>> tonight object communicator, mattwood of free press and chris

guttman-mccabe of ctia discusses a report by the fcc on the wireless industry. >> this week on the communicator, a discussion on a recent report from the fcc looking at competition in the wireless industry. joining us to discuss results is chris guttman-mccabe of the wireless association and matt wood of the consumer group, free press. >> host: well the federal communications commission recently issued its congressional mandated annual report on competition in the wireless industry. this is the 15th annual report. that's our topic this week on "the communicators."

here's the conclusion on the report. it makes no finding as to whether there is or is not educative competition in the industry, rather, given the complexity of the segments and services within the mobile wireless ecosystem, the report focuses on presenting the best data available on competition throughout this sector of the economy." joining us to discuss the issue is matt wood of the policy group free press, he's the policy director, and chris guttman-mccabe of ctia, the wireless association, here's the vice president. gentleman, thank you very much. matt wood, as soon as this report came out, free press issued a same that the wireless industry is not competitive. why? >> guest: we think it's not effectively competitive because if there's two dominant companies, verizon wireless and

at&t serving more than everybody else and more profits than everybody else, we think there's too many barriers to entry and growth to options consumers should have better access to and the consumers don't reap the benefits of having multiple providers because there's dominant players controlling a large portion of the industry. >> host: what do you think that the fcc did not take a position on competition? >> guest: there's enough evidence to include the vie is not competitive and the fcc has all the data and analysis they talk about, it's complicated but points to a single conclusion that there's not enough competition between the two and the other providers out there and if hurts consumers if options are limited and they don't have as many options as they might for truly high-end plans for the most popular devices if they are funneled into one provider or another based on barriers keeping

competitors out of the picture. >> host: we'll touch on the issues later. we want to hear from chris guttman-mccabe also of the wire less industry. what's your on collusion about the wireless industry itself? >> guest: well, so not surprisingly i disagree with matt. i think by any measure it's an effectively competitive industry. i think if you look at the number of options that consumers have, i think the report says 90% of americans have access to five or more facilities based competitors. that doesn't take in consideration the numerous resellers that are out there. if you look at whether it's the price per minute or the average bill, the average bill is half of what it was in 1987, you know, around the beginning of the industry. if you think what is being delivered to consumers, the fact that the bill has been cut in half is pretty staggering and comets to go down every quarter and year. it goes down whether it's the bureau of labor statistics

measuring it or anyone. you know, you can look at marketing in advertising. three of our largest providers are among the top ten advertisers in the country. you can look at innovation. you can look at capital expenditures. i mean, everything suggests this is an industry that goes to battle with each other over serving consumers so we were, you know, we obviously would have liked a conclusion that it was competitive, and yet, we are happy that the commission has begun to look at this wireless industry as an ecosystem. it's a term we coined year and a half ago or two years ago looking at the wireless space and believe it's a growing and breathing ecosystem, but from the pure perspective of drawing a competitive or not competitive, we just can't see how one concludes this is not effectively competitive. >> host: how much of the data did the ctia pride to the fcc

for the report? >> guest: sure. throughout the year, we make filings to the fcc, you know, probably a fair percentage of the information in the report coming from cti, and yet over the last -- i've been there for ten years now -- and over the last ten years the commission has used more and more of its indidn't or third party data. the majority of data that we provide to the commission is not cti generated but third party data we gathered. we tend to find it and then present it to the fcc as independent data. that which does come specificically from cti is a survey we've done for 20 years now submitted by our members and put through an accounting firm and aggregated and pieced together before it makes its way to ctia. >> host: does that effect --

affect the quality? >> guest: we said they can and should collect more data and analysis from third parties but subpoena it and get data that is not readily shared and the fcc doesn't need to put that out there, but it can be kept from competitors, but the fcc needs to do a better job of gathering data and not relying on what comes to it by analysts who might have a stake in the industry or have a very easily tolerated opinion of what makes an industry competitive or not. >> host: joined by paul kirby, a regular with telecommunications report. thanks. >> the report says to measure concentration in the industry was 2048 by the middle of 2010, slightly higher than 2008, but nearly 700 points higher than

2003 and antitrust authorities to give a sense say 2500 is a market that's highly concentrated. should this be a concern for regulator as consumers, chris? >> guest: you referred to hhi, and hhi measures concentration, not competition, and so when we look at hhi numbers, the same report that you're referencing shortly after it gives us numbers or states 245 the united states has the second lowest hhi among all the developed world in terms of sort of the wrong numbers, and so i think you have to look at the market and how it is structured. this is an extremely capital intensive market. it requires capital expenditures significant amount each year, and so you see a marketplace in the united states that differs from those around the world for the positive in terms of how the consumers see it. our, you know, top carriers have

a significant less percentage of this market than the top carriers have in any other market on the planet so i think if you look at it in terms of, you know, has the number increased? yes, the number includes, but that's a measure of concentration and not competition. at the same time the number increased, the average price and monthly price to consumers has gone down. we look at it in the context of, you know, that's a number that is, you know, it's a simple calculation, but i deponent know how the fcc comes up with the numbers. i tried with an economics degree and that's what i did for five years before law school, and i can't replicate the numbers, but they suggest it's the second lowest on the planet. >> guest: i agree with chris, but the problem is there's not effective competition in terms of carrier conduct in the concentrated marketplace. there's two large providers, and when one raises their pricing

for text messages, the other follows suit quickly without a loss of customers because there are not a lot of options and different plans. when one raises fees, for example, used to lock people into their contracts and punish them for going away, the others follow suit quickly whether it's a smart phone or a feature phone or some less data intensive plan. when one goes to a tiered piping plan or a data usage cap system like at&t and now verizon following suit, there's that leader mentality. hhi is a concern to us and the more concentrated the market is the less likely there's competition, that's, we think, born out by the parallel conduct we see and the fact that consumers are more or less stuck with a service plan that they don't necessarily like, and yet are not able to get out of

because of early termination fees that i mentioned and because of the inability to go to the best plan for that particular customer when they are told by the provider if you want a certain kind of phone or if you don't want to pay a penalty for leaving us, stay with us that entire time. >> guest: one other thing, chris, you noted how many carriers americans can choose from, but talked about why 94% of americans have four options and only 68% have that much options for broadband providers. is there a need for more competition in the broadband market? >> guest: one thing we have to make clear for the viewers is that this is a report looking at 2009, okay, it's not even 2010, and here we are in 2011. the majority of the data is from dwien, and when you look at what was happening in 2009 with regard to broadband, we were still as an industry moving 2g and 3-rbgs g and had not

introduced 4g at that point in time. if you move forward already to where we are now, united states has 92% of the world's lte subscribers and 77% of the world's wimax subscribers. we are on the cutting edge of both technologies. you are seeing, again, at the ten yearings i've been at cti, we've moved from analog to second generation technology, to third and fourth generation, depends how you define that. that's up for debate, but the reality is, you know, four wholesale technology changeouts in ten years, you know, i think it's pretty staggering that we are still, you know, within that time frame leading the world in terms of the high speed networks and the most subscribers on those networks. >> guest: well, i think what chris mentioned there is you asked how many broadband providers are available to people, and while there's a growing demand and need for

wireless services, this is an essential for people and many are only uses wireless for voice and low income people are not able to have a broadband subscription at home on their desk top and a wireless one, and they choose wireless. it's a central feature part of people's lives, and while the demand is growing and the providers are obviously growing their overall output, the question unanswered is whether or not there's lower prices if there's more competition. the numbers don't take account the relevant market eighty to set up a price people are forced to pay or choose to pay if they want access to the iphone or another fancy hand set and if they want the true power of a mobile broadband connection versus something limited by a smaller carrier who doesn't have the same offerings that larger companies make available to their customers.

>> guest: one talking about higher prices and the facts bear out prices are not higher. they continue to go down without exception whether it's texts prices. one carrier raises prices, the other follows. the price are are not going up. the data prices haved in the last 12 months. you know, we've had discussions, peter, i've been with you before on the show and we talk about the iphone and how everyone had to have the iphone, and it's an iconic device, no doubt, and yet now i'm having discussions with foreign regulators about how do they address the fact that the android platform has a tremendous set of sales and should people be protect k against the android platform? you know, looking back over the last couple years, as quickly as someone controls the market, that quickly, they can lose control in the space, and the greatest illustration is two and a half years ago the hottest

selling hand set was a flip phone, the raiser. in those years, we've gone through android devices to tablets, zero apps to over 1.2 million applications available now. this is a market that moves so incredibly quickly that the issues that matt and others at free press complained about, you know, a year ago, are already completely overtaken by events. >> host: matt, what if you would respond to what he had to say? >> guest: sure, the hand sets are changing, and not surprising to us who is controlling that playing field, the entire vertical distribution chain and value chain as it's referred to as controlled by the largest operator. the iphone is now popular and caught up and passed by the underwriting systems, it's the same carriers of at&t and veer verizon who have the first crack of the new device whether it's the flip phone, the droid, or

tomorrow's innovation of the same devices. there's repeat players involved in the space and not netly that the technology is changing is not surprising, but neither is the fact with the dominant players at the top of the chain controlling that innovation and who has access to the devices. >> host: we talked about verizon and at&t here. this report is from 2009. matt wood, if your view, if the proposed merger between at&t and t-mobile happens, how will that affect competition because t-mobile is considered a separate entity in this report. >> it is, and still is a separate endty until the deal goes through. we think it's bad for competition because t-mobile is a lower priced option. t-mobile and sprint acted as some sort of check on the prices that at&t and verizon could charge, not completely because they didn't have access to the same applications and hand sets

that veer verizon and at&t have at the outset, but the elimination of a lower price competitor who has been an invo vatter. they brought phones to market and offers lower prices than verizon and at&t. taking that away and lessingen the number of in this nationwide customers is disaster for exe thition in this space. >> host: chris guttman-mccabe? >> guest: i like my job, and i'm going to say the merger will be a rigorous process at the fcc and department of justice. i look forward to know the outcome. >> host: tell us what you think. [laughter] this is c span's communicator program discussing the fcc report on competition in the wireless industry. we are joined by chris guttman-mccabe, haven't, and from free press, a think tank

policy group that looks at these telecommunications issues, matt wood is the policy director. paul kirby has the next question. >> guest: this doesn't get tension, and one reason this year it does is because of the merger they are considering. groups and companies who opposed merger tried to use the report saying, look, they do not determine effective competition for the second year in a row showing the merger should not be approved, at&t says if shows how many carriers people have choices of, want your views on from the politics standpoint if you think the report will be used by the two sides in the merger proceeding. >> guest: i'm sure people will continue to use it, but more important than what the report says and not to cheapen the report that's important, but more important is the underlying dockets and proceedings that the

fcc looks to and what's more important whether the industry is competitive is whether the fcc pushes levers it can to level the playing field and make growth by smaller carriers possible. i think chris' answer on the merger is indicative of the problem they have. there's problems on both sides of the merger. sprint is opposing the merger and opposing harm to competition and damage to consumers if it goes through. with the other issues weighs and a part of the report ux but important in terms of what the fcc can do to change the law and regulatory playing field and data roaming and other things we argue about here in dc, those are the kinds of places that we'd like to see more movement, and that's where we think the report could conclude there's a lack of effective competition and a lot of barriers to competition, entry, and growth by smaller providers.

that's important for the merger and fcc's take on the report. there's issues on both sides, the merger one at the forefront of most people's minds, but all the issues whether or not the market is competitive or not or whether there's large barriers to entry that prevent people to getting up to the same loan and the other largest carriers. >> host: chris guttman-mccabe, if you would respond to fcc michael copps statement to cr report. "i can't ignore the darkening clouds. the headline will be that the fcc does not or does find competition. dig deeper, and for sure, there's ongoing trends of industry consolidation." >> guest: i think if you look at, you know, with all do respect to commissioner copps, i think if you focus on one specific area is the hhi is

measured by the ftc getting higher. i think the answer is yes, and you can't deny that. yet, look at the other 329 pages of the document, you see an industry that is for all intensive purposes violently competitive. there's prices going down, innovation is up. if this were not a competitive industry, why would there be 21 billion this capital expenditures in 2009 and 25 billion in 2010? you know, why would you see prices continue to go down? matt talks about new entry. during the time period it went from small regional providers to pretty significant, you know, larger providers working to try to get a national footprint during the same time period, clear you know water jumped into the market and was a participant. cox decided to interthe market,

and comcast worked there. i think all of these things suggest there's competition going on. are there barriers? certainly. one of them is that it's extremely capital intensive to enter the market. another one is that you can't just make a decision and start. you need spectrum. we've pushed hard for the last several years. the chairman commissioner, the president of the united states mentioned the need to bring spectrum to market in the state of the union address, republicans and democrats in the house and in the senate all have identified the need to bring more spectrum to market. i agree with matt. i would love the opportunity for everybody to get as much spectrum as they want and allow them all to compete without having to worry about infrastructure. that's key from our perspective, but i think if you want to pick and choose and want to find individual statistics within the report to raise concerns, that's a possibility, but i don't think when you look at the entirety of the report that there's any way

to conclude that there is not effective competition. >> host: paul kirby, next question. >> guest: it allows cell sites to be connected back to the network, and that's a big concern of smaller carriers, their contention is that verizon and at&t have the backlog market locked up and say there's alternatives open to reaching agreements. the report talks about back hall and what is called special access and that's something to be addressed. give us a sense why you think the market is a problem and then if chris wants to address that as well. >> guest: again, we at free press and other organizations made that argument as have others like sprint and t-mobile, and they are quieter now, understandably i suppose, and sprint held an obscene profit at one time that not just verizon

and at&t are making, but now century link or kwest. -- qwest. these competitors are so reliant upon their largest competing wireless providers and not only have the wire line side, but are wireless providers and can sell provision to what they are using to connect back to the towers, internet, and back to the network. we feel there's barriers there, not just the public interest organizations, but others have pointed out and shown to be a high percentage of the cost they incur to provide service and compete with the large percentage of the special access supply. >> guest: chris, anything? >> guest: i think this is an area, and there's some matt mentioned we hope would be worked out by, you know, within the industry. when we look at these sorts of issues, our initial hope is if it's an industry and an issue or

an issue to be worked out among our members, we really try to facilitate that and make that happen to the extent that it can, so bsh but, again, it's before the commission, and i think rightly so. it's something the commission should make a determination one way or the other as to what needs to happen. >> host: chris guttman-mccabe, there's about 300 million wireless users or hand sets available at this time in the united states, of the prime real estate for such hand sets, at&t, verizon, according to the wireless report, control about 80% of that prime real estate when it comes to spectrum. is that something that we should be concerned about? does that put a didn't in competition? >> guest: well, it depends i would argue no at this moment, although, you know, the commission is moving forward to bring more spectrum to market.

if you define spectrum as the cell spectrum, them, yes, verizon and at&t do control that, but i think the commission has attempted to bring other bands of spectrum to market, and we pushed to also have the beach front spectrum to market. the reality is that verizon and at&t ended up with the spectrum because that's how the government initially gave it out. since that point in time, there has been a move towards auctions and allowing people to participate in auctions, and i think, yes, there's definitely some real positives in terms of economies of scale of having the lower spectrum because you get better problem gageses out of it, and we are pushing to real gait the broadband spectrum now to allow others to enjoy those benefits, but i do think you have to look at the package as a whole in terms of competition, and it's not just where you have your brand of spectrum, but if

you build out, is there a reasonable price for the equipment and enough spectrum in the bands that you gain, not just united states, but international economies? if you think about it, when it comes to infrastructure technology, almost all the venders are not in the united states and they baled infrastructure technology for an ecosystem extending well outside our borders. we push in this context to have spectrum that is internationally harmonized so it drives down the cost so when they build technology whether it's for sprint or u.s. cellular or t-mobile, they build the technology for orange or some of the other foreign carriers and therefore driving the costs down, but to me, the solution is bring more spectrum. i think matt and i would agree on this strongly. bring more spectrum to market, remove the potential barriers from that respective, if you bring it below 1 gig hertz, it's

blow everyone who wants access to that. that's the right approach. >> guest: i agree to that in some respects. chris is right that the licenses were essentially given to verizon and at&t and the predecessors as they consolidate over the years. the most recent option of the beach front option, verizon and at&t won at auction the largest portion of the licenses, and interestingly enough, there's another bearier and they got some of the spectrum and verizon and at&t use their dominance to look at engineering ways around that competition and the lack of improperrability so if i have a phone that works on my particular license in that spot, it might not work for verizon or at&t, they not only won the most

licenses at auction, but found ways to keep people out of their space in that respect as well. we see continued domination of the largest carriers in the option space. when it comes to more tv broadband spectrum, that's something we talked about as well. i think that that's the case for unlicensed spectrum use in broadband, but not necessarily by the largest carriers, and we see at&t today uploading as much as 40% of people on networks. more intensively but smarter to make it unlicensed that can be shared and reused more frequently and more cheaply by innovators who want to come in the space and not necessarily go through at&t and veer verizon. >> guest: talking about allocations, is there a