According to a study, Wireless Competition Under Spectrum (News - Alert) Exhaust, the Phoenix Center shows that in the face of spectrum exhaust for commercial mobile services, policies which impede incumbent carriers from acquiring more spectrum with auction or acquisition may do harm than good.
Mostly, it is presumed that there is a direct relationship between the number of firms and market performance indicating that prices fall as the number of firms increase and, conversely, that prices rise as markets become more concentrated. However, the Phoenix Center's new study says that the addition of a spectrum constraint to the traditional economic model of competition turns the conventional view of wireless competition on its head.
The standard economic model of competition that is consistent with the traditional view that high industry concentration shows poor economic performance, the Center shows that under a binding spectrum constraint, fewer firms will produce lower prices and possibly increase sector investment and employment. This "contrarian" effect arises with prices fall as scarce spectrum resources are employed more efficiently, allowing firms to increase with rising demand for bandwidth.
"No one has formally studied how spectrum shortages affect competition in wireless communications. Our study is the first, and its findings are significant," stated study co-author and Phoenix Center President Lawrence J. Spiwak.
"If mobile carriers have too little spectrum, then the standard view that more competitors leads to lower prices is precisely backwards. Clearly, policymakers need to re-orientate their thinking about competition in the wireless industry," Spiwak adds.
"The economics of the wireless industry are highly complex, and understanding how key industry trends affect market outcomes is essential to good policymaking," comments Dr. George S. Ford, Chief Economist of the Phoenix Center and co-author of the paper. "We hope this study leads policymakers, and those that seek to influence them, to strongly question the boilerplate economic analysis that too often leads to poor policy prescriptions in communications markets."
Anamika Singh is a contributing editor for TMCnet. To read more of Anamika's articles, please visit her columnist page.Edited by
Rich Steeves
