The Impact of Government on the Evolving Market Structure of the U.S. Wireless Telephony Industry

The Impact of Government on the Evolving Market Structure of the U.S. Wireless Telephony Industry

Carol C. McDonough (University of Massachusetts - Lowell, USA)
DOI: 10.4018/978-1-60566-194-0.ch005
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Abstract

The United States’ wireless telephone industry has evolved from a minor segment of the communications industry to a major provider of voice, and increasingly data and video communication. The industry uses radiowaves to transmit signals, and radiowave spectrum is regulated by the federal government. Moreover, local transmission requires unobstructed antennae, which in rural and suburban areas has led to the construction of wireless towers. States and municipalities have sought to regulate the construction of such towers, citing issues of aesthetics and health. The development of the wireless industry has been constrained by such government regulation. This chapter discusses the impact of government on the market structure of the wireless industry.
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Introduction

Wireless telephony has evolved from a minor component of the telephony industry to a ubiquitous component today. In the developing world, wireless communication provides access to telephony services without the cost of building out landline infrastructures. Mobile phone penetration rates, which measure the number of mobile phones per 100 population, are high in industrialized nations and lower in less developed areas. (Table 1). These numbers often reflect multiple phones per wireless subscriber.

Table 1.
2007 Mobile phone penetration rates
Luxembourg158%
Hong Kong140%
Western Europe110%
Europe total95%
United States85%
China50%
India23%
Worldwide 13%
Sources: BBC News,11/07; Informa,2007; Wikipedia; Fortune, 5/26/08

Governments, at the federal, state, and local levels, have had a major impact on the structure of the wireless industry, through policies on licensing, mergers/acquisitions, pricing, and tower construction. This chapter discusses the impact of U.S. government policies on the structure of the U.S. wireless telephony industry.

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Early History Of The Wireless Industry

Because wireless telephony uses radio wavelengths for transmission, government regulation and distribution of wavelength affects competition in the industry. Internationally, the radio frequency (RF) spectrum is allocated by the International Telecommunication Union (ITU). Governments globally have taken on the assigning of frequencies, and this can be a highly political decision.1

Within the United States and its possessions, the RF spectrum is further allocated to non-Government and Government users. The Federal Communications Commission (FCC), acting under the authority of Congress, allocates frequencies to non-Government users. The National Telecommunications and Information Administration (NTIA) manages frequencies to departments and agencies of the U.S. Government. Figure 1 details information on the allocation of RF spectrum in the United States.

Figure 1.

Allocation of radio spectrum in the United States

BidderSpectrum%total spectrum#MTA's%total MTA's
(MHz)
WirelesLP95100.163290.6
ATT82200.141450.94
Primeco33300.057110.23
WstnPCS23100.04210.44
Nxtwave19900.034270.56
AmerPort18900.03260.13
Sprint15700.027160.33
GTE12900.02240.08
Powertel10900.01960.13
OPCSEGl10500.018230.48
SWBell10300.018100.21
BellSouth10100.01780.17
AllTel7400.013120.25
Ameritech6300.01120.04
PacTeles6000.0120.04
Omnipt6000.0110.02
USWest4200.00790.19
Mercury2400.00450.1

Key Terms in this Chapter

Mergers and Acquisitions: The buying, selling and combining of different companies, often companies that produce similar or competing products or services. This is a tool used to enable a company to grow rapidly without having to construct an expanded business entity. Mergers and acquisitions typically reduce the amount of competition in an industry. The difference between a merger and an acquisition is that a merger is often undertaken consensually, while an acquisition may be the result of a takeover of one company by another.

Antitrust Laws: Laws enacted by the federal government to limit and control concentrations of economic power. The first antitrust law in the United States, the Sherman Antitrust Act, was enacted by Congress in 1890. Antitrust laws are enforced by the U.S. Department of Justice. Antitrust laws prohibit restrictions of free trade and competition, outlaw anti-competitive practices such as price fixing, and limit the scope of mergers and acquisitions.

Wireless Telephony: Telephone service which uses radiowaves, rather than a landline, to connect the person initiating a call to a telephone network.

Market Structure: The level of competition in an industry, that is, whether numerous firms compete with each other for market share or the industry is highly concentrated with few competitors.

Wireless Spectrum: Bands within the electromagnetic spectrum that have been allocated for wireless communications, such as cellular bandwidth at 800-900 MHz and the PCS bandwidth in the 2 GHz range.

Wireline Telephony: Telephone service which uses copper lines, or fiberoptic cables, to connect the person initiating a call to a telephone network.

Competition: A market condition where price and output are determined by the collective market forces of supply and demand, rather than by an individual producer or group of producers. Among the factors that tend to lead to competition are ease of entry into an industry, number of competitors and market shares, and the substitutability among the products of the competing firms.

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