The FCC’s annual report on competition in mobile wireless is 308 pages chock-a-block with detailed information and analysis about developments in this quickly-evolving business.  We read how customers are continuing to flock to mobile services – especially broadband data.  We are informed that TracFone, a subsidiary of global giant América Móvil, has become the fifth-largest carrier in the U.S. with over 14.4 million subscriptions.  We learn that U.S. wireless customers pay only a third as much per minute as their international peers and consume three times as many minutes.

We read that over the past three years text messaging per user has octupled as per-message prices have dropped by 70%.  We are informed that our smartphone take-up leads the world and is continuing to explode – driven by multiple new app stores and mobile device operating systems.  We are told that customer churn between carriers remains significant but stable at one out of every four customers each year, indicating that lock-in is weak but service quality is not declining.  We learn that even more capable 4th generation wireless technologies are on the cusp of being deployed.  And we read that no other major developed country has as many similarly-sized large competitors or is less concentrated.

Faced with all of this left-brain information and analysis indicating the tremendous pro-consumer performance of the U.S. mobile wireless industry, it is astounding that certain commenters have chosen a right-brain reaction to fixate on one concentration statistic as the report’s headline conclusion.  This scarlet statistic is 2848, a weighted average of the Herfindahl-Hirschman Indexes (HHIs) that the FCC has calculated for each of 172 geographical areas (known as EAs) covering the country.  While some people are anxious because by the FCC’s calculation of this statistic, its value now exceeds 2800 and has risen moderately over the past five years, economists know this is of no great concern.  There are several reasons.

  1. The welfare goal is good market performance, not a score on some test.  While fifty years ago, some influential economists thought that the structure of a market determined its destiny, we now know better.  Babe Ruth’s physique may not have pegged him to be a pitching, hitting and homerun champion, but who cares?  He performed.
  2. This 2848 HHI statistic ignores completely the competitive impact of retail competition offered by MVNOs.  If it were adjusted just to reflect TracFone’s market share and Verizon’s reported wholesale lines, its value would be reduced by roughly 9% – to about 2580.
  3. All indicators suggest that economic markets are larger than the EA construct employed by the FCC.  Customers value nationwide mobility and consistency, the production technology displays substantial economies of scope, and major carriers’ prices don’t vary based on geographic region.  If the FCC had calculated its HHI on a national rather than an EA basis, its value would have dropped a further 15% – to about 2168.

While there are still further reasons not to pay much attention to the FCC’s headlined HHI calculations, these reasons delve into more arcane economic and statistical issues, so I won’t bore you with them here.  But the bottom line is this.  It doesn’t matter whether the HHI is 2168 or 2848; performance measures that customers care about show the U.S. mobile wireless market to be a strong and still improving success.  This is the only point that matters.

Share this