T-Mobile agreed to provide major support for Dish Network’s emergence as a new “fourth provider” as a condition of gaining regulatory approval for its merger with Sprint. But no incumbent is especially keen on enabling its own competition. So friction between Dish and T-Mobile was inevitable.
In a broader sense, channel conflict is a potential issue whenever wholesale mechanisms occur in the telecommunications business. Nearly two decades ago, as regulators were pondering methods to increase the amount of competition in local access markets, wholesale and facilities-based approaches were considered.
In most cases, because of the paucity of assets, wholesale has been the preferred policy approach. By allowing wholesale access to the dominant incumbent network, retail competition is increased, though often at the expense of facilitating new network investment by rivals.
The salient exception has been the mobile business, which has been able to produce facilities investment while also spurring competition.
As Federal Communications Commission staffers have argued, “private capital will only be available to fund investments in broadband networks where it is possible to earn returns in excess of the cost of capital. In short, only profitable networks will attract the investment required.
A good example of this is the impact of competition on profit margins, average revenue per account and customer market share in facilities-based competitive markets.
The first new facilities-based competitor in a market with a single provider reduces average revenue per user by four percent, but market share by 50 percent, FCC analysts calculated.
In markets with four competitors, potential market share is reduced 75 percent and ARPU falls 28 percent, according to FCC analysts.
Even in many wholesale-based markets, where retail competitors all use a single physical network, market share and ARPU reductions might mirror those of facilities competition markets.
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