Concerns About Competition in the Cellular Telephone Service Industry

RCED-92-220: Published: Jul 1, 1992. Publicly Released: Jul 21, 1992.

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Pursuant to a congressional request, GAO provided information on the competitive structure of the cellular telephone service industry, focusing on: (1) the Federal Communications Commission's (FCC) oversight of the industry; and (2) prospects for additional or enhanced competition.

GAO found that: (1) a 1981 FCC order provided for 2 licenses, one reserved for firms not affiliated with land-line telephone carriers, and one reserved for the local telephone company, in each of 734 market areas; (2) there is no evidence of anticompetitive or collusive activities in the industry, although the two-carrier system provides only limited competition in certain market areas; (3) limited entry opportunities, multiple ownership patterns, and the lack of acceptable substitutes decrease competitive opportunities; (4) although price uniformity does not necessarily indicate noncompetitive markets, carriers in the same market area frequently offer similar prices for similar services; (5) although many carriers are currently experiencing negative cash flows, income trends indicate that the industry should be profitable in the long run; (6) neither FCC nor the states thoroughly monitor, assess, or collect data on industry competition; (7) technological advances could bring new personal communication services into the market and increase competition; (8) FCC is developing a licensing policy for bringing such new services into the market, and recent FCC licensing actions have established additional competition in some market areas; and (9) since it has already allocated most of the radio spectrum that is suitable for personal communications services, FCC has proposed reallocating portions of the spectra reserved for other purposes, but some incumbent users have expressed strong concern about potential disruptions in their activities.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FCC has adopted rules to conduct auctions for the award of more than 2,000 licenses to provide personal communications services (PCS). It will provide a variety of mobile services that will compete with existing cellular services. Between 2 and 4 licenses will be auctioned for each geographic area. FCC has established rules to disseminate licenses among a wide variety of applicants which includes a limitation on common ownership of cellular and PCS interest.

    Recommendation: The Chairman, FCC, should, in allocating the spectrum and granting licenses for the new personal communications services, consider establishing a policy that gives first preference to firms that are not current cellular telephone service providers in a given market area, particularly if only one new license is granted in each market. However, if in individual cases FCC determines that a cellular telephone service provider is the most appropriate new personal communications service licensee in a market that it already serves, FCC should ensure that other considerations outweigh the benefits of enhanced competition.

    Agency Affected: Federal Communications Commission

  2. Status: Closed - Not Implemented

    Comments: Agency officials generally agreed with the facts presented. FCC has established personal communications services (PCS). Because this recommendation only applies until PCS is established, it negates the need for ths recommendation.

    Recommendation: If obstacles, including the difficulty of reallocating the radio spectrum, delay the introduction of new personal communications services beyond the time frames that FCC currently envisions, the Chairman, FCC, should begin evaluating the status and development of competition in the cellular service industry. As a first step, FCC could obtain revenue, cost, and other financial data needed to assess the profitability of the cellular telephone service licensees operating in the 30 largest markets. FCC could use these data in determining whether further actions may be needed to protect consumers' interests.

    Agency Affected: Federal Communications Commission


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