The U.S. Government Accountability Office (GAO) reports that consolidation amongst wireless carriers over the past decade has resulted in just four telcos owning 90 percent of the U.S. wireless market.  The big two, are, of course, AT&T and Verizon Wireless (VZW) – the behemoths that produce the popular "dueling commercials" that try to trump one another on their network coverage. The other two wireless carriers- far behind in both subscribers and revenues- are Sprint and T-Mobile. This chokehold on the wireless market, makes it extremely difficult for small and regional wireless carriers to be competitive. Difficulties for these smaller carriers include securing subscribers, making network investments, and offering the latest wireless phones necessary to compete in this dynamic industry.  

While the GAO reached no firm conclusion on the causes of limited competition in the wireless sector, it lists a number of factors regularly cited by smaller carriers and consumer groups. Those include early termination fees and handset exclusivity deals such as AT&T Inc.'s contract with Apple Inc. to serve as the sole U.S. carrier for the iPhone. The report also cited complaints about the "special access" regulations that guarantee carriers access to the vital back-haul lines that connect wireless towers to broader telecommunications networks. Smaller carriers argue that they pay excessive prices for this access because much of the critical network infrastructure is owned by landline telephone companies such as AT&T and Verizon Communications Inc., which also have huge wireless arms.

The GAO's findings are in line with a report the Federal Communications Commission (FCC) issued earlier this year. In that earlier report, the FCC stated the wireless industry had become concentrated under control of just a few telcos. In particular. the FCC said 60 percent of the nation's subscribers and revenue come from the country's two largest wireless providers: AT&T and Verizon Wireless (VZW). Consumer advocates say these findings are bad news for consumers because it allows the market to be controlled by a few major players.

"The GAO's findings, together with the FCC's recent report on wireless competition, paint a clear picture of an increasingly concentrated industry in which competitors and consumers pay high prices to pad the high profit margins of AT&T and Verizon," Chris Riley, counsel for the consumer advocacy group Free Press, said in a statement. "Inflated backhaul costs, misguided spectrum policies, and exclusive rights to popular devices have fostered an environment where companies cannot compete on a level playing field. With the lack of competition, consumers are paying the price through early termination penalties, hidden and vague usage restrictions, and nontransparent, nonsensical charges and fees."

One upside of the GAO report: consumers are benefiting from better wireless coverage and prices that are half what they were in 1999. This has led to very high cell phone penetration in the U.S. Almost every man, woman and child has one (or more) mobile phones. The GAO states that the number of cell phone subscribers in the U.S.was 285 million at the end of 2009, up from 3.5 million in 1989. It also says that nearly 40 percent of U.S. households rely on a cell phone as a primary phone.

The principal recommendation of the report was that the FCC should use better data collection methods to assess wireless industry competition. The report stated, "the 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."

The FCC has stated it wants to spur competition, but a recent court decision (favoring Comcast) has has limited the power it has to enforce any of its decisions. As a result, the agency wants to reclassify broadband from a lightly regulated "Information Service" to a more tightly regulated "Telecom Service. The GAO report may help the FCC achieve that objective, in order to create more competition and choice for wireless subscribers. If "broadband" was a " telecom service" it would apply to 3G and 4G broadband wireless networks. In particular, the FCC hopes to attract new service providers to the wireless broadband market.

The GAO report might also influence future FCC rules on wireless auctions. Rick Kaplan, chief counsel to FCC Chairman Julius Genachowski, said the commission has taken "proactive steps" to improve its data collection and analysis.

Conclusions:

With only four choices for wireless service in most major markets, consumer advocates fear the industry is not competitive.  And there is also exclusivity handset deals, multi-year contracts, hefty early termination fees for same, etc.  What can be done about this?

For years there's been talk of the "walled garden" breaking down, but we need more competition to force that to happen. And we don't like one walled garden being replaced by another, e.g. AT&T ceding control of mobile apps to Apple. We need a level playing field across the board and it's not going to happen without smaller players getting into the game. Do you think Metro PCS will be first out of the block with LTE if it can't attract a critical mass of 4G subscribers to justify the build out cost? Please give me a break. The FCC enforcement powers need to be strenghtened and the new spectrum they find needs to be given to the smaller telecos.

We especially detest popular smart phones and other wireless gadgets being available only on one mobile network and not others.  That forces subscribers into multi-year deals to get the coveted smart phone which is heavily subsidized by the telco.  If they break the contract they have to pay a very high early termination fee, which is free money for the carrier.  But they argue, they need all this to subsidize the smart phone/ gadgets which are sold to subscribers below cost.

Consumers need more choice and this can only happen with more competition, end of exclusivity arrangements and breaking down the "walled garden" once and for all.

References:

http://www.google.com/hostednews/ap/article/ALeqM5gGMmbNSdXqXIU3COAdd4l4nPc2DwD9HRB8MG0

http://news.cnet.com/8301-30686_3-20014863-266.html

Telecommunications: Enhanced Data Collection Could Help FCC Better Monitor Competition in the Wireless Industry

Summary at: http://www.gao.gov/products/GAO-10-779

Complete report at: http://www.gao.gov/new.items/d10779.pdf