Thursday, September 28, 2006

FCC: Wireless Competition Leads to Surging Usage, Lower Rates

The FCC issued its annual report on the state of competition in the mobile telephone -- or Commercial Mobile Radio Services (CMRS) -- industry.

Although the mobile telephone market has become more concentrated as a result of mergers of Sprint/Nextel and Cingular/AT&T Wireless, the FCC concludes there is effective wireless competition, based on several factors, including: the number of competing carriers providing service in an area, market shares, pricing behavior and trends, technological upgrades and product innovations, subscriber growth, usage patterns, churn, and service quality.

Highlights of the report include:

  • During 2005, the number of mobile telephone subscribers in the United States rose from 184.7 million to 213 million, increasing the nationwide penetration rate to approximately 71 percent.

  • Average minutes-of-use per subscriber per month ("MOUs") jumped again in 2005, to 820 minutes, or more than 13 hours of use, for the average subscriber of a nationwide operator in the last quarter of the year. This is an increase of 110 MOUs, or almost two hours of additional use, from a year earlier. Sprint Nextel, the nationwide operator with the highest MOUs, averaged over 1,000 MOUs per month per subscriber for most of the year.

  • The amount of time mobile subscribers spend texting on their mobile phones has also increased and the volume of text message traffic grew to 48.7 billion messages in the second half of 2005, nearly double the 24.7 billion messages in the same period of 2004.

  • Revenue per minute, which can be used to measure the per-minute price of mobile telephone service, fell 22 percent during 2005 from $0.09 in 2004 to $0.07 in 2005.

  • The J.D. Power and Associates 2006 Wireless Call Quality Study found that the quality of mobile telephone service improved in the past year, with reported problems per 100 calls reaching the lowest level since the inaugural study in 2003.

  • The U.S. population living in counties with access to five or more different mobile telephone operators declined as compared with the previous year, due largely to the merger between Sprint PCS and Nextel in August 2005.

  • As of year-end 2005, there were four, nationwide mobile telephone operators: Sprint Nextel, Verizon Wireless, T-Mobile, and Cingular Wireless.

  • Churn rates have shown a slight decline over the past year. Most carriers report churn rates between 1.5 percent and 3.0 percent per month.

  • Since 1999, following a decade of declines, CTIA's estimate of ARPU began increasing, rising to $50.64 in December 2004, a 28 percent increase from the low of seven years ago. However, in the last year, ARPU declined slightly to $49.98. Analysts attribute this decline to a variety of factors, including further declines in the per-minute price of mobile calls due to more offers of free minutes and other promotions, an increase in the share of subscribers who typically spend less per month on mobile calls (such as prepaid and family plan customers), and a decrease in the elasticity of demand below one.

FCC Chairman Kevin Martin said "Competition among mobile telephone carriers has lowered the price consumers pay for mobile telephone service, stimulating rapid subscriber growth and greater usage of mobile phones. Competition has also encouraged mobile telephone carriers to improve service quality and to begin deploying significantly faster broadband technologies on their networks. These results demonstrate how a competitive marketplace -- rather than economic regulation -- provides the greatest benefits to the American consumer."http://www.fcc.govIn a written critique, FCC Commissioner Michael Copps said the report fails to provide a full accounting of "effective competition" because it neglected to take account of the effects arising out of the cross-ownership of wireless and wireline companies.

"In this era of convergence, we often hear that new technologies will bring competition to markets currently dominated by incumbents. But what about when the same company or companies dominate both the new and the old markets? Will a parent company really allow a subsidiary to introduce products that cannibalize existing revenue streams? I expect that this issue will become increasingly important in the wireless industry—especially with the next generation of broadband services—and I hope that future CMRS reports will take account of it," stated Copps.

See also