AT&T’s Read of FCC’s 15^th Annual Report on CMRS Competition Doesn’t Tell the Whole Story

On Tuesday the FCC issued its 15^th annual report on wireless competition.  On Wednesday AT&T (NYSE:T) proclaimed the FCC’s report clearly showed that the market for wireless services was robust and highly competitive (so it should, of course, be allowed to acquire T-Mobile).   The basis for AT&T’s claims is a chart showing that the percentage of Americans served by five or more wireless service providers rose from 74% in 2009 to almost 90% in 2010, an increase of nearly 44m people.  But does this fact, which the FCC caveats by saying that its estimates are overstated, mean that the market for wireless services is really competitive?

The answer to this question is largely a function of how you define the word ‘competitive.’  Implicit in AT&T’s statement is that competition is determined solely by the number of players in the game.  Count the number of companies offering service to a large percentage of the population and when that figure exceeds a certain threshold, in this case five, the market is competitive.  But the word competition implies something more than a simple number, it also implies something about quality play.  To have true competition each player must have at least a marginal chance of victory. 

The FCC’s report contains information beyond what AT&T has gleaned, though it does take slightly more work to unearth it.  For example, the report contains a wealth of information about net subscriber additions.  First, there are estimates of the total number of net subscriber additions realized by the wireless industry as a whole. Using this information we can construct a good view of how the market for wireless services has been changing with regard to customer acquisition.

According the information supplied in the FCC report, between 2006 and 2009 the combined share of net subscriber additions for AT&T and Verizon Wireless (NYSE:VZ) rose from 59% to 92%, implying a compound annual growth rate of 16% in net subscriber additions, and over the four years analyzed, the top-two carriers accounted for 71% of total net additions.  Figures like these speak for themselves.

This is just one example of many that contradictions found in AT&T’s hyperbolic statements about the nature of competition in the wireless industry.  Factoring in spectrum holdings, the ability to offer advanced 3G and 4G services and device availability only further dilute AT&T’s claims.  The fact is that the wireless industry is a practical duopoly and nothing AT&T or its numerous surrogates say can change that basic fact.