How Dynamic Is The Mobile Internet Marketplace? Good Question. No, It Really Is A Good Question.

I’m torn between whether or not to respond to Adam Thierer’s post on this subject at Techliberation. Part of the problem is that I’m not exactly sure what the post is trying to say other than that those of us who doubt that we have what I have previously referred to as GMPBIITGBCGHEGMOTFOTE (“God’s Most Perfect Broadband Infrastructure in The Greatest Best Country God Has Ever Given Man On The Face of the Earth”).  As far as I can tell, the argument goes:

1. This post here shows that lots of cool things happen in wireless.

2. The fact that cool things happen proves we have GMPBIITGBCGHEGMOTFOTE. Since regulation is only warranted if we don’t have GMPBIITGBCGHEGMOTFOTE, and since we obviously have GMPBIITGBCGHEGMOTFOTE, anyone who calls for regulation of anything is a moron.

3. Neener neener.

This is a pretty common mode of analysis here in D.C., give or take a few neeners. It proceeds from what I refer to as the “binary” fallacy, which holds that a market is either “competitive” or “not competitive.” A few more nuanced folks might go so far as to say there is a third category called “not competitive enough.” But as far as I know, I’m the last die hard who thinks this is probably not a terribly relevant question.

More below . . . .

O.K., I guess I overcame my reluctance and will give this one more shot.

As I have written on more than one occasion (see here, here, here, and here for a few examples), real world economics is extremely complex. Further, especially when we deal with critical infrastructure, we have reasons we care that go beyond traditional competitive market analysis. Asking whether the market is “competitive” or “dynamic” or any of these generic words without specific referent doesn’t really tell us anything. It is certainly the case that the wireless world is a cooler and more fun place than it was 5 years ago. It sucks worse if you want unlimited data plans now that there are so many cool things to do. If you send lots of text messages and use lots of voice minutes, prices are better. If you don’t use nearly as much, you’re probably paying more. By some measures, you are probably receiving more value, but paying a bigger chunk of change to your wireless provider every month. Odds are good you probably are generally satisfied with your service, but still have some things that drive you crazy. And if you travel abroad much, you notice that folks can do some amazing things with their mobile devices that we can’t, but that other aspects of our mobile service are better.

None of this complicated analysis fits into the simplistic world of “competition” v. “no competition” or even answers the question “do we care and, if we care, what should we do?” God knows we haven’t even come vaguely close to answering the question of “what happens if something goes horribly wrong” but this does not trouble those who believe we have GMPBIITGBCGHEGMOTFOTE, becuase it is axiomatic that nothing is ever going to go wrong GMPBIITGBCGHEGMOTFOTE.

The problem is that all of these issues are important even if they do not fit neatly into the “competition v. no competition” mantra. There are lots of real world impacts that come from the fact that we decided, as a policy matter, to allow wireless networks and equipment manufacturers to cut exclusive deals. Those impacts are not so neatly summed up by saying “we have the iPhone and the Droid, so there! Neener, neener.” v. “You can’t get an iPhone unless you go with AT&T or VZ, so there! Neener, neener.”

As an aside, this is why I am probably the only person in D.C. who thinks the FCC’s Wireless Bureau did an excellent job in their much criticized Wireless Competition Report last year. Under 47 U.S.C. 332(c), the FCC is required to report to Congress every year “whether or not there is effective competition” in the various segments of the “commercial mobile services” market. It was big news last year when, for the first time ever, the FCC said “well, we can say it is very complicated and we cannot say there is definitely effective competition. Mind you, we are not saying there isn’t competition, and some segments seem more competitive than others, but we cannot find there is effective competition.”  This, of course, provoked much wrath from those who believe we have GMPBIITGBCGHEGMOTFOTE and how could it be possible that anyone could question the perfection of our dynamic, uber competitive wireless market blah blah blah iPhone beautiful innovation neener neener.  Meanwhile, those who believe that the opposite of competitive is not competitive, and that if things are not working right the only explanation is that things are not competitive (enough), were pleased that the FCC was beginning to recognize that the market was horribly not competitive but it still had not gone far enough because it refused to find that dominant firms were exercising market power and blah blah blah free the iPhone rate gouging neener neener.

I get that Washington is not exactly a town of subtlety and nuance, particularly with regard to something as magnificent and complex as the real world. I also get that some people have as their central philosophy: “It’s true that some outcomes of the unregulated market are not what we might like to see as a matter of policy, but trying to regulate them would be very expensive and would ultimately fail, so unless there is some utter and complete market failure or some real risk to public safety (such as with 911 mandates), best leave well enough alone.” But it’s possible to hold this belief and recognize that reality can lie far short of GMPBIITGBCGHEGMOTFOTE even if it is not in a state of utter market failure.

For myself, I continue to believe that when we regulate we should consider whether competition exists and whether that will do the job or not — for whatever we think the job ought to be.  But whether we ought to take some sort of action, or deliberately refrain from some sort of action, needs to consider more than the number of competitors in a market or some bizarre set of utterly unrelated statistics. Real market analysis has to take into account the specifics of the actual market. Or, as I wrote some years back:

“To conclude, look at the banking industry. “When banks compete, you win” turned out to be true in the short term for high-risk borrowers seeking subprime loans, but not for the economy in the long run. That parties with bad credit would seek the lenders willing to offer them terms because they intended to flip the loans was as utterly predictable as an actuarial table for setting life insurance rates, but we let it happen because we “trusted the market” and the forces of competition. Insurance companies that use actuarial tables know better. Some obese smokers live to be 100 years old (I hope!), but insurance companies don’t set rates based on this theoretically possible case. Cellular providers do compete with one another in certain ways. But don’t expect text messaging prices to reflect actual cost as a result. Like the insurance company using an actuarial table, regulators need to keep an eye on how the majority of people behave and how that impacts real world behavior, not contemplate some happy theoretical outcome.”

The same applies for every other aspect of this market, whether it’s Bill Shock or data roaming or handset exclusivity or whatever. We need to approach this like an actuarial table — what are the most likely outcomes and do we care. Granted, this approach is far more complex than “look how competitive this is, so all is perfect with GMPBIITGBCGHEGMOTFOTE — neener neener” or the alternative “look how awful and uncompetitive this segment is — neener neener.” But I like to think a more complex approach is more likely to yield better results in the real world where we actually live, rather than in the imaginary world of GMPBIITGBCGHEGMOTFOTE.

Stay tuned . . . .


  1. I would actually argue that the free market is actually the worst way to manage communications infrastructure.

    Government managed top down systems, like that of Korea, give better product at less cost.

  2. Harold, I’ve posted a response to your response on my blog. As always, I enjoy your thought provoking posts, even if I sometimes have a different view. Link here:“fine-tuning”/.

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