Will U.S. Regulators Reach Same Conclusions as French Regulators?

Will U.S. regulatory officials take the same view as do French regulators about how best to sustain and promote competition in the U.S. mobile business? Perhaps they will.

Though European Union regulators still tend to prefer four mobile service providers in each market, rather than allowing consolidation to three, French regulators are concerned that long-term stable mobile markets in France require consolidation.

As with policies that must balance investment with competition, there is an inherent tension between regulatory policies that promote maximum feasible competition and yet also promote maximum feasible investment in next generation networks.

The French government now has concluded that ruinous levels of competition exist, and that stable competition, long term, will be served if the mobile market consolidates to three dominant national providers.

In the U.S. market, at least so far, Federal Communications Commission regulators and antitrust authorities have signaled a belief that maintaining four national competitors is necessary.

But there are at least some hints that at least one FCC commissioner now is beginning to agree with French regulators.

Commissioner Jessica Rosenworcel reportedly has acknowledged privately that Sprint and T-Mobile US may not remain viable as independent companies. That is the same view now expressed in public by French national regulators as well.

The problem in many fixed network markets is that there is only one ubiquitous fixed network.
So regulators essentially have had to rely on wholesale mechanisms to support competition.

Ironically, such moves also tend to depress facilities investment. The issue in mobile markets is less that of limited facilities, but the ability to sustain long term operations.

And some argue the current structure of four leading U.S. providers cannot last, based on disproportionate differences in revenue, profit and ability to continue investing in next generation networks.

“We believe Sprint and T-Mobile’s lack of capital investment in network infrastructure and spectrum over the past five years were the primary reasons for AT&T and Verizon’s market share gains during that period,” say analysts at BTIG Research.

Likewise, an analysis by New Street Research makes the same point. "Our analysis shows that neither Sprint nor TMUS have enough revenue to cover their fixed costs and it is highly unlikely that both will capture enough new revenue to do so," New Street Research analysts say. “There simply isn't enough revenue in the industry for four carriers to cover their fixed costs unless there is a significant shift in market share."

The analysts also say it is possible that a reduction in U.S. mobile service providers still could provide consumer benefits. In three markets--Netherlands, Greece, and Austria--the number of nationwide competitors dropped from four to three and average pricing in the markets declined 15 percent to 40 percent after the consolidation.

"If the companies merge now, while they are in relatively good shape, the merger will result in lower costs in the context of an improving business, which our data suggests should lead to investment and lower prices," New Street Research believes. On the other hand, "If the companies are only permitted to merge when one has faltered or failed, the combined company will be less well-positioned to compete against the two well-funded incumbents."

Perhaps U.S. regulators ultimately will reach the same conclusions as have French regulators.
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