Trends in the United States Mobile Wireless Industry and the Impact of a Merger of AT&T and T-Mobile on the Trends and Overall Competitiveness of the Wireless Industry

Introduction

It looks increasingly likely that wireless networks will be the voice and data communications technology of the future. Since its beginning, the wireless communications industry has undergone significant changes in its market conditions and is often described as a dynamic industry. Wireless telecommunications in the United States started in the early 1980s when the United States’ Federal Communications Commission (FCC) initiated the process of awarding two spectrum licenses in 734 cellular market areas (306 metropolitan service areas and 428 rural service areas) spanning the United States. Spectrum is a critical factor of production to provide mobile wireless services. The decision to award two cellular licenses in each area (with one reserved for the incumbent wireline local exchange telecommunications carrier) effectively created a duopoly market structure for cellular phone service in the emerging mobile industry. Each cellular license granted the recipient 25 megahertz (MHz) of spectrum residing in the 800 MHz band, a band with excellent propagation characteristics to provide mobile wireless communications. Thus, the FCC first granted 50 MHz of spectrum for the provision of wireless cellular phone communications. Since this time, the industry has experienced tremendous changes in the demand for and supply of wireless communications. A focus of this chapter describes some of the key historical demand-side and supply-side changes and identifies significant trends in the industry today. Issues that have arisen in evaluating the impact of a proposed $39 billion horizontal merger between two of the four national wireless carriers, AT&T and T-Mobile USA (a U.S. wireless subsidiary of Deutsche Telekom AG), on the competitiveness of the industry are used to highlight and examine these historical and current trends.¹

Trends that are described and examined in this chapter include the following:

• 1.

  There has been a significant increase in the overall demand for wireless services, including an increase in the use of wireless devices (e.g., smartphones and tablet computers) to receive a wireless broadband connection to the Internet to engage in data communications.

• 2.

  Prices in output markets for wireless services have declined in real terms markedly, and various measures of outputs have increased dramatically.

• 3.

  New players have entered the broader wireless ecosystem, including new wireless carriers, operating system suppliers, such as Apple and Google, and applications developers.

• 4.

  There has been consolidation in the number of national wireless carriers (two of which (AT&T and Verizon) are integrated wireline and wireless carriers), which is associated with significant increases in market concentration in the mobile industry.

• 5.

  There has been a substantial increase in the amount of spectrum the federal government has allocated for use by wireless carriers, and there is an FCC plan to further increase the allocated spectrum by 500 MHz in the next 10 years to address the projected explosive growth in the use of mobile data services.

• 6.

  There are likely to be continued technological improvements in the utilization of existing spectrum to provide wireless services.

These historic and current trends are examined through an investigation into issues emanating from the proposed merger between AT&T and T-Mobile. Comments of major stakeholders in the industry are reviewed to identify specific positions on these issues. The proposed merger has generated concerns/issues such as the following:

• 1.

  Small regional wireless carriers are concerned with their bargaining power when negotiating data roaming agreements and backhaul agreements, both critical to their financial viability, with larger national wireless competitors.

• 2.

  Small regional wireless carriers are concerned with their access to the latest brands of smartphones.

• 3.

  Is there a need for to limit the amount of spectrum the leading national carriers can control in order to preserve a competitive wireless industry in the provision of voice and data mobile services?

• 4.

  If federal regulators approve the horizontal merger between AT&T and T-Mobile, what will be the likely impact on the overall competitiveness of the wireless industry?