Wireless prices lower despite industry consolidation, GAO finds

Although the wireless industry in the United States has significantly consolidated over the past decade, the Government Accountability Office has found that prices have steadily declined over the same period.

That the wireless industry has consolidated should be no surprise given the many high-profile mergers over the past 10 years, including Cingular and AT&T in 2004, Sprint and Nextel in 2005 and Verizon and Alltel in 2008. The consolidation has been particularly beneficial for America's two largest carriers, AT&T and Verizon. In 2006, for instance, AT&T and Verizon combined accounted for 51.5% of all wireless subscribers in the United Stattes, while in 2009 they accounted for 61.7% of all wireless subscribers in the United States.

FCC report questions wireless competitiveness

While part of this increase in market share can be explained by the decline of Sprint (which accounted for 22.8% of the market in 2006 versus 16.8% of the market in 2008), the GAO says that it is also due to "the acquisition of spectrum licenses through spectrum auctions and license transfers." All of this has allowed the big carriers to gobble up new subscribers, the GAO reports, as smaller carriers face a more difficult time breaking into the market.

But even while the industry has consolidated, the average price for wireless services last year was "approximately 50% of the price in 1999," the GAO finds. Additionally, the GAO reports that "consumers are generally getting more wireless services, such as more voice minutes of use, for lower costs than they were 10 years ago."

While the GAO doesn't go into great detail on why prices are dropping despite industry consolidation, it offers one possible explanation as the economies of scale resulting from increased wireless penetration and the building of truly nationwide networks. Wireless penetration has surged dramatically over the past decade, going from a mere 38% in 2000 to 91% in 2009. Because wireless networks are now able to reach more people, the total average cost of providing service per user has gone down. And because mergers and consolidations have resulted in the creation of truly nationwide networks, consumers are no longer being hampered with as many roaming fees as they were a decade ago.

Even though the GAO has found that prices have declined, it says that the wireless industry still faces some big challenges that could hinder its competitiveness in the future. In particular, it says that the Federal Communications Commission's spectrum auctions have greatly favored big carriers to the detriment of smaller ones. Pointing to the 700MHz auction held in 2008, the GAO notes that Verizon and AT&T won a combined total of 31% of all available licenses. The GAO says that some "small carriers and consumer groups" it has interviewed have pushed for putting a limit on the amount of spectrum any one carrier can hold. By implementing spectrum caps on its wireless auctions, the groups say the FCC can do more to help small wireless carriers remain competitive with the big-name providers.

Another issue cited by consumer groups and small carriers in the GAO report is the cost for consumers of switching carriers. Among the costs mentioned in the GAO report are early termination fees that consumers pay for leaving their carrier contract early, and handset exclusivity deals that effectively prevent consumers from bringing their old devices onto a new network.The GAO concludes that while the wireless industry has remained fairly competitive and has offered consumers lower prices than it used to, the FCC should consider "expanding its original data collection of wireless industry inputs and outputs" to ensure that the market remains competitive despite undergoing major consolidation over the past decade.

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