In the FCC’s 14th Annual Wireless Competition Report, the Commission spends a lot of time discussing investment. It also delves into profits. Now, before your eyes glaze over, stick with me on this. I’ll try to be brief.
The Commission analyzes capital investment and concludes that it is “robust” but “declining relative to industry size.” An analysis of either of these areas may be helpful. But why link them together?
The idea of comparing investment to industry size was proposed last year in comments filed by certain interest groups. They specifically focused on the capex and revenues of AT&T and Verizon and concluded that there was a decline in investment compared to profits. This decline, they said, is “a strong sign that providers are not competing on non-price factors such as investment.” In its report, the FCC adopted this idea but broadened the capex/revenues comparison to include the whole industry, rather than just AT&T and Verizon.
The notion that this comparison is a cause of concern, let alone the idea that this comparison demonstrates increased levels of concentration or declining competition , is simply untrue. AT&T made these points in our comments, but they bear repeating here.
First of all, investment is cyclical in nature and, as the Wireless Competition Report indicates, we are shifting to data rather than voice – one would expect capex to contract while the heavy investment in voice and 2G data was made and pick up again as carriers gear up for the next generation 3G/4G data services. Importantly figures do not include the billions of dollars that wireless carriers spent at FCC spectrum auctions, which might affect the availability of capex dollars to be invested in a given year. Furthermore, the report notes that the pace of new cell site deployment increased by almost 50 percent in 2008.
Secondly, even accepting the comparison as valid, the “drop” in investment as compared to revenues for AT&T and Verizon (15.9% and 17.7%, respectively, in 2008) are still higher than the ratios of any other Fortune 50 company, including more than 50% higher than Google’s (10.8%), nearly twice General Electric’s (8.8%), more than three times IBM’s (4.7%), and nearly five times Apple’s (3.7%). So, even if the investment by the wireless industry as a percentage of revenues today is less than it has been at some other point in time, the rate of investment remains at levels well above the norm for competitive industries.
Data collected by the FCC shows that the wireless industry as a whole invested somewhere between $21 and $22 Billion in 2008. This investment, along with the improved service, innovation and jobs it represents, are by any measure and any comparison significant. The FCC should acknowledge and applaud this significant investment, and seek to find ways to encourage it throughout the communications industry.