Since 1995, the FCC has been reporting on the state of competition in the mobile market. These reports are not voluntary. Section 332(c)(1)(C) of the Communications Act requires that the FCC “review competitive market conditions with respect to commercial mobile services and shall include in its annual report an analysis of those conditions . . .” including “an analysis of whether or not there is effective competition.” In its First Report, the FCC found that the mobile telephone service segment of the mobile business was not fully competitive. (First Report at ¶ 84.) The FCC offered similar conclusions in its subsequent reports until the Eighth Report (covering 2002), in which the FCC found that there was effective competition in the mobile market. (Eight Report at ¶ 12.) For the next five reports, the FCC reached the same conclusion – until the Fourteenth Report, when the FCC concluded that “no single definition of effective competition” would be adequate. (Fourteenth Report at ¶ 16.) Because the FCC decided it was “too hard” to define effective competition, it avoided making any finding at all regarding the state of competition in the mobile market.
But Congress clearly expected the FCC to define effective competition and make a finding regarding the state of competition in the mobile market. Commissioner Copps recognized this in his concurring opinion to the Eighth Report. He said that the FCC “must establish a definition of ‘effective competition” and asked: “How can we do the job Congress gave us without doing so?” He ultimately concluded that the FCC could not provide an “analytically sound foundation” for Commission or Congressional action without such a definition. Commissioner Copps reiterated his belief year after year, noting his hope that the agency could “find bipartisan support for adopting an a priori definition of ‘effective competition.’” (Statement of Commissioner Copps Approving in Part and Concurring in Part, Twelfth Report.) In his separate statement approving the Fourteenth Report, however, Commissioner Copps did an about face. Despite the absence of a definition of effective competition in the Fourteenth Report, which he had long stated was necessary to provide an “analytically sound foundation” for action, Commissioner Copps said the Fourteenth Report “provides us with a solid, going-forward analytical foundation.” (Statement of Commissioner Copps, Approving, Fourteenth Report.)
Why the sudden change of heart? It should be clear by now that the change was based on the new Democratic majority’s desire to regulate the mobile industry. By refusing to define effective competition, the FCC was able to sidestep finding that the mobile market is competitive. And without a finding that the market is competitive, the FCC has more freedom to regulate the mobile industry. Since the Fourteenth Report was released, the FCC has imposed “net neutrality” regulations on mobile providers and proposed “bill shock” regulations without regard to whether such regulation would promote competition. Section 332(c)(1)(C), however, is competition focused. It indicates that the public interest basis for FCC regulation or forbearance from regulation is whether the FCC action will promote competition among mobile service providers. The implication is that, if the mobile market is competitive, regulation is unnecessary.
I suspect the FCC’s refusal to provide an “analytically sound foundation” for regulatory action will continue in the Fifteenth Report, again on the basis that it’s just too hard to adequately define effective competition. Because, if the FCC were to define effective competition, it would be forced to conclude the mobile market is competitive. Basic canons of statutory construction would compel that result. According to these canons, it is presumed that “[a] term appearing in several places in a statutory text is generally read the same way each time it appears.” (Ratzlaf v. United States, 510 U.S. 135, 143 (1994).) In the Communications Act of 1934, the term “effective competition” is also used by Congress in 47 U.S.C. § 543(l). That section provides that a cable operator is subject to effective competition if its franchise area is (a) served by at least two unaffiliated multi-channel video programming distributors (“MVPD”), each of which offers comparable video programming to at least 50 percent of the households in the franchise area; and (b) the number of households subscribing to programming services offered by MVPD other than the largest MVPD exceeds 15 percent of the households in the franchise area. This test is referred to as the “competing provider” test. In other words, in the cable context, there is effective competition if there are three providers in the market, two of which service more than 15% of subscribers. There is no evidence that Congress intended “effective competition” to mean something different in the mobile context than it means in the cable context. The basic canon of statutory construction above thus indicates that the FCC should find that the mobile market is subject to effective competition if there are three mobile service providers and two of them service more than 15% of mobile subscribers.
The mobile market easily meets that test. According to the Fourteenth Report, “[a]pproximately 273 million people, or 95.8 percent of the population, are served by at least three mobile voice providers,” and “[a]pproximately 217 million people, or 76.1 percent of the population, are served by at least three mobile broadband providers.” (Fourteenth Report at p. 7.) The two largest mobile service providers had approximately 60% of subscribers, leaving the remaining providers with well over 15% of mobile subscribers. (Fourteenth Report at p. 6.) For sake of comparison, the FCC has found in a series of recent orders (see here and here) that cable markets are competitive even though those cable markets were subject to much higher concentration levels than the mobile market. For example, in a recent cable order finding effective competition, a single cable operator had more than 60% of each market.
To provide an “analytically sound foundation” for further regulation of the mobile market, the FCC should finally define effective competition in accordance with the guidance Congress has already provided in the cable context. This approach is required by the law, is data-driven, and would result in a finding that the mobile market is effectively competitive. That is exactly why the FCC won’t do it.