Georgetown University

Congruity and Incongruity in the Evolving Telecommunications Industry John W. Mayo Georgetown University (202) Phoenix Center 2007 Annual U.S. Telecoms Symposium November 28th, 2007

Background: The Telecommunication Act of 1996 the purpose of the Act is: "to provide for a pro-competitive, de-regulatory national policy framework” The FCC and states shall “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans …

Congruity and Incongruity Today’s emerging telecommunications debates create the very real prospect of incongruous policies that will undermine the prospect of accomplishing the goals of the Telecommunications Act Today’s emerging telecommunications debates create the very real prospect of incongruous policies that will undermine the prospect of accomplishing the goals of the Telecommunications Act The discipline of clear-headed economic analysis (and common sense) create the pathway for policy congruity. The discipline of clear-headed economic analysis (and common sense) create the pathway for policy congruity.

Issues of the Day How to maximize inter-modal competition? How to maximize inter-modal competition? –Municipal franchise reform –Free spectrum Should we impose regulation on wireless? Should we impose regulation on wireless? –Force unbundling of hardware and wireless service? –Force access to platform for software applications? Should we regulated broadband providers? Should we regulated broadband providers? –Force “a bit is a bit” treatment within networks? (Net Neutrality) –What should we do, if anything, to promote broadband in rural areas? Promoting supply to match exploding demand for broadband? Promoting supply to match exploding demand for broadband? –One hour HD TV download = 17,000 typical webpages

The Wireless Industry 4-5 national carriers, regional carriers and numerous wireless resellers 4-5 national carriers, regional carriers and numerous wireless resellers Yet, …not unlimited choices… Yet, …not unlimited choices… –“the Soviet Ministries” [Mossberg (2007)] – –“a tarpit of misery, pain and destruction.” [applications provider, quoted by Wu(2007) – –“a spectrum-based oligopoly, not …[a]… ‘fiercely competitive’ market” Wu (2007)

The Soviet Ministries? Really? Has a “short-sighted and often just plain stupid federal government” permitted wireless carriers federal government” permitted wireless carriers to trap its citizens in “a backward, stifling system”?

The Economists’ Lens Monopolies raise prices, reduce output, restrict choices Competition pushes prices toward costs, pushes costs down, raises output, expands output and choices

Soviet Ministries?

The Emergence and Evolution of Wireless Telephony 1947 – Cellular Concept developed 1983 – Ameritech initiates service

The Invention of Cellular Telephony Text and Figure from D.H. Ring’s original 1947 memorandum

Growth of Wireless Subscribers Source: Eleventh Annual Report and Analysis of Competitive market Conditions with Respect to Commercial Radio Services, FCC, September 29, 2006 (FCC Competition Report), and CTIA’S Semi-Annual Wireless Industry Survey Results, 2007.

Mobile Usage: 12 hours a month???!!!

Prices in the CMRS market Source: FCC

Mobile Telephone Prices in the US and Europe Source: FCC, Eleventh Annual CMSR Competition Report

Wireless as an Innovator and Competitor Source: FCC: “ High-Speed Services for Internet Access: Status as of December 31, 2006.”

The Future of Wireless? The Coupe 2007 – 700 hundred handsets, scores of features 2008 – “Any Apps, any Device”

Soviet Ministries? No!

Where are we headed? Today, behavior is very competitive Today, behavior is very competitive Consumers are benefiting from lower prices, higher speeds, expanding output Consumers are benefiting from lower prices, higher speeds, expanding output Could market become less competitive and need greater regulatory oversight? Could market become less competitive and need greater regulatory oversight? –Theoretically, yes Is there a need to rush to (big R) Regulate? Is there a need to rush to (big R) Regulate? –Observed behavior suggests “no” –Policies to enable markets (reducing barriers to entry) –Available tools: antitrust/regulation

“Anyone who has the power to make you believe absurdities has the power to make you commit injustices.” Voltaire Conclusion: Avoiding the Incongruities….