Kohl Asks FCC, DoJ to Look Closely at Wireless Competition

“Recently, we on the Antitrust Subcommittee have become concerned with emerging barriers to competition in an already highly concentrated market,” Kohl wrote. “Four carriers control over 90 percent of the cellphone market, and two of them collectively have a market share of 60 percent. I therefore believe it is vitally important that the FCC and Justice Department take action to enhance competition in this market and to remove barriers to competition preventing the emergence of new competitors.”

The letter makes specific recommendations to both DoJ and the FCC. “We urge that the Antitrust Division closely examine the cell phone industry to insure that dominant carriers do not take action to stifle competition or engage in conduct contrary or injurious to competition in violation of antitrust law,” Kohl said. The DoJ, which maintains strict confidentiality on such probes, typically does not brief senators about the status of its investigative efforts, Hill sources said. Kohl encouraged the FCC to “conform to traditional antitrust conclusions regarding appropriate [Herfindahl-Hirschman Index] levels for determining the existence of competition,” as it completes its annual report on CMRS competition.

Kohl said the June hearing focused in part on rising prices for text messages. Over two years, the four major carriers raised prices charged for text messages on a per- message basis from 10 to 20 percent, he observed. “The cellphone companies testified that they did not coordinate their price increases in any way, and we received no evidence to contradict this testimony,” Kohl wrote. “Nonetheless, these identical price increases are hardly consistent with the vigorous price competition we hope to see in a competitive marketplace. Indeed, these price increases may represent a warning sign for the state of competition in the cell phone market.”

Kohl recommended strengthening roaming requirements, one of the topics discussed at the June 16 hearing. “It is essential that competitive cellphone carriers have reasonable access to interconnect with the networks of the established carriers in order to have a fair chance to compete,” he said. The letter raised particular concerns about eliminating the in-market exception approved as part of FCC automatic roaming rules and addressing small carrier calls for data roaming.

Kohl also recommended a closer look at small carrier access to spectrum, which he said was exacerbated by the lifting of the spectrum cap under former FCC Chairman Michael Powell. “Since 2001 the FCC has taken a more ‘hands-off’ approach, and consequently, the nation’s largest carriers have systematically absorbed smaller providers and acquired the lion’s share of spectrum made available at auction,” he said. “Most recently, AT&T and Verizon dominated the 700 MHz auction, paying approximately $16 billion for new licenses -- or 84 percent of auction revenues.”

Kohl also raised questions about the competitive implications of handset exclusivity agreements between equipment makers and carriers, special access prices and early termination fees.

The Wall Street Journal questioned the need for the DoJ probe into cellular competition, in a Tuesday editorial. “One of the few bright spots in the current economic gloom has been the telecommunications industry, where competition is robust, innovation forges ahead and consumer prices continue to fall,” said editorial writers for the paper. “Leave it to Congress and Beltway planners to mess with this success.” Verizon Wireless, AT&T and Sprint Nextel declined the opportunity to comment on the Kohl letter.

“We appreciate the interest that Senator Kohl has expressed in a variety of issues that affect competition in the wireless industry,” said David Nace, counsel to Rural Cellular Association. “We realize it is not the role of the government to ensure the success of competitors, but when the largest wireless carriers use their market power in a manner that will drive out competition, there are serious problems that should be addressed either by enforcing existing anti- trust laws or by enacting new laws to preserve and promote competition.”

“Fair roaming rules, access to spectrum, and reasonable rates for special access are critical issues for small and regional carriers. Cricket urges DOJ and FCC to take action on the Chairman’s roadmap to a robustly competitive marketplace,” said Laurie Itkin, director of government affairs at Leap Wireless. Caressa Bennet, counsel to the Rural Telecommunications Group, said RTG welcomed the Kohl letter. “Verizon and AT&T are able to harm competition by controlling the availability of handset devices by tying them to their networks exclusively, controlling roaming terms and conditions to the detriment of small carriers and rural consumers, preventing others from gaining access to spectrum … in both auctions and the secondary market, and imposing conditions on consumers that would be entirely unacceptable if there truly were competition,” Bennet said.