U.S. Mobile Providers Face Spectrum Uncertainty

U.S. wireless operators and equity analysts have argued for well over a decade that there is "too much competition" in the U.S. mobile market. The notion is that a stable national market would have no more than three providers. 


Also, with the emergence of the smart phone business, all mobile service providers need lots more spectrum, though some would contest the notion in a near-term sense. 


But some also note that, at least for the moment, contestants are stymied, in large part because recent deals that would have changed spectrum allocations, and some deals still pending, signal to most contestants the likely regulatory resistance.


Recent regulatory action includes the successful regulator resistance to the AT&T purchase of T-Mobile USA, and scrutiny of the spectrum sales by Comcast, Time Warner Telecom, Cox Communications and Bright House Networks to Verizon. 


The denial of LightSquared to use satellite spectrum for a terrestrial Long Term Evolution network is a separate case, many would argue, as the issue there was not market structure (indeed, one might have argued LightSquared would increase the level of competition in the U.S. market), but signal interference with other licensed users. 


Is the share of market now characteristic of the U.S. market sustainable? Most would say "no." Among the common observations is that two of the top four national providers have market share two to three times greater than two of the others.

Many observers would say a market with four national providers is about one too many for a sustainable and stable market. Significantly, that view is held by the Federal Communications Commission and Department of Justice, both of which use a standard test of market concentration in deeming the U.S. mobile market already

 

non-competitive. 

One of the ways to measure market concentration is the Heffindahl-Hirshman Index or HHI, often used as a measure of market concentration. The HHI is the square of the percentage market share of each firm summed over the largest 50 firms in a market. 

The  HHI which already suggests that the market is uncompetitive. HHI is the problem where it comes to further mergers among the four largest national mobile providers, even a merger of Sprint and T-Mobile USA, which despite its complexity would create three national providers with roughly equivalent market share. 

Market share concerns also will permeate any spectrum acquisitions, as well, since spectrum is a key "raw material" from which any mobile service provider can build a business. 

Over the long term, there is perhaps general agreement that more spectrum will be required. At issue is the way such spectrum is allocated. In the past, many regulators, in many countries, have restricted availability of new spectrum by incumbents, hoping thereby to create more competition. 

Over the long term, one has to question whether this actually ever works, as all markets, over time, consolidate, even when the initial implications would appear to be positive, from an "enabling of competition" perspective.