Economists Dispute FCC Wireless Report

Three economists released a paper on Friday arguing that the Federal Communications Commission's study of the wireless industry invites "erroneous conclusions," firmly taking the side of major cell companies.

The FCC's report released last month irked wireless companies because it did not declare their sector competitive, declining to take a position one way or the other. Major wireless companies say competition in their sector is fierce.

The FCC's report ought to have said that as well, the economists' report argues. They say the FCC failed to give enough weight to various signs of competition in the wireless industry, including pricing data that shows rates have dropped. According to the economists, the cost of data services is down nearly 90 percent from $0.47 per megabyte to just $0.05 per MB since 2008.

The three--economics professors Gerald Faulhaber of the Wharton School of the University of Pennsylvania, Robert Hahn of the Smith School of Oxford University, and Hal Singer, a managing director and principal at Navigant Economics and a wireless industry consultant--charged that the FCC's metrics are out of step with modern ways of studying antitrust.

"Market concentration is no longer the primary focus of competition analysis, but just one of many factors that assess the extent of market power," the report, partly funded by AT&T, says. "A far more appropriate way to assess pricing power is to look at direct evidence such as the trajectory of prices, price-cost relationships, and demand responses to price increases ('price effects')."

The FCC's annual study was the second in a row that did not declare the wireless market "effectively competitive," breaking with prior reports.