Wireless Subscriber Numbers Likely to Raise More Questions at FCC

Postpaid wireless net adds on the whole “were strong” at 1.4 million in Q4, up 43 percent over the same quarter last year, UBS said in a report released Tuesday. Verizon and AT&T led the pack. Sprint was “barely positive” and T-Mobile’s “net losses doubled” to 707,000, UBS said. Net adds are likely to be closer to 159,000 in Q1, as a result of “seasonal weakness” and the shift of sales to Q4 tied to the launch of the iPhone 4S, UBS said. Verizon is likely to remain the leader in picking up customers, the report said. UBS said Sprint lost 98,000 net post-paid subscribers in 2011, despite starting to sell the iPhone. It called T-Mobile’s numbers “disappointing,” saying it had record churn of 3.1 percent for the year.

Sprint appeared especially vulnerable this week, after the company reportedly dropped plans to buy smaller rival MetroPCS (CD Feb 28 p2). Sprint’s stock has fallen by half since last spring, to $2.57 at the close of regular trading Tuesday. Five years ago, its was above $20. T-Mobile is still recovering from its failed deal to be bought by AT&T, though company executives have said they plan to spend $4 billion on the network over the next three years and $200 million to relaunch its brand in Q3 (CD Feb 24 p1).

The numbers are “clear and convincing,” said Steve Berry, president of the Rural Cellular Association. “We are moving precariously close to a duopoly of no return. This is no surprise to anyone -- the FCC has refused to certify a competitive wireless industry for the past 2 years and may very well do so again. This is a critical period for the industry.” The FCC needs to address device interoperability, 4G data roaming, and access to devices, spectrum, backhaul and content “to ensure an open ecosystem that allows competition to thrive,” he said. If the commission can’t restore competition to wireless markets, “it may be time to look at a bifurcated regulatory regime, one for the duopoly that enjoys dominance over the critical inputs of wireless service, and the other for aspiring competitors,” he said.

"Sadly, the FCC’s policies have proven inadequate to fulfill the hope of the 1996 Telecommunications Act that by promoting competition in the wireless space we can forego traditional heavy handed regulation,” said Andrew Schwartzman, senior vice president of the Media Access Project. “The likely demise of LightSquared as a new source of wholesale wireless service makes the prognosis even worse.” There are steps the agency could take to turn things around, Schwartzman said. “The FCC needs to address handset exclusivity, data roaming, auction structure and network neutrality policies, among other things."

The new numbers should raise concerns at the FCC, said Free Press Research Director Derek Turner. “Last year’s performance data further demonstrates that Verizon and AT&T are using their inherent advantages as legacy monopolists to stifle competition,” he said. “This slide toward duopoly is the direct result of failed FCC policies that facilitated the Twin Bell’s amassing and abuse of market power. It isn’t too late to turn these harmful trends around, but the FCC is going to have to show more of the kind of political courage and independence it displayed in rejecting AT&T’s bid for T-Mobile."

More free market-oriented observers said the FCC should let markets develop. “In theory, I would certainly rather have more strong competitors in a market than fewer,” said Free State Foundation President Randolph May. “I'd like to see T-Mobile’s subscriber numbers hold up. But, in practice, I am more worried about the FCC trying to ‘manage competition’ by propping up competitors by uneconomic regulatory devices than I am about Sprint’s and T-Mobile’s quarterly subscriber figures. The agency just hasn’t shown a sufficient appreciation for the dynamism of the current marketplace, and its record of managing competition is pretty poor."

Verizon and AT&T’s relative strength shouldn’t come as a surprise, said Information Technology Innovation Foundation Senior Fellow Richard Bennett. “Mobile market share dynamics reflect investment in networks and handsets,” he said. “AT&T and Verizon are building out their LTE networks and growing their customer bases as a consequence, while Sprint and T-Mobile are not. Spectrum constraints are very real for Verizon and AT&T because they hold only half the spectrum per network that the Sprint/Clearwire combo has. They also have more iPhones on their networks and the need to carry more data per user.” Concentration in mobile markets “is an investment problem that can’t be slowed by artificially limiting consumer access to adequate spectrum,” he said.

"This confirms the trend we've been seeing for awhile,” countered Public Knowledge Legal Director Harold Feld. “T-Mobile may recover somewhat now that they are relaunching their brand and developing a new, post-merger strategy. But even so, there is a bigger issue here. AT&T and Verizon enjoy advantages in spectrum capacity, in size, and in vertical integration. That gives them competitive advantages which helps them attract more customers, which further enhances the competitive advantages that come from size and scale.”

The FCC needs to take more aggressive steps to encourage competition, Feld said. “The easiest way to do that is to lower costs to Sprint and T-Mobile by addressing special access,” he said by email. “After that, the FCC can try to equalize things by taking steps to give competing wireless firms access to spectrum or handsets. For example, if the Commission imposed data roaming on Verizon Wireless as a condition of the Verizon/SpectrumCo transaction, that would give a competitive boost to competing firms such as Sprint and T-Mobile.”