Abstract
The U.S. Federal Communications Commission is responsible for regulation in the communications marketplace and for management of the nation’s non-federal radio frequency spectrum. During the past year, Commission economists contributed to the analysis of competition in the communications marketplace as presented in the Commission’s first Communications Marketplace Report. In addition, Commission economists examined issues in the broadcast television industry and performed general and limited analyses of the effects of both national broadcast group size and local market concentration on retransmission fees. Commission economists also evaluated the current Form 477 data collection and helped to develop proposals that would improve the current data collection as well as establish a new data collection that would advance the Commission’s universal service goals. Finally, Commission economists evaluated the likely competitive effects that would be associated with the proposed T-Mobile-Sprint transaction.
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Source: NRUF, CTIA Wireless Industry Indices Year-End 2017. NRUF provides a measure of the number of mobile wireless connections or connected devices that have assigned telephone numbers
Source: CTIA Wireless Industry Indices Year-End 2017, at 64, Chart 27
Source: Ookla SPEEDTEST intelligence data, © 2018 Ookla, LLC. All rights reserved. Published with permission of Ookla
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Notes
For purposes of fixed broadband deployment reporting, the Commission currently requires fixed providers to report biannually the census blocks in which their broadband service is available, which means that the provider does, or could, within a service interval that is typical for that kind of connection—that is, without an extraordinary commitment of resources—provision two-way data transmission to and from the Internet with advertised speeds that exceed 200 kbps in at least one direction to end-user premises in the census block. Facilities-based mobile broadband providers are also required to report biannually on deployment by submitting—for each technology and frequency band that is employed—polygons in geographic information system (GIS) mapping files that digitally represent the geographic areas in which a customer could expect to receive the minimum speed that the service provider advertises for that area. FCC Form 477, Local Telephone Competition and Broadband Reporting Instructions, https://transition.fcc.gov/form477/477inst.pdf.
It is important to note that the order that grants this proposed transaction (subject to conditions) was only recently adopted (FCC 2019b), and as such, the FCC’s economists’ full evaluation of the potential competitive harms will be reserved for the Order and future essays.
The FCC is directed to publish a report on the state of the communications marketplace in the last quarter of every even-numbered year (Congress 2018). The next such Report will be published in December 2020.
Due to space constraints, we present in this essay a few important elements in each sector of the communications marketplace. The Communications Marketplace Report itself contains a full discussion of the competitive trends in the industry.
All CPI figures were taken from BLS databases: Bureau of Labor Statistics, http://www.bls.gov. The index used in this analysis, the CPI for All Urban Consumers (CPI-U), represents about 87% of the total U.S. population. Bureau of Labor Statistics, Consumer Price Index: Frequently Asked Questions, https://www.bls.gov/cpi/questions-and-answers.htm. The CPI category “Telephone Services” has two components: wireless telephone services and landline telephone services. Additional information can be found at Bureau of Labor Statistics, Consumer Price Index: How the Consumer Price Index Measures Price Change for Telephone Services, https://www.bls.gov/cpi/factsheets/telephone-services.htm.
Ookla gathers crowdsourced mobile speed data through the use of its Speedtest mobile app. Speedtest, Ookla Speedtest Mobile Apps, http://www.speedtest.net/mobile/.
25 Mbps/3 Mbps is the current benchmark speed for fixed broadband for delivering advanced telecommunications capability to American consumers (FCC 2019c).
For a detailed description of the methodology, see FCC (2018b, pp. 184–185).
As was stated above, this is a preliminary and limited analysis; and, also as noted, the analyses and conclusions that are set forth in this article are those of the authors and do not necessarily reflect the views of other members of the Office of Economics and Analytics, other Commission staff, or the Commission itself.
Some stations may instead choose compulsory carriage by local MVPDs under must-carry rules.
Instead of (or in addition to) a fee, the agreement may specify that the MVPD carry another broadcast station that is owned by the broadcast group. A firm that owns multiple broadcast stations is called a broadcast group. Current examples of broadcast groups are Raycom Media, Sinclair Broadcast Group, and Nexstar Media Group, Inc.
Broadcast stations, however, do not keep all of the retransmission revenues, as broadcast networks negotiate for a share of the retransmission revenue of their affiliate stations in reverse compensation agreements (Eisenach 2014).
MVPDs typically pay broadcast station owners (broadcast groups) for the Big 4 streams. In a few markets the Big 4 network owns its Big 4 station and only in those markets does the MVPD directly pay the Big 4 network for the stream. We refer to streams instead of stations because television stations multicast several programming streams over the air. While most stations in the data set received payment for only one stream, some stations received payment for multiple streams. This preliminary study considers 191 contracts over the given time period.
For broadcasters without retransmission consent deal information, we assume that new contracts began in months where the fee at least doubled from the previous month.
In broadcasting, the term duopoly refers to ownership of two stations or streams in a market. Although ownership of two top-four stations in a market is generally prohibited by the Commission’s local television ownership rule (FCC 2017c), Big 4 duopolies exist in markets where at least one Big 4 station is not ranked in the top four stations or a low-power station or multicast subchannel is a Big 4 affiliate.
Unlike other broadcasters, Big 4 network owners own both broadcast stations and network programming.
The dependent variable, Average Fee, is the per subscriber fee calculated across all the Big 4 stations the broadcast group owns, over all the months in the contract.
T-Mobile and Sprint to Combine, Accelerating 5G Innovation & Increasing Competition (April 29, 2018). Available at https://www.t-mobile.com/news/5gforall.
47 U.S.C. §§ 214(a), 310(d).
Petitions to Deny were due on August 27, 2018, Oppositions (to petitioners) were due on September 17, 2018, and Replies were due on October 9, 2018 (FCC 2018c).
To support their claims, the Applicants compared their Network Build Model’s predictions for New T-Mobile’s network and associated costs relative to the networks of the stand-alone companies.
For instance, whereas T-Mobile had been deploying its low-band 600 MHz spectrum in rural areas, the Applicants claimed that New T-Mobile’s access to complementary mid-band access would enable improved speeds and more consistent signal levels.
The Applicants also made various additional public interest claims: For instance, they asserted that the proposed transaction would enable New T-Mobile to offer higher quality wholesale services at lower prices to mobile virtual network operators (MVNOs) (FCC 2018d); it would improve New T-Mobile’s ability to offer appealing terms to roaming partners (FCC 2018e); it would permit the Applicants to achieve non-network savings in retail distribution, advertising, equipment costs, repair and logistics, IT and billing, and other fixed general and administrative costs (FCC 2018f); and it would enable New T-Mobile to be a more significant competitor for enterprise customers (FCC 2018d).
Criticisms include the details of the Applicants’ Network Build Model, which the commenters claimed relied on speculative and unverifiable assumptions and oversimplified the analysis of how a combined network could use existing network assets and spectrum more efficiently (FCC 2019d).
In the past, the Commission has used a two-part screen to help identify those markets that provide particular reasons for further competitive analysis. The first part of the screen is based on the size of the post-transaction HHI and the change in the HHI. The second part of the screen—which is applied on a county-by-county basis—identifies local markets where the merged entity would hold approximately one-third or more of the total spectrum that is suitable and available for the provision of mobile telephony/broadband services, post-transaction (Kwerel et al. 2012). The Commission also conducts further review of transactions in which the acquiring entity would increase its below-1-GHz spectrum holdings so as to hold approximately one-third or more of such spectrum (FCC 2014b) and in which it exceeds a separate millimeter wave (mmW) spectrum threshold of 1850 MHz (FCC 2016).
The Applicants argue that this forward-looking methodology allows them better to capture the prospective benefits of building out New T-Mobile’s network.
The Commission has relied on LNP data to calculate diversion in its evaluation of mobile wireless transactions since 2004 (see, e.g., FCC 2014a).
In past analyses, the Commission has recognized these biases; it has nevertheless determined that the LNP data presented the best source of consumer substitution available in the mobile wireless industry (FCC 2011).
Pursuant to its own Section 7 (Clayton Act) review of the transaction, the U.S. Department of Justice’s Antitrust Division (DOJ) concluded that the proposed merger was likely to result in competitive harm in certain markets. The DOJ entered into a settlement with the Applicants whereby the merger would be approved conditional on the divestiture of Sprint’s prepaid assets (including Sprint-branded prepaid, and Virgin Mobile) to DISH and certain other conditions (USDOJ 2019).
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Acknowledgements
We thank all of the economists at the Federal Communications Commission who contributed to the proceedings that are discussed in this essay. We note that the opinions expressed herein are those of the authors and do not represent those of the Federal Communications or any other members of its staff, or of the University of Pepperdine or any other members of its staff.
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Boliek, B., Makuch, K., Matraves, C. et al. Economics at the FCC 2018–2019: Competition, Broadband Deployment, and Transaction Review. Rev Ind Organ 55, 625–646 (2019). https://doi.org/10.1007/s11151-019-09740-3
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DOI: https://doi.org/10.1007/s11151-019-09740-3