Wright, Hazlett Critical of FCC Annual Wireless Competition Report

Professors Joshua Wright and Thomas Hazlett took part in a Mercatus Center conference on May 18 at which key industry insiders discussed how the Federal Communications Commission (FCC) analyzes market competition in the wireless industry.

Wright argued that the FCC was wrong when it declined to find in its report that the U.S. market is "effectively competitive."

"You can make a really nice report describing a lot about what the world looks like," Wright said. "The action is in the prediction and the role of economics is providing the lens to do that prediction." Wright said that reading the report allows a good snapshot of the wireless industry. But the commission's economic analysis falls short in that it's not informed by changes in industrial organization (IO) economics, the field of economics that studies the structure of and boundaries between businesses and markets and the strategic interactions of firms, he said.

"Relying on market structure to make predictions about competitive consequences is a very bad idea," Wright said. "If [the report] is going to make predictions ... that have real importance for the world, for how its technologies develop, for the state of competition for consumers, then it ought to update its economics. It ought to take more seriously the lessons in the IO literature."

Hazlett stated that the degree of competition in the wireless market is obvious, pointing to the "explosion of choices" a consumer would likely cite if asked about wireless competition. He said the commission should take seriously the views of analysts with their "deep insights" on the market.

Conclusions in FCC Wireless Competition Report Remain Controversial, Communications Daily, May 20, 2011. By Howard Buskirk. 

"Ask the average analyst on Wall Street and their likely response would be there's 'too much competition,' Hazlett said. 'Prices are low. Investment requirements, capex are still high. Low-cost plans are straining the market." AT&T and Verizon Wireless are 'holding their own,' but that's it, he said. Herfindahl-Hirschman Index values, a key focus of the FCC's last report, 'tell us very little about what the actual dynamics are,' Hazlett said: The regulator misses the real dynamic in the market. There has been 'a shifting in the center of gravity,' he said. 'Companies like Apple, Research in Motion and Google, Microsoft and Nokia, companies without any wireless assets ... are becoming the dominant players.'"