Competition Versus Investment: U.S. Regulators Might Face Dilemma European Regulators Have Faced

Telecom regulators and policymakers often face trade offs. They desire maximum feasible competition, but also maximum feasible investment in next generation facilities. The two objectives lie in a state of tension. Too much competition dampens investment. But too little competition also dampens investment.

The trick is finding the balance. In the European Community, regulators have fostered competition so well that incentives to invest now are viewed as having suffered. To create incentives for investment, rules on competition might need to be reworked. As it stands, many believe 5G investment in Europe will lag, compared to other developed markets.

Consolidation now seems inevitable in the U.S. telecom and content markets, but the U.S. market will not be alone. India’s mobile market seems to be on pace to reduce the number of national competitors roughly in half.

And Bell Labs predicts a massive consolidation of the world’s telecom service providers by about 2025.

Consolidation within any given segment of the market is designed to build scale, which boosts revenue and reduces costs. Part of the reason revenue gets a boost is that competition is reduced.

From an antitrust or competition review, it therefore matters how an agency defines “the market.” And we may be at one of those points where some amount of consolidation will be needed to create the cross-industry capabilities survivors will need.

That, in turn, means greater market power in one segment might be a necessary building block for survival in a new market that combines industry segments. In other words, less competition in one segment might be necessary to create the bundled or cross-segment capabilities survivors will require.

Consider the asymmetrical U.S. market positions. Verizon, AT&T, Comcast and Charter have fixed network assets expected to provide backhaul advantages when small cells underpin mobile network capabilities. Sprint and T-Mobile US do not have such assets, which arguably puts them at a disadvantage.

Verizon, AT&T and Comcast have content assets. Sprint and T-Mobile US do not have such assets. Dish Network owns spectrum, but no network and no content assets.

If you assume the future requires competitors that combine access assets (mobile and fixed) with “up the stack” revenue sources, then “less competition” in either fixed or mobile segments of the business, and fewer independent suppliers of content and apps, is going to happen.

So much will hinge on how antitrust officials define the relevant “market,” for purposes of determining competitive impact. By definition, consolidation reduces the number of competitors, and therefore has implications for competition.

But competition in telecom markets might also be heading for a period where ownership of several types of assets (fixed and mobile networks, content and application assets) is necessary for survival.

Much depends on how one views the coming market, and what winners will possess, in terms of assets and capabilities. That, in turn, will affect the definition of the “market,” and what consolidation means for competition in that market.