.
[End of table]
The case study sites were selected based on the following criteria:
* Population (to identify sparsely and densely populated areas);
* Number of competing carriers (to identify areas with many and few
competing carriers);
* Number of carriers receiving Universal Service Fund High-Cost
program subsidies (to identify areas with few eligible
telecommunications carriers and many); and:
* Suggestions from experts (to utilize their understanding of unique
challenges in different regions of the country).
The case studies are illustrative examples that provide in-depth
descriptive information about challenges identified through other
sources. Because the case study selection is based on a nonprobability
sample, they cannot be generalized to all cellular market areas.
To determine the strategies employed to oversee and monitor
competition, we interviewed FCC Enforcement, Wireless, and Wireline
Competition Bureau officials about what strategies they use to monitor
and oversee competition. We also met with the Department of Justice
Antitrust Division officials to discuss their specific role in the
oversight of competition in the wireless industry. Furthermore, we
interviewed the stakeholders mentioned above about the impact of FCC's
current strategies to oversee and monitor competition in the industry.
In addition to interviews, we reviewed relevant portions of the 1993
Omnibus Budget Reconciliation Act and the 1996 Telecommunications Act.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Michael Clements, Assistant
Director; Pedro Almoguera; Kyle Browning; Swati Deo; Colin Fallon;
David Hooper; Sara Ann Moessbauer; and George Quinn made key
contributions to this report.
[End of section]
Footnotes:
[1] For the purposes of this report, the term "wireless phone service"
includes the provision of such service by cellular, broadband personal
communications service, and digital specialized mobile radio carriers.
Federal law and FCC regulations refer to wireless phone service as
"commercial mobile service" or "commercial mobile radio service." This
service may generally be referred to as wireless phone service, mobile
phone service, or cellular (or cell) phone service interchangeably.
[2] FCC, Connecting America: The National Broadband Plan (Washington,
D.C., March 2010).
[3] For the purposes of this report, "broadband" refers to advanced
communications systems capable of providing high-speed transmission of
services such as data, voice, and video over the Internet and other
networks. Transmission is provided by a wide range of technologies,
including digital subscriber line and fiber optic cable, coaxial
cable, wireless technology, and satellite. Broadband platforms make
possible the convergence of voice, video, and data services onto a
single network.
[4] GAO, Telecommunications: FCC Needs to Improve Oversight of
Wireless Phone Service, [hyperlink,
http://www.gao.gov/products/GAO-10-34] (Washington, D.C.: Nov. 10,
2009). In this report, we recommended that FCC improve its outreach to
consumers about its complaint process, related performance goals and
measures, and monitoring of complaints. We also recommended FCC
develop policies for communicating with states and develop guidance on
federal and state oversight roles, seeking statutory authority from
Congress if needed. FCC noted actions that began to address most of
the recommendations.
[5] These states were California, Iowa, Minnesota, and West Virginia.
For more information on the specific markets, see appendix I.
[6] The USF was designed to ensure that all Americans have access to
affordable telecommunications services. All telecommunications
carriers, and other entities providing interstate telecommunications
services, are required to contribute to federal universal service,
unless exempted by FCC. 47 U.S.C.§254. The USF is subdivided into four
programs, including the High-Cost program, which provides financial
support to carriers operating in high-cost--generally rural--areas in
order to offset their costs, thereby allowing these carriers to
provide rates and services that are comparable to the rates and
services that customers in low-cost--generally urban--areas receive.
[7] Electromagnetic spectrum is the medium that enables wireless
communications of all kinds, including mobile phone and paging
services, radio and television broadcasting, radar, and satellite-
based services.
[8] In the United States there are two main technological standards
used for wireless telephony: Global System for Mobile Communication
(GSM) and Code-Division Multiple Access (CDMA). They are technical
interface systems used for routing calls through the wireless network.
[9] Special access services are dedicated, point-to-point, high
capacity transmission services provided by Incumbent Local Exchange
Carriers (ILEC), which are subject to FCC regulation. While special
access circuits leased from ILECs are the most common method of
accessing backhaul, wireless carriers also use other methods to
connect their wireless infrastructure to the telephone network, such
as wireless backhaul (e.g., microwave antennas).
[10] Throughout this report, we refer to AT&T, Sprint, T-Mobile, and
Verizon as the "large national carriers." We refer to AT&T and Verizon
as the "top national carriers." Small and regional carriers include
all carriers outside the large, national carriers, such as Cellular
South, nTelos, and U.S. Cellular.
[11] Inquiry Into the Use of the Bands 825-845 MHz and 870-890 MHz for
Cellular Communications Systems; and Amendment of Parts 2 and 22 of
the Commission's Rules Relative to Cellular Communication Systems,
Report and Order, 86 FCC 2d 469 (1981).
[12] GAO, Telecommunications: Concerns About Competition in the
Cellular Telephone Industry, [hyperlink,
http://www.gao.gov/products/GAO/RCED-92-220] (Washington, D.C.: July
1, 1992).
[13] Pub. L. No. 103-66, 107 Stat. 312 (1993).
[14] Pub. L. No. 104-104, 110 Stat. 56 (1996).
[15] 47 U.S.C. §332(c)(3).
[16] 47 U.S.C. §160.
[17] 47 U.S.C. §161.
[18] 47 C.F.R. §20.6 (1994). 59 Fed. Reg. 59953, Nov. 21, 1994.
[19] 2000 Biennial Regulatory Review Spectrum Aggregation Limits for
Commercial Mobile Radio Services, Report and Order, 16 FCC Rcd 22668
(2001).
[20] Policy and Rules Concerning Rates for Dominant Carriers, Second
Report and Order, 5 FCC Rcd 6786, 6818-20 (1990).
[21] Access Charge Reform, Fifth Report and Order and Further Notice
of Proposed Rulemaking, 14 FCC Rcd 14221 (1999) (Pricing Flexibility
Order).
[22] The metrics used in this section to discuss changes in the
industry, such as market share, penetration rate, and churn rate, are
commonly used to discuss the state of competition in the wireless
telephone industry. Measures of these changes were recommended by a
variety of stakeholders with whom we spoke. While some stakeholders
also recommended other indicators, such as profit, we did not include
those here because we were limited by the information to which we had
access.
[23] Based on FCC data as of December 2003, the average value of the
HHIs weighted by Economic Area population was 2151. The HHI in 2008,
the latest figure available, was 2848.
[24] Cingular's mobile phone service was marketed under the AT&T brand
beginning in 2005.
[25] One of these licenses was an original cellular license that was
obtained by AT&T, while two were acquired through secondary market
transactions.
[26] Applications of Cellco Partnership d/b/a Verizon Wireless and
Atlantis Holdings LLC For Consent to Transfer Control of Licenses,
Authorizations, and Spectrum Manager and De Facto Transfer Leasing
Arrangements and Petition for Declaratory Ruling that the Transaction
is Consistent with Section 310(b)(4) of the Communications Act,
Memorandum Opinion and Order and Declaratory Ruling, 23 FCC Rcd 17444
(2008).
[27] The total U.S. telephone penetration rate, including cell phones
and wireline phones, was about 96 percent in 2009 (FCC, Telephone
Subscribership in the United States, Industry Analysis and Technology
Division, Wireline Competition Bureau, February 2010). It is possible
for the wireless penetration rate to exceed 100 percent, given that
some individuals have multiple devices.
[28] California Public Utilities Commission, Communications Division -
Policy Branch, Market Share Analysis of Residential Voice
Communications in California, Staff White Paper (San Francisco,
Calif., December 2008).
[29] When a wireless signal reaches a handset, it passes through a
"chipset" (i.e., a set of microchips) where it is electronically
processed and presented to the subscriber as a sound signal.
[30] The UBS Wireless 411 Report capital expenditure figures are
compiled from industry-reported data. Capital expenditure figures,
therefore, include network investment, labor expenses, and capitalized
interest.
[31] 3G is the third generation of wireless technology standards that
allows faster speeds than previous generation standards; it allows
voice, text, multimedia applications, and data services. 4G is the
fourth generation technology standard; while allowing voice and data
applications and services, all traffic on 4G networks (unlike its
predecessors) will move through Internet-based networks--including
voice.
[32] As a result of a survey of adult wireless phone users, a 2009 GAO
study of the quality of wireless services found that approximately 85
percent of wireless phone users are very or somewhat satisfied with
their call quality. Additionally, the study estimated that 86 to 89
percent of wireless phone users are satisfied with their voice
coverage when using their wireless phones at home, at work, or in
their vehicle. See [hyperlink, http://www.gao.gov/products/GAO-10-34].
[33] According to other industry data, the average monthly bill has
remained relatively stable since 2000, not adjusting for inflation.
This survey data, though, does not take into account changes in the
services provided for the average bill.
[34] All mobile calling plans specify a calling area-such as a
particular metropolitan area, the provider's entire network, or the
entire United States-within which the subscriber can make a call
without incurring additional charges. When subscribers exit this area,
or "roam," they may incur additional charges for each minute of use,
each text message sent, or each time they access the Internet.
[35] In two recent auctions, FCC implemented procedures that allow
entities to group together smaller licenses into larger blocks. This
process was created, in part, in response to the inability of FCC to
know the most efficient size of spectrum licenses in advance of the
auctions.
[36] According to recent FCC analysis, five carriers together hold
more than 80 percent of spectrum that is suitable for the provision of
mobile wireless services.
[37] FCC noted in the past that such "liberal" construction
requirements were appropriate because they provided spectrum license
holders needed flexibility, and that such minimum construction
requirements can "promote efficient use of the spectrum; encourage the
provision of service to rural, remote and insular areas; and prevent
the warehousing of spectrum." At the time of the auction, substantial
service was defined as service which is sound, favorable, and
substantially above a level of mediocre service which just might
minimally warrant renewal. Amendment of the Commission's Rules to
Establish Part 27, the Wireless Communications Service ("WCS"), Report
and Order, 12 FCC Rcd 10785 (1997) (WCS Report and Order).
[38] FCC monitors whether licensees are complying with build-out
requirements by requiring licensees to submit periodic reports
regarding the state of build-out and whether the applicable
requirements were met. Since 1994, 6 percent of licenses have been
terminated due to licensees' failure to meet construction benchmarks.
[39] Comment on Petition for Rulemaking of Rural Telecommunications
Group, Inc. to Impose a Spectrum Aggregation Limit on All Commercial
Terrestrial Wireless Spectrum Below 2.3 GHz, Public Notice, 23 FCC Rcd
14875 (2008).
[40] Congressional Research Service, Spectrum Policy in the Age of
Broadband: Issues for Congress (Washington, D.C., Feb. 3, 2010).
[41] There is a pending court challenge to the 2006 modifications. In
addition, at FCC, there are pending petitions for reconsideration of
those amendments and an open Further Notice of Proposed Rulemaking on
the bidding credit rules.
[42] FCC v. Nextwave Personal Communications, Inc., 537 US 293 (2003);
the Supreme Court held that FCC was a creditor in this case, and under
bankruptcy law, could not revoke Nextwave's licenses simply because of
nonpayment.
[43] GAO, Telecommunications: FCC Needs to Improve Its Ability to
Monitor and Determine the Extent of Competition in Dedicated Access
Services, [hyperlink, http://www.gao.gov/products/GAO-07-80]
(Washington, D.C.: Nov. 29, 2006).
[44] Annual Report and Analysis of Competitive Market Conditions With
Respect to Commercial Mobile Service, Ninth Report, 19 FCC Rcd 20597
(2004).
[45] Wireless LNP is a wireless consumer's ability to change service
providers within the same local area and still keep the same phone
number.
[46] [hyperlink, http://www.gao.gov/products/GAO-10-34].
[47] We estimated that about 19 percent of wireless users wanted to
switch carriers during 2008 and early 2009 but did not do so. The 42
percent of these wireless phone users who wanted to switch but did not
because of the ETF has a margin of error +/-7.4 percent. Additionally,
among the wireless users who did not indicate they were satisfied with
the terms of their wireless phone service, we estimate that 25 percent
were not satisfied because of ETFs. Wireless users were asked about
their satisfaction with the terms of their service in general, not
specifically since the beginning of 2008. The margin of error for the
estimate of wireless phone users who were not satisfied with the terms
of their service because of early termination fees is +/-6.7 percent.
[48] Comment Sought on Measures Designed to Assist U.S. Wireless
Consumers to Avoid "Bill Shock," Public Notice, DA-10-803, 2010 FCC
Lexis 2905 (CGB rel. May 11, 2010).
[49] 47 U.S.C. §332(c)(7)(B)(ii).
[50] Petition for Declaratory Ruling to Clarify Provisions of Section
332(c)(7)(B) to Ensure Timely Siting Review and to Preempt Under
Section 253 State and Local Ordinances that Classify All Wireless
Siting Proposals as Requiring a Variance, Order, 25 FCC Rcd 1215
(2009).
[51] Section 6002 of the Omnibus Budget Reconciliation Act of 1993,
Pub. L. No. 103-66, 107 Stat. 393 (1993).
[52] As FCC itself noted, its overall framework proceeds from the
premise that indicators of market structure such as the number of
competitors and their market shares are not, by themselves, a
sufficient basis for determining whether there is effective
competition, and whether any of the competitors have a dominant share
of the market for commercial mobile services.
[53] Annual Report and Analysis of Competitive Market Conditions With
Respect to Mobile Wireless, Including Commercial Mobile Services,
Fourteenth Report, FCC 10-81 (rel. May 20, 2010).
[54] In our previous work, we noted that the data necessary for FCC to
effectively analyze trends in special access competition were not
provided by incumbents, competitors, and special access customers.
Furthermore, the information that has been provided is of limited
reliability, coming from parties that would directly profit from
further deregulation or regulation. See [hyperlink,
http://www.gao.gov/products/GAO-07-80].
[55] Parties Asked to Comment on Analytical Framework Necessary to
Resolve Issues in the Special Access NPRM, Public Notice, 24 FCC Rcd
13638 (2009). FCC officials told us that they plan to issue a Notice
of Proposed Rulemaking on special access issues no later than the
fourth quarter of 2010.
[56] 24 FCC Rcd 11357, Aug. 27, 2009.
[57] FCC's public interest test is based on its statutory authority
under the 1996 Act, 47 U.S.C. §214 and §310. The Department of Justice
Antitrust Division assesses proposed mergers to determine whether they
would specifically violate sections 1 and 2 of the Sherman Act, 15
U.S.C. §§1 and 2 and section 7 of the Clayton Act (15 U.S.C. §18).
[58] 47 U.S.C. §310(d).
[59] Applications of AT&T Inc. & Centennial Communications Corp., For
Consent to Transfer Control of Licenses, Authorizations, and Spectrum
Leasing Arrangements, Memorandum Opinion and Order, 24 FCC Rcd 13915
(2009).
[End of section]
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