*Pages 1--124 from Microsoft Word - 42680* Federal Communications Commission FCC 04- 216 1 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services ) ) ) ) ) ) ) ) ) WT Docket No. 04- 111 NINTH REPORT Adopted: September 9, 2004 Released: September 28, 2004 By the Commission: Chairman Powell issuing a statement; Commissioner Copps concurring and issuing a statement. Table of Contents Paragraph # I. EXECUTIVE SUMMARY ............................................................................................................. 1 II. INTRODUCTION ........................................................................................................................... 6 A. Background......................................................................................................................... 6 B. Sources of Information ..................................................................................................... 10 C. Structure of Report............................................................................................................ 17 D. Industry Development....................................................................................................... 20 E. Status of Competition ....................................................................................................... 23 III. MOBILE TELECOMMUNICATIONS MARKET STRUCTURE .............................................. 29 A. Services and Product Market Definition........................................................................... 31 B. Overview of Service Providers ......................................................................................... 36 1. Facilities- Based Mobile Telephony Providers..................................................... 36 2. Resale Providers .................................................................................................. 38 3. Data- Only Providers ............................................................................................ 41 1 Federal Communications Commission FCC 04- 216 2 4. Satellite Providers ................................................................................................ 43 C. Horizontal Concentration.................................................................................................. 44 1. Number of Mobile Telephony Competitors......................................................... 46 2. Concentration Measures for Mobile Telephony Services.................................... 50 3. International Comparison of Mobile Market Concentration................................ 58 D. Consolidation and Exit...................................................................................................... 62 1. Sales and Swaps................................................................................................... 65 2. Joint Ventures ...................................................................................................... 68 3. Restructurings ...................................................................................................... 70 4. Exiting Facility- Based Provision of Service........................................................ 75 5. Affiliations ........................................................................................................... 76 E. Entry Conditions and Potential Barriers to Entry ............................................................. 80 1. Spectrum Allocation and Assignment ................................................................. 81 a. Cellular, Broadband PCS, and SMR....................................................... 86 b. 800 MHz Band Reconfiguration and 1.9 GHz Spectrum Exchange................................................................................................. 91 c. Narrowband Spectrum ............................................................................ 92 d. 700 MHz Bands ...................................................................................... 94 e. Advanced Wireless Services................................................................... 99 2. Other Potential Barriers to Entry ....................................................................... 103 F. Rural Markets ................................................................................................................. 107 1. Geographical Comparisons: Urban vs. Rural .................................................... 107 2. Definition of Rural............................................................................................. 108 3. Rural Competition.............................................................................................. 109 4. Conclusion ......................................................................................................... 111 IV. CARRIER CONDUCT IN THE MOBILE TELECOMMUNICATIONS MARKET ................ 112 A. Price Rivalry ................................................................................................................... 113 1. Developments in Mobile Telephony Pricing Plans ........................................... 113 2. Prepaid Service .................................................................................................. 115 3. Mobile Data Pricing........................................................................................... 117 B. Non- Price Rivalry ........................................................................................................... 123 1. Technology Deployment and Upgrades ............................................................ 124 a. Overview............................................................................................... 124 b. Background on Network Design and Technology................................ 126 2 Federal Communications Commission FCC 04- 216 3 c. Technology Choices and Upgrades of Mobile Telephony Carriers ................................................................................................. 130 d. Coverage by Technology Type............................................................. 136 e. Data- Only Networks and Technology Deployment ............................. 139 2. Capital Expenditures.......................................................................................... 143 3. Roaming............................................................................................................. 144 4. Advertising and Marketing ................................................................................ 146 5. Quality of Service .............................................................................................. 148 6. Provision of Ancillary Services and Promotional Offers................................... 151 7. Mobile Data Services and Applications............................................................. 153 V. CONSUMER BEHAVIOR IN THE MOBILE TELECOMMUNICATIONS MARKET.......... 158 A. Access to Information on Mobile Telecommunications Services................................... 159 B. Consumer Ability to Switch Service Providers .............................................................. 161 1. Churn ................................................................................................................. 161 2. Local Number Portability .................................................................................. 162 VI. MOBILE TELECOMMUNICATIONS MARKET PERFORMANCE ...................................... 167 A. Pricing Levels and Trends .............................................................................................. 168 1. Pricing Trends.................................................................................................... 168 2. Average Revenue Per Unit ................................................................................ 172 B. Quantity of Services Purchased ...................................................................................... 173 1. Subscriber Growth ............................................................................................. 173 a. Mobile Telephony................................................................................. 173 b. Mobile Data .......................................................................................... 177 c. Satellite ................................................................................................. 180 2. Minutes of Use................................................................................................... 181 3. Mobile Data Usage ............................................................................................ 182 4. Sub- National Penetration Rates. ........................................................................ 185 C. Variety, Innovation, and Diffusion of Service Offerings................................................ 187 D. Quality of Service ........................................................................................................... 190 E. International Comparisons .............................................................................................. 198 1. Mobile Telephony.............................................................................................. 198 2. Mobile Data ....................................................................................................... 207 VII. INTERMODAL ISSUES............................................................................................................. 211 A. Wireless – Wireline Competition.................................................................................... 211 3 Federal Communications Commission FCC 04- 216 4 1. Wireless Substitution ......................................................................................... 212 2. Wireless Alternatives......................................................................................... 215 B. Wi- Fi............................................................................................................................... 218 VIII. CONCLUSION............................................................................................................................ 222 IX. ADMINISTRATIVE MATTERS................................................................................................ 226 Statement of Chairman Powell Statement of Commissioner Copps APPENDIX A: Mobile Telephony Tables APPENDIX B: Maps APPENDIX C: List of NOI Commenters 4 Federal Communications Commission FCC 04- 216 5 I. EXECUTIVE SUMMARY 1. This report reviews competitive market conditions with respect to commercial mobile radio services (“ CMRS”) using a framework that groups indicators of the status of competition into four categories: (1) market structure; (2) carrier conduct; (3) consumer behavior; and (4) market performance. The report also examines a number of related topics of interest to the Commission, including urban- rural and international comparisons, wireless- to- wireline competition, and Wi- Fi. 2. In this report the Commission concludes that there is effective competition in the CMRS marketplace. Among the indicators of market structure that form the basis for this conclusion, we note that 97 percent of the total U. S. population lives in counties with access to three or more different operators offering mobile telephone service, up from 95 percent in the previous year, and up from 88% in 2000, the first year for which these statistics were kept. In addition, there were somewhat larger increases in the percentage of the U. S. population living in counties with access to 4 or more, 5 or more, 6 or more, and 7 or more different mobile telephone operators in the past year. These increases indicate that competition is robust in terms of the current number of competitors per market, and also that spectrum availability and other key determinants of entry conditions are favorable to continued competitive entry at the local level. 3. With respect to carrier conduct, the record indicates that competitive pressures continue to compel carriers to introduce innovative pricing plans and service offerings, and to match the pricing and service innovations introduced by rival carriers. Price rivalry is evidenced by the continued expansion of pricing innovations such as free night and weekend minutes and free mobile- to- mobile calling among an individual carrier’s customers. A notable example of non- price rivalry is that several mobile operators have recently introduced push- to- talk (“ PTT”) services to compete with Nextel’s signature PTT offering. In addition, the deployment of competing technological standards continues to be an important dimension of non- price rivalry in the U. S. mobile telecommunications market. The carriers using TDMA/ GSM as their second- generation digital technology continue deploying or planning to deploy the next- generation technologies on the GSM migration path, including General Packet Radio Services (“ GPRS”), Enhanced Data Rates for GSM Evolution (“ EDGE”), and eventually Wideband CDMA (“ WCDMA”). Similarly, many CDMA carriers have been upgrading their networks to CDMA2000 1xRTT, and both Verizon Wireless and Sprint PCS have begun deploying a high- speed wireless data network using CDMA2000 1X EV- DO (evolution- data only, “EV- DO”), the next step in the CDMA migration path after 1xRTT. In addition to investing in network deployment and upgrades, certain carriers have continued to pursue marketing strategies designed to differentiate their brands from rival offerings with regard to various aspects of network performance such as geographic coverage, voice quality, and wireless data speeds. 4. Indicators of market performances show that competition continues to afford many significant benefits to consumers. Consumers continue to contribute to pressures for carriers to compete on price and other terms and conditions of service by freely switching providers in response to differences in the cost and quality of service. Average monthly churn rates remain at about 1.5 to 3.5 percent per month. In addition, the implementation of local number portability (“ LNP”) beginning in November 2003 has lowered consumer switching costs by enabling wireless subscribers to keep their phone numbers when changing wireless providers. While to date the advent of LNP does not appear to have resulted in an increase in churn, there is evidence to suggest that competitive pressure on carriers to retain existing customers has increased as a result of LNP. 5 Federal Communications Commission FCC 04- 216 6 5. In the 12 months ending December 2003, the United States mobile telephony sector increased subscribership from 141.8 million to 160.6 million, raising the nationwide penetration rate to approximately 54 percent of the population. Mobile subscribers continued to increase the amount of time they spend talking on their mobile phones, with average minutes of use per subscriber per month rising to more than 500 minutes in the second half of 2003 from 427 minutes in 2002 and 255 minutes in 2000. Moreover, although U. S. mobile subscribers still prefer to use their mobile phones to talk rather than to send text messages (“ SMS”), the popularity of text messaging and other handset- based leisure and entertainment applications increased during 2003 as evidenced by, among other indicators, a steep rise in the volume of SMS traffic and an increase in the estimated percentage of U. S. mobile subscribers considered to be casual data users. Evidence on mobile pricing trends is somewhat mixed, with two different indicators of mobile pricing - revenue per minute and the cellular Consumer Price Index (“ CPI”) - continuing to drop, and a third indicator based on the consumption patterns of hypothetical users showing a slight increase in the cost of mobile service from $35.70 in 2002 to $36.46 in 2003. Nevertheless, international comparisons indicate that mobile voice calls are still far less expensive on a per minute basis in the United States than in Western Europe. II. INTRODUCTION A. Background 6. In 1993, Congress created the statutory classification of Commercial Mobile Services 1 to promote the consistent regulation of mobile radio services that are similar in nature. 2 At the same time, Congress established the promotion of competition as a fundamental goal for CMRS policy formation and regulation. To measure progress toward this goal, Congress required the Federal Communications Commission (“ FCC” or “Commission”) to submit annual reports that analyze competitive conditions in the industry. 3 This report is the ninth of the Commission’s annual reports 4 on the state of CMRS 1 Commercial Mobile Services came to be known as the Commercial Mobile Radio Services, or “CMRS.” CMRS includes a large number of terrestrial services and some mobile satellite services. See 47 C. F. R. § 20.9( 10). 2 The Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103- 66, Title VI, § 6002( b), amending the Communications Act of 1934 and codified at 47 U. S. C. § 332( c). As in the past, this report bases its analysis on a consumer- oriented view of wireless services by focusing on specific product categories, regardless of their regulatory classification. In some cases, this includes an analysis of offerings outside the umbrella of “services” specifically designated by the Commission as CMRS. However, because providers of these other services can compete with CMRS providers, the Commission believes that it is important to consider them in the analysis. As the Commission said, paraphrasing the Department of Justice/ Federal Trade Commission guidelines on merger review, “When one product is a reasonable substitute for the other in the eyes of consumers, it is to be included in the relevant product market even though the products themselves are not identical.” Application of Echostar Communications Corporation, General Motors Corporation, and Hughes Electronics Corporation (Transferors) and Echostar Communications Corporation (Transferee), Hearing Designation Order, 17 FCC Rcd 20559, 20606 (2002). 3 47 U. S. C. § 332( c)( 1)( C). 4 See Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, First Report, 10 FCC Rcd 8844 (1995) (“ First Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Second Report, 12 FCC Rcd 11266 (1997) (“ Second Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with 6 Federal Communications Commission FCC 04- 216 7 competition. 5 7. The statute requiring the annual report on CMRS competition states, The Commission shall review competitive market conditions with respect to commercial mobile services and shall include in its annual report an analysis of those conditions. Such analysis shall include an identification of the number of competitors in various commercial mobile services, an analysis of whether or not there is effective competition, an analysis of whether any of such competitors have a dominant share of the market for such services, and a statement of whether additional providers or classes of providers in those services would be likely to enhance competition. 6 8. With the Ninth Report, we continue to comply with each of the four statutory requirements for analyzing competitive market conditions with respect to commercial mobile services. As in previous reports, we base our analysis of competitive market conditions on a range of standard indicators commonly used for the assessment of effective competition. We also enhance our analysis by reorganizing the presentation of the various indicators to conform to a framework that groups such indicators into four distinct categories (A) Market Structure, (B) Carrier Conduct, (C) Consumer Behavior, and (D) Market Performance. Use of this framework has the advantage of providing a systematic approach to addressing the four statutory requirements. Thus, Section III identifies the number of competitors in various commercial mobile services as part of the analysis of market structure. Moreover, as in previous reports, this report addresses the issue of whether any competitor has a dominant share of the market based on a comprehensive analysis of market structure, carrier conduct, consumer behavior and market performance. With respect to market structure, Section III. C provides concentration measures based on subscriber market shares for particular geographic areas, and Section III. E assesses entry conditions. In addition, Sections IV, V and VI determine whether, in light of the structural conditions examined in Section III, any single carrier has the ability to act anti- competitively by examining, among other things, various indicators of price- and non- price rivalry, consumer switching Respect to Commercial Mobile Services, Third Report, 13 FCC Rcd 19746 (1998) (“ Third Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Fourth Report, 14 FCC Rcd 10145 (1999) (“ Fourth Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Fifth Report, 15 FCC Rcd 17660 (2000) (“ Fifth Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Sixth Report, 16 FCC Rcd 13350 (2001) (“ Sixth Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Seventh Report, 17 FCC Rcd 12985 (2002) (“ Seventh Report”); Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Eighth Report, 18 FCC Rcd 14783, ¶ 124 (2003) (“ Eighth Report”). The reports can also be found on the FCC’s website at . 5 This report, like the others before it, discusses CMRS as a whole because Congress called on the Commission to report on “competitive market conditions with respect to commercial mobile services.” 47 U. S. C. § 332( c)( 1)( C). Any individual proceeding in which the Commission defines relevant product and geographic markets, such as an application for approval of a license transfer, may present facts pointing to narrower or broader markets than any used, suggested, or implied in this report. 6 47 U. S. C. § 332 (c)( 1)( C). 7 Federal Communications Commission FCC 04- 216 8 behavior and pricing trends. 9. Section II. E presents our assessment of whether or not there is effective competition, drawing on the more detailed and comprehensive analysis of the various indicators of competitive market conditions in the body of the report. Section II. E also addresses the final statutory requirement to provide a statement of whether additional providers would likely enhance competition. B. Sources of Information 10. Since the release of the Eighth Report, the Commission has expanded its efforts to improve the quality and granularity of the data used to examine competition in the CMRS industry. In March 2004, the Commission released a Notice of Inquiry (“ Ninth CMRS NOI”) seeking data and information on the status of competition in the CMRS industry. 7 The Commission requested data based on several metrics, including subscribership, penetration rates, usage, average revenue per unit (“ ARPU”), pricing, quality of service, and service availability, 8 For each of these metrics, it requested data on whether they varied between urban and rural areas as well as among different demographic groups. 9 In order to enhance our analysis of CMRS service availability and competition, the Commission asked service providers to submit their coverage maps in an electronic, mapable format and to distinguish between the areas where they offer coverage to subscribers and the areas where they market service to new customers. 10 The Ninth CMRS NOI also requested comment on how the Commission should define “rural” for purposes of its analysis of CMRS competition. 11 Furthermore, the Ninth CMRS NOI asked for information on wireless- wireline competition, mobile telecommunications costs, mobile telephone service resellers, mobile data service availability, and satellite providers. 12 11. Eight parties submitted comments or reply comments in response to the Ninth CMRS NOI. 13 Three commenters stated that the CMRS marketplace is competitive and cited the data presented in 7 Implementation of Section 6002( B) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, WT Docket No. 04- 111, Notice of Inquiry, 19 FCC Rcd 5608 (2004) (“ Ninth CMRS NOI”). See also, Implementation of Section 6002( B) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, WT Docket No. 02- 379, Notice of Inquiry, 17 FCC Rcd 24923 (2002) (“ Eighth CMRS NOI”). 8 Ninth CMRS NOI, at 5610. 9 Id. 10 Id., at 5615- 5616. 11 Id. See also, Facilitating the Provision of Spectrum- Based Services to Rural Areas and Promoting Opportunities for Rural Telephone Companies To Provide Spectrum- Based Services, WT Docket No. 02- 381, Notice of Inquiry, 17 FCC Rcd 25554 (2002) (“ Rural NOI”) (Commission sought comment on whether and how it could modify its policies to promote the further development and deployment of spectrum- based services in rural areas). 12 Ninth CMRS NOI, at 5616, 5617, 5627, and 5631. 13 See Appendix C for a list of parties that filed comments in response to the Ninth CMRS NOI. 8 Federal Communications Commission FCC 04- 216 9 previous reports as evidence of that assertion. 14 Some commenters also noted that the publicly- available data on the industry that is included in our reports is sufficient for analyzing CMRS competition. 15 Furthermore, some commenters addressed the issue of the extent of competition in rural areas, and offered suggestions on how to define rural for purposes of this report. 16 Such statements and suggestions have been integrated into this report. Other commenters provided input on the extent to which Mobile Virtual Network Operators (“ MVNOs”) and resellers compete in the CMRS industry. 17 On the other hand, many of the questions posed in the Ninth CMRS NOI were not directly addressed in the comments. For example, the Commission received from commenters little new data on subscribership, ARPU, usage, churn, or pricing on a national or sub- national level, or broken down by demographic groups or urban/ rural areas. In addition, service providers did not submit maps of their coverage areas or distinguish between areas where they provide coverage and areas where they market service. 12. Prior to the Seventh Report, the Commission based its analysis of competition in the CMRS industry solely on numerous publicly- available sources of data on the industry. These sources included: company filings with the Securities and Exchange Commission (“ SEC”), data compiled and released by trade associations and by other government agencies, reports by securities analysts and other research companies and consultants, company news releases and web sites, newspaper and periodical articles, and the Commission’s Universal Licensing System (“ ULS”) database. In the Seventh Report, the Commission added two new sources of information: the Numbering Resource Utilization / Forecast (“ NRUF”) database, described below, and information submitted at a Public Forum held at the Commission. 18 Nevertheless, we continue to rely primarily on the aforementioned publicly- available sources and believe that they, when taken together, allow us to analyze the extent of competition in the industry on a nationwide basis. Because many of these publicly- available sources report national averages that reflect trends in the nation as a whole or in urban markets, they may provide limited insight into the extent of competition in particular geographic markets, including markets located in rural areas. However, the 14 See Cellular Telecommunications & Internet Association, NOI Comments, at ii, 45 (filed Apr. 26, 2004) (“ CTIA Comments”); Rural Cellular Association, NOI Comments, at 3 (filed Apr. 26, 2004) (“ RCA Comments”); Sprint Corporation, NOI Reply Comments, at 5- 6 (filed May 10, 2004) (“ Sprint Reply Comments”). 15 CTIA Comments, at ii, 3; Sprint Reply Comments, at 4. 16 Blooston, Mordkofsky, Dickens, Duffy & Prendergast, NOI Comments, at 7 (filed Apr. 26, 2004) (“ Blooston Carrier Comments”); RCA Comments at 5- 6; Rural Telecommunications Group, Inc., NOI Reply Comments, at 2- 3 (filed May 10, 2004) (“ RTG Reply Comments”). 17 CTIA Comments, at 21- 2; Virgin Mobile USA, LLC, NOI Comments, at 3 (filed Apr. 26, 2004) (“ Virgin Mobile Comments”). 18 The Public Forum was held in order to examine ways in which to better gather and analyze data for its reports, in particular data regarding the development of competition in rural and underserved areas. See Wireless Telecommunications Bureau Announces Agenda and Speakers For Public Forum For The 7 th Annual Commercial Mobile Radio Services Competition Report, Public Notice, DA 02- 422 (rel. Feb. 25, 2002). See FCC, Commercial Mobile Radio Services (CMRS) Competition Report Public Forum, for access to participants’ presentations and forum transcript. The direct link to the forum transcript is (“ Transcript”). Forum participants not only provided additional data, including data on the average price of mobile telephone service in rural areas, but also presented suggestions on how to analyze data more effectively. Research organizations and agencies offered insight into the methodologies they use to gather and analyze data, and the wireless carriers offered anecdotes on the competitive pressures that their companies face. The Commission incorporated these data, suggestions, and insights into the Seventh Report. 9 Federal Communications Commission FCC 04- 216 10 NRUF data and the information submitted in response to the Ninth CMRS NOI have enabled us to conduct a more granular analysis of competition on a regional level and also for the purposes of comparing urban and rural areas. 13. In order to further uphold the integrity of our data on CMRS competition, we include, in many places, multiple data sources to report on the same metric or depict the same trend. For example, this report and previous reports have included data from three separate sources – the U. S. Department of Commerce Bureau of Labor Statistics (“ BLS”); economic research and consulting firm, Econ One; and the Cellular Telecommunications and Internet Association (“ CTIA”) – on the average price of mobile telephone service. 19 In addition to using multiple sources for many metrics, we also emphasize that some of the sources upon which we rely, particularly SEC filings, are required by law to be accurate, and are scrutinized by independent third parties. The CTIA metrics used in the report are compiled and aggregated by an independent third party in a manner that protects carrier confidentiality, provides an incentive for carrier participation, and maintains the integrity of the results. 20 Furthermore, other carrier-reported data included in the report, such as coverage maps, are subject to contractual obligations with customers. Because all carrier- reported data is compiled by the carriers themselves and typically released in the aggregate to protect confidentiality, we are unable to have in- depth knowledge of the minutia of such data. However, we believe it is appropriate to use these sources in our analysis of CMRS competition for the reasons stated above. 14. As mentioned above, the Seventh Report integrated a new source of data collected through an FCC order, the NRUF database. 21 The NRUF data tracks phone number usage by all telecommunications carriers, including wireless carriers, in the United States. All mobile wireless carriers must report to the FCC the quantity of their phone numbers that have been assigned to end users, thereby permitting the Commission to make an accurate estimate of the total number of mobile subscribers. As in the Seventh Report, we continue to use the NRUF data to determine the total number of mobile telephone subscribers and paging subscribers. 22 In addition, because we collect NRUF data on a small, rate center area basis, 23 we can use this information to estimate mobile telephone subscribership levels and penetration rates on a regional basis in addition to a national basis. In the Seventh Report, the Commission therefore began reporting mobile telephone penetration rates on an Economic Area (“ EA”) basis and continues to report them in this manner in this report. 24 Finally, beginning with this Ninth Report, we use NRUF data for the 19 See Section VI. A. 1, Pricing Trends, infra. 20 See CTIA, Wireless Industry Indices: Semi- Annual Data Survey Results (results through December 2003) (“ Dec 2003 CTIA Survey”). See note 465, infra, for a discussion of data reported by CTIA. 21 See Section VI. B. 1, Subscriber Growth, infra, for a further discussion of NRUF data. Carriers submit the data to NeuStar, Inc., who consolidate the data into a database and supply it to the Commission upon request. 22 See Seventh Report, at 13005, 13049. 23 Rate centers are small geographic areas used by local exchange carriers for a variety of reasons, including the determination of toll rates. See Harry Newton, NEWTON’S TELECOM DICTIONARY: 16 TH EXPANDED & UPDATED EDITION, CMP Books, July 2000, at 732. Urban rate centers are generally smaller than rural rate centers. The smallest rate centers are a few square miles in size, while some rural rate centers are hundreds of square miles in size. Rate centers are generally smaller than counties: there are roughly 18,000 rate centers in the United States, compared to 3,000 counties. 24 See Section VI. B. 4, Sub- National Penetration Rates, infra. EAs, which are defined by the Department of Commerce’s Bureau of Economic Analysis, are particularly well- suited for comparing regional mobile telephony 10 Federal Communications Commission FCC 04- 216 11 first time to measure market concentration on an EA basis. In particular, the subscriber market shares we use to calculate the Herfindahl- Hirschman Index (“ HHI”) for EAs are based on NRUF data. 25 However, although we are using EAs to calculate both sub- national penetration levels and HHIs for the purposes of this report, this does not mean that we find the EA to be a relevant geographic market for other purposes. 15. One of the most important metrics that the Commission has tracked since 1995 is the number of facilities- based mobile telephone carriers providing service in a particular geographic area. 26 To track service launches by broadband Personal Communications Services (“ broadband PCS” or “PCS”) and Specialized Mobile Radio (“ SMR”) operators, the Commission has analyzed publicly- available information released by the operators, such as news releases, filings with the SEC, coverage maps available on operators’ Internet sites, and filings with the Commission. The Commission has based its analysis of cellular coverage on cellular licensees’ service area boundary maps, which are filed with the Commission. The Commission began tracking service launches on a BTA- by- BTA 27 basis in 1995, but switched to the more detailed, county- by- county basis in the Fifth Report in an effort to improve accuracy and significantly reduce the level of overcounting. 28 It has derived from these data the number of competitors operating in every U. S. county and hence the percentage of the U. S. population living in areas with a certain number of competitors. 29 These data have also been used to derive the percentage of the U. S. population living in counties with digital coverage. As mentioned in previous reports, there are several important caveats to note when considering the data. First, to be considered as “covering” a county, an operator need only be offering any service in a portion of that county. Second, multiple operators shown as covering the same county are not necessarily providing service to the same portion of penetration rates for two reasons. First, the defining aspect of mobile telephony is, of course, mobility. Each EA is made up of one or more economic nodes and the surrounding areas that are economically related to the node. The main factor used in determining the economic relationship between the two areas is commuting patterns, so that each EA includes, as far as possible, the place of work and the place of residence of its labor force. Thus, an EA may capture the market where the average person would shop for and purchase his or her mobile phone – near home, near the workplace, and all of the places in between. Second, wireless carriers have considerable discretion in how they assign telephone numbers across the rate centers in their operating areas. In other words, a mobile telephone subscriber can be assigned a phone number associated with a rate center that is a significant distance away from the subscriber’s place of residence (but generally still in the same EA). See Seventh Report, at 13005. 25 See Section III. C. 2, Concentration Measures for Mobile Telephony Services, infra. 26 See Section III. C. 1, Number of Mobile Telephony Competitors, infra. 27 Basic Trading Areas (“ BTAs”) are Material Copyright (c) 1992 Rand McNally & Company. Rights granted pursuant to a license from Rand McNally & Company through an agreement with the Federal Communications Commission. BTAs are geographic areas drawn based on the counties in which residents of a given BTA make the bulk of their shopping goods purchases. Rand McNally’s BTA specification contains 487 geographic areas covering the 50 states and the District of Columbia. For its spectrum auctions, the Commission added additional BTA- like areas for: American Samoa; Guam; Northern Mariana Islands; San Juan, Puerto Rico; Mayagüez/ Aguadilla- Ponce, Puerto Rico; and the U. S. Virgin Islands. 28 BTAs can be sub- divided into counties. The United States is made up of approximately 3,200 counties versus 493 BTAs. 29 For a complete list of cellular and PCS licenses on a county- by- county basis, see FCC Wireless Telecommunications Bureau, Broadband PCS Data, ; FCC Wireless Telecommunications Bureau, Cellular Services Data, . 11 Federal Communications Commission FCC 04- 216 12 that county. Third, the figures for POPs 30 and land area in this analysis include all of the POPs and every square mile in a county considered to have coverage. Therefore, our analysis overstates to some unknown and unavoidable degree the total coverage in terms of both geographic areas and population covered. On the other hand, we believe our analysis to be the most accurate in the industry today given the coverage data that is publicly available. 16. Another more general limitation of the Commission’s analysis of the number of facilities-based mobile telephone carriers providing service in a particular geographic area is that it does not account for differences in the market shares of mobile telephone carriers. As indicated above, however, the Ninth Report supplements the analysis of the number of mobile telephone carriers with the measurement of concentration using HHIs calculated based on subscriber market shares for EAs. The value of HHI reflects both the number of market competitors and the distribution of their market shares. C. Structure of Report 17. As noted above, we have modified the structure of the Ninth Report to conform to a framework that groups the indicators of competitive market conditions into four distinct categories (A) Market Structure, (B) Carrier Conduct, (C) Consumer Behavior, and (D) Market Performance. The section on market performance evaluates the outcomes of competitive conditions in the CMRS industry from the consumer’s point of view, focusing on the benefits to consumers of competition such as lower prices, higher quality, greater variety, and more rapid innovation. In contrast, the sections on market structure, carrier conduct, and consumer behavior examine the various structural and behavioral determinants of such market outcomes. 18. In using this framework to analyze competitive market conditions with respect to commercial mobile radio services, we have integrated the discussion and analysis of mobile voice and mobile data services within each of the four categories of indicators. As stated in previous reports, mobile voice and mobile data services are no longer clearly delineated in the marketplace. 31 Many mobile voice operators also offer mobile data services using the same spectrum, network facilities, and customer equipment. Furthermore, many U. S. mobile carriers have integrated the marketing of mobile voice and data services. For these reasons, we find it reasonable to analyze competitive conditions with respect to these services together. 32 As in previous reports, we continue to identify, and to distinguish from such integrated mobile carriers, mobile data providers that offer only mobile data services, instead of both voice and data services, including those providers that offer such data- only services on networks distinct from those traditionally used to provide mobile voice. However, we analyze competitive conditions with respect to the services provided by integrated mobile carriers and data- only providers together, rather than treating mobile data services and data- only service providers in a separate section of the report. 30 POPs is an industry term referring to population, usually the number of people covered by a given wireless license or footprint. One “POP” equals one person. 31 See Eighth Report, at 14792. 32 Although we integrate the analysis of mobile voice and data services for the reasons indicated here, below we define separate product markets for mobile voice services and mobile data services. See Section III. A, Services and Product Market Definition, infra. Accordingly, our integration of the analysis of mobile voice and data services in the context of this report should not be taken as an indication that the Commission will consider mobile voice and data services as belonging in the same product market in a different context. 12 Federal Communications Commission FCC 04- 216 13 19. As in previous reports, the Ninth Report includes an analysis of wireless- to- wireline competition. However, since such “intermodal” competition is distinct from “intra- modal” competition among the various wireless carriers, we have placed our analysis of wireless- to- wireline competition in a separate section on intermodal issues (Section VII), following the sections on market structure, carrier conduct, consumer behavior and market performance within the CMRS industry. In addition to the analysis of wireless- to- wireline competition, Section VII also provides an analysis of Wireless Fidelity, or Wi- Fi. Although both CMRS and Wi- Fi are wireless services, Wi- Fi relies on a different wireless technology and spectrum model than CMRS, and it has the potential to act as a substitute as well as a complement to data services offered over mobile telephone networks. D. Industry Development 20. During 2003, the CMRS industry continued to experience increased service availability, intense price competition, innovation, and a wider variety of service offerings. 33 The mobile telephony sector of CMRS has shown significant growth, and mobile data services have begun to play a more significant role in the CMRS industry. In the 12 months ending December 2003, the mobile telephony sector generated over $88 billion in revenues, 34 increased subscribership from 141.8 million to 160.6 million, 35 and produced a nationwide penetration rate of roughly 54 percent. 36 For some mobile telephone operators, data services now make up 2 to 5 percent of revenues. 37 21. To date, 276 million people, or 97 percent of the total U. S. population, live in counties with access to three or more different operators (cellular, broadband PCS, and/ or digital SMR providers) offering mobile telephone service, a slight increase from what the Commission found in the Eighth Report. 38 Almost 250 million people, or 88 percent of the U. S. population, live in counties with five or more mobile telephone operators competing to offer service. 39 Mobile telephone carriers continued to upgrade their networks with next generation technologies that allow them to offer mobile data services at higher data transfer speeds. 40 To date, operators are offering services over these next generation networks in at least some portion of U. S. counties containing 279 million people, or 98 percent of the U. S. population. 41 22. Mobile telephone carriers continued to offer a variety of handset- based mobile data 33 “Increased service availability” refers to the increase in the population living in counties served by 3 or more, 4 or more, 5 or more, 6 or more, and 7 or more CMRS providers. See Section III. C. 1, Number of Mobile Telephony Competitors, infra. 34 See Appendix A, Table 1, at A- 2. 35 See Section VI. B. 1, Subscriber Growth, infra. 36 Id. 37 See Section IV. B. 7, Mobile Data Services and Applications, infra. 38 See Appendix A, Table 10, at A- 11. 39 See Appendix A, Table 5, at A- 9. 40 See Section IV. B. 1. c Technology Choices and Upgrades of Mobile Telephony Carriers, infra. 41 See Section IV. B. 1. d, Coverage by Technology Type, infra. 13 Federal Communications Commission FCC 04- 216 14 applications to consumers during the past year, including text messaging services (also called short messaging services, or “SMS”), multimedia messaging services (“ MMS”) such as photo messaging, and entertainment applications such as downloadable ring tones and games. These data services continued to grow in popularity. It is estimated that today almost 25 percent of U. S. mobile subscribers can be considered casual data users, most of whom use SMS and some of whom use picture mail, download ring tones or do simple web surfing. 42 Mobile telephone carriers and other mobile data providers also continued to offer large mobile Internet access service packages designed for data- centered laptop and PDA users in the past year, but demand for such bulk wireless data services remained weak due to the limited coverage to date of high- speed wireless data networks and the slow speeds, relative to fixed broadband, of wireless network technologies that are widely available today. 43 Finally, as in the previous four years the use of paging devices continued to decline in the past year. 44 E. Status of Competition 23. An assessment of effective competition in telecommunications markets requires an analysis of various indicators of market structure, carrier conduct, consumer behavior, and market performance. This report will examine the behavioral as well as the structural characteristics of CMRS markets to determine whether there is effective competition in the CMRS marketplace. 24. The indicators and analysis that form the basis for our conclusion on the status of competition are detailed in the main body of this report. Here we highlight some of the indicators that show clear improvement in competitive conditions in the past year, beginning with indicators of market structure. In addition to the aforementioned slight increase in the percent of the total U. S. population living in counties with access to 3 or more different operators as compared with what the Commission found in the Eighth Report, there were somewhat larger increases in the percent of the U. S. population living in counties with access to 4 or more, 5 or more, 6 or more, and 7 or more different operators in the past year. 45 These increases not only suggest that competition is fairly robust in terms of the current number of competitors per market, but they also demonstrate that competitive entry continues to occur at the county level despite possible entry barriers. 25. In the category of carrier conduct, it is noteworthy that several mobile operators have recently introduced push- to- talk (“ PTT”) services to compete with Nextel’s rival PTT offering, an indication of increased non- price rivalry. 46 As far as consumer behavior is concerned, the implementation of local number portability (“ LNP”) has lowered consumer switching costs by enabling wireless subscribers to keep their phone numbers when changing wireless providers. While to date the advent of LNP does not appear to have resulted in an increase in wireless churn, it does appear to have increased competitive pressures on CMRS carriers with regard to existing customers as evidenced by the aggressive customer retention efforts launched by carriers in anticipation of LNP. 47 42 See Section VI. B. 1 Subscriber Growth, infra. 43 See Section VI. B. 3, Mobile Data Usage, infra. 44 See Section VI. B. 1, Subscriber Growth, infra. 45 See Appendix A, Table 10, at A- 11. 46 See Section IV. B. 6, Provision of Ancillary Services and Promotional Offers, infra. 47 See Section V. B. 2, Local Number Portability, infra. 14 Federal Communications Commission FCC 04- 216 15 26. With respect to market performance, the increased benefits to consumers afforded by competition are evidenced by the increase in the number of mobile subscribers noted above and also greater usage of mobile handsets not only for voice calls but also for new data applications such as text and photo messaging. Evidence on mobile pricing trends is somewhat mixed, with two different indicators of mobile pricing - revenue per minute and the cellular Consumer Price Index (“ CPI”) - continuing to drop, and a third indicator based on the consumption patterns of hypothetical users showing a slight increase in the cost of mobile service from 2002 to 2003. 48 Nevertheless, mobile voice pricing is far less expensive per minute in the United States than in European mobile markets. 49 27. Based on an analysis of these and other indicators detailed in the body of the report, we conclude that there is effective competition in the CMRS marketplace. Regarding rural areas specifically, we also conclude that CMRS providers are competing effectively in such areas. Moreover, while it appears that, on average, a smaller number of operators are serving rural areas than urban areas, this difference does not necessarily indicate that effective CMRS competition does not exist in rural areas. 50 On the contrary, as discussed in more detail below, Ninth CMRS NOI commenters provide evidence that, despite the differing structure of rural markets, effective CMRS competition does exist in rural areas. 51 28. As previously mentioned, the final statutory requirement in analyzing competitive market conditions with respect to CMRS is to provide a statement of whether additional providers would likely enhance competition. By way of addressing this requirement, we reiterate that, based on information on launches by county, additional providers are still entering the mobile telephone market at the county level, including some start- ups as well as operators that have previously launched mobile telephone service in other parts of the country, and that, in doing so, these additional providers presumably are enhancing competition. In addition, one of the more recent examples of entry by a new start- up occurred in an innovative niche market rather than in relatively mature CMRS markets such as mobile telephone service. In particular, Space Data Corporation acquired narrowband PCS licenses in two FCC auctions in September 2003 and has since launched its commercial telemetry service using its patented balloon- based SkySite™ technology. 52 III. MOBILE TELECOMMUNICATIONS MARKET STRUCTURE 29. The analysis in this section covers two distinct aspects of mobile telecommunications market structure. The first is the current level of horizontal concentration as reflected in the number of carriers competing in the various mobile service markets and their respective market shares. The second is the ease or difficulty of entry into the various mobile service markets, with particular emphasis on the way 48 See Section VI. A. 1, Pricing Levels and Trends, infra. 49 See Section VI. E, International Comparisons, infra. 50 See Section III. F. 1, Geographical Comparisons: Urban vs. Rural, infra; Seventh Report, at 13024. 51 See Section III. F. 1, Geographical Comparisons: Urban vs. Rural, infra. 52 See Section III. B. 3, Data- Only Providers, infra, Section III. E. 1. b, Narrowband Spectrum, infra, and Section IV. B. 1. e, Data- Only Networks and Technology Deployment, infra. 15 Federal Communications Commission FCC 04- 216 16 spectrum allocation and availability affect entry conditions and barriers to entry. 30. As background to the discussion of horizontal concentration and entry conditions, Sections III. A and III. B provide an overview of the various types of CMRS services and service providers. Following the analysis of the current level of horizontal concentration in Section III. C, Section III. D examines recent or impending transactions that affect, or have the potential to affect, the level of horizontal concentration. Section III. E examines entry conditions. The final section, III. F, addresses structural differences between rural and non- rural mobile telecommunications markets in the United States. A. Services and Product Market Definition 31. Since CMRS encompasses a variety of terrestrial and satellite services, an important initial step in analyzing the structure of the mobile telecommunications market is to define the relevant product market for each of these services. The basic economic principle for defining the scope of the relevant product market is to include two mobile services in the same product market if they are essentially interchangeable from the perspective of most consumers – that is, if consumers view them as close substitutes. For the purposes of this report, relatively narrow product market definitions will be used, with a separate product market identified for each of the following services: interconnected mobile voice; interconnected mobile data; and mobile satellite service. However, the identification of separate markets for each service in the context of this report does not preclude the possibility that, in a different context, the Commission may find that two or more of these services belong in the same product market. The Commission may also find that certain types of mobile voice or data services (for example, nationwide calling plans, paging services) constitute a separate relevant product market, or that consumer demand for bundled packages of interconnected mobile voice and mobile data services make it appropriate to define one or more separate markets for bundled mobile services. 32. This report defines the mobile telephone sector to include all operators that offer commercially available, interconnected mobile voice services. These operators provide access to the public switched telephone network (“ PSTN”) via mobile communication devices employing radiowave technology to transmit calls. As discussed below, providers using cellular radiotelephone, broadband PCS, and SMR licenses dominate this sector. 53 33. For purposes of this report, mobile data service is considered to be the delivery of non- voice information to a mobile device. Two- way mobile data services include not only the ability to receive non- voice information on an end- user device but to send it from an end- user device to another mobile or landline device using wireless technology. The mobile data services currently available include paging, text messaging (also called short messaging service, or “SMS”), multimedia messaging services (“ MMS”) such as exchanging digital photos, information alerts, entertainment applications such as ring tones and games, web browsing, e- mail, access to files stored on corporate servers, and wireless telemetry. 54 34. Although we decline to identify a separate market for paging services for the purposes of this report, as noted above this does not preclude the possibility that the Commission may find that paging 53 See 47 C. F. R. §§ 22.900, 24.200, 90.601. 54 Wireless telemetry is the use of wireless technology to monitor mobile or fixed equipment in a remote location, such as the remote monitoring of utility meters by utility and energy companies. See Eighth Report, at 14864- 14865. 16 Federal Communications Commission FCC 04- 216 17 services constitute a separate product market, rather than a part of the broader market for mobile data services, in a different context. Traditional paging service consists of one- way data communications sent to a mobile device that alerts the user when it arrives. The communication typically consists of a phone number for the user to call, and can also contain other text- based information. As noted in the Eighth Report, mobile telephone carriers also offer paging services, as most digital mobile telephone handsets include a paging component and/ or Caller ID feature that allow users to view the phone number of the person who has called them. 55 However, while paging carriers have faced competition from these types of features offered by mobile telephone carriers, traditional paging devices are generally less expensive, and paging networks have a more powerful signal strength which allows them to provide better underground and in- building coverage. 56 As discussed in the Eighth Report, paging carriers have been responding to these competitive advantages by targeting their services at a smaller market segment consisting mainly of commercial customers such as medical and emergency personnel and large industrial companies. 57 Nevertheless, paging carrier Metrocall Holdings, Inc. (“ Metrocall”) argued in comments submitted in response to the Ninth CMRS NOI that there is no distinct product market for paging services. 58 Metrocall claimed that consumers have found paging services to be interchangeable with other CMRS services, and that CMRS customers are increasingly substituting mobile telephony services and other wireless services for traditional paging services. 59 Metrocall particularly singled out short message service (“ SMS”) as competing directly with paging because it is offered at relatively inexpensive rates by all the major mobile telephony carriers. 35. Any mobile satellite service (“ MSS”) that involves the provision of commercial mobile radio service directly to end users is by statutory definition CMRS. 60 As detailed in the Eighth Report, the Commission permits MSS providers in the 2 GHz, 61 Big LEO, 62 and L- Band 63 frequency bands to provide an ancillary terrestrial component (“ ATC”) to their satellite systems, provided that the MSS licensee: (1) has launched and operates its own satellite facilities; (2) provides substantial satellite service to the public; (3) provides integrated ATC; (4) observes existing satellite geographic coverage requirements; 55 See Eighth Report, at 14846. 56 See Seventh Report, at 13051; John Sullivan, Motorola’s Exit: Death Knell Or New Dawn For Paging Market?, WIRELESS DATA NEWS, Dec. 19, 2001. 57 See Eighth Report, at 14846. 58 See Metrocall Holdings, Inc., NOI Comments, at 3. 59 Id., at 3- 9. 60 47 C. F. R. § 20. 9( 10). This rule section also contains an exception for “mobile satellite licensees and other entities that sell or lease space segment capacity, to the extent that it does not provide commercial radio service directly to end users.” The exception permits such entities to provide space segment capacity to commercial mobile radio service providers on a non- common carrier basis, if authorized by the Commission. 61 The 2 GHz MSS band refers to the 2000- 2020 MHz uplink (Earth- to- space transmissions) and 2180- 2200 MHz downlink (space- to- Earth transmissions) frequencies. 62 The Big LEO (low- earth orbit) band MSS allocation consists of an uplink at 1610- 1626.5 MHz and a downlink at 2483.5- 2500 MHz and is sometimes referred to as the 1.6/ 2.4 GHz band. 63 The L- Band has MSS allocations at 1525- 1559 MHz (downlink) and 1626.5- 1660.5 MHz (uplink). 17 Federal Communications Commission FCC 04- 216 18 and (5) limits ATC operations only to the authorized satellite footprint. 64 The Satellite Flexibility Order noted that, since terrestrial CMRS and MSS ATC are expected to have different prices, coverage, product acceptance and distribution, the two services appear, at best, to be imperfect substitutes for one another that would be operating in predominately different market segments. 65 The Commission has received one application to add ATC to MSS satellite offerings, from Mobile Satellite Ventures (“ MSV”) in the L-Band. B. Overview of Service Providers 1. Facilities- Based Mobile Telephony Providers 36. In the United States, there are six mobile telephone operators that analysts typically describe as nationwide: AT& T Wireless, Sprint PCS, 66 Verizon Wireless, LLC (“ Verizon Wireless”), 67 T-Mobile, 68 Cingular Wireless, LLC (“ Cingular Wireless” or “Cingular”), 69 and Nextel. When an operator is described as being “nationwide,” it does not necessarily mean that the operator’s license areas, service areas, or pricing plans cover the entire land area of the United States. The six mobile telephony carriers that analyst reports typically describe as nationwide all offer service in at least some portion of the western, midwestern, and eastern United States. In addition, each of the six national operators has networks covering at least 200 million people, while the next largest provider covers less than 60 million people. 70 In addition to the nationwide operators, there are a number of large regional players, including ALLTEL Corp. (“ ALLTEL”), Western Wireless Corp. (“ Western Wireless”), United States Cellular Corp. (“ US Cellular”), and Dobson Communications (“ Dobson”). 37. Because the six nationwide mobile telephone operators as well as the large regional and numerous other smaller operators have different geographic footprints, they do not all compete head- to-head in each and every region and locality of the country. To provide an accurate count of the number of competitors in the market for mobile telephony services in compliance with the statutory requirement, it is 64 See Flexibility for Delivery of Communications by Mobile Satellite Service Providers in the 2 GHz Band, the L- Band, and the 1.6/ 2.4 GHz bands; Review of the Spectrum Sharing Plan Among Non- Geostationary Satellite Orbit Mobile Satellite Service Systems in the 1. 6/ 2. 4 GHz Bands, Report and Order and Notice of Proposed Rulemaking, 18 FCC Rcd 1962, 1964 (2003) (“ Satellite Flexibility Order”). 65 Flexibility Order, at 1984. 66 Sprint PCS is a division of Sprint Corp. (“ Sprint”). See Sprint Corp., SEC Form 10- K, Mar. 9, 2004, at 4. Sprint recently recombined its tracking stocks, representing its wireless and wireline divisions, into one stock. Combination of ‘FON’ and ‘PCS’ Tracking Stocks Completed, News Release, Sprint, Apr. 23, 2004. 67 Verizon Wireless is a joint venture of Verizon Communications, Inc. (“ Verizon”) and Vodafone Group PLC (“ Vodafone”). Verizon owns 55 percent of Verizon Wireless, and Vodafone owns 45 percent. See Verizon Communications, Inc., SEC Form 10- K, Mar. 20, 2002, at 10. 68 T- Mobile USA, formerly known as VoiceStream Wireless Corp., is a wholly- owned subsidiary of Deutsche Telekom AG (“ Deutsche Telekom”). 69 Cingular Wireless is a joint venture of SBC Communications, Inc. (“ SBC”) and BellSouth Corporation (“ BellSouth”). See Sixth Report, at 13363- 64. 70 Colette M. Fleming et al., Wireless 411, UBS Warburg, Equity Research, Apr. 16, 2004, at 16 (“ Wireless 411”). 18 Federal Communications Commission FCC 04- 216 19 necessary as an initial step to define the scope of the geographic market more narrowly on a regional or local basis. For example, Section III. C. 1 below identifies the number of mobile telephony competitors on a county- by- county basis. 2. Resale Providers 38. Resellers offer service to consumers by purchasing airtime at wholesale rates from facilities-based providers and reselling it at retail prices. 71 One Ninth CMRS NOI commenter suggested that wireless resale may serve to increase intermodal competition by “helping non- wireless carriers compete in the local exchange and interexchange markets by permitting these carriers to offer consumers a complete ‘bundle’ of telecommunications services.” 72 According to information provided to the FCC in its ongoing local competition and broadband data gathering program, the resale sector accounts for approximately 6 percent of all mobile telephone subscribers. 73 39. With the exception of TracFone Wireless Inc., which serves more than 3 million customers with prepaid offerings, 74 there appear to be few large independent resellers of wireless service. 75 In August 2003, Qwest Corporation (“ Qwest”) entered into an agreement with Sprint to resell Sprint wireless services, having decided to exit the facilities- based provision of wireless service. 76 Qwest began offering these Sprint services under its own brand name in March 2004. 77 AT& T Corp, former owner of AT& T Wireless, is also planning to reenter the mobile telephone market through resale. 78 40. Two nationwide operators have partnered with third party resellers to market prepaid offerings aimed at the youth portion of the population. Virgin Mobile USA (“ Virgin Mobile”), a joint venture between Sprint PCS and Richard Branson’s Virgin Group, LLC, was launched in July 2002, 71 Interconnection and Resale Obligations Pertaining to Commercial Mobile Radio Services, First Report and Order, 11 FCC Rcd 18455, 18457 (1996). Resellers today are often referred to as MVNOs (Mobile Virtual Network Operators). MVNOs are distinguished from “traditional” resellers by “‘ brand appeal, distribution channels, and other affinities, ’ including the potential ability to bundle wireless services with other non- wireless products and services, as well as the ability to provide and support value- added services.” CTIA NOI Comments, at 22. 72 CTIA NOI Comments, at 21. 73 See Appendix A, Table 2, at A- 3. 74 TracFone Wireless Reaches 3 Million Customers and Lowers Airtime Rates for 2004, News Release, TracFone Wireless, Inc., Feb. 3, 2004. 75 CTIA suggests that the existence of relatively few resellers today may be due to the growth of and intense competition between facilities- based wireless operators. See CTIA NOI Comments, at 20. 76 See III. D. 4, infra. 77 Id. 78 Shawn Yound and Almar Latour, A New Cellphone With an Old Name, WALL STREET JOURNAL, May 6, 2004, at B1. AT& T’s Chairman has said that AT& T would enter the wireless market once the current AT& T Wireless is absorbed by Cingular (AT& T has the right to the AT& T Wireless brand name if AT& T Wireless is acquired by Cingular). Id.; COMMUNICATIONS DAILY, May 19, 2004. In May 2004, AT& T reached an agreement with Sprint to offer wireless service over Sprint's wireless network. AT& T Reaches Wireless Deal With Sprint, AP NEWSWIRE, May 18, 2004. 19 Federal Communications Commission FCC 04- 216 20 targeting its prepaid offerings at the youth market. 79 The venture has gained more than 1.75 million subscribers through March 2004. 80 Similarly, Nextel, in conjunction with an Australia- based company, is offering a prepaid service targeted at the teenage market. 81 The service, under the “Boost Mobile” brand name, trialed initially in California and Nevada, and is now available in 16 states. 82 As of Dec. 31, 2003, Nextel had about 400,000 subscribers on Boost Mobile prepaid plans. 83 3. Data- Only Providers 41. Non- voice services are offered by paging/ messaging carriers as well as by mobile telephone carriers. Paging/ messaging carriers provide these services using paging and narrowband PCS networks and spectrum, and paging/ messaging devices or units. On April 9, 2004, paging carrier Metrocall submitted a transfer of control application to the Commission in conjunction with the announced merger with Arch Wireless Communications, Inc. (“ Arch Wireless”). 84 Other major paging carriers include SkyTel Communications, Inc., SBC Paging, and Verizon Wireless’ paging business. 85 42. Apart from paging/ messaging carriers, there are a few carriers that exclusively sell other types of mobile data services, instead of both mobile voice and data services, including Motient Corp. (“ Motient”) and Space Data Corp (“ Space Data”). Motient has specialized in selling and integrating wireless data solutions to enterprises, including wireless e- mail and other wireless Internet applications. 86 Space Data is currently providing commercial telemetry services for the energy industry in West Texas and eastern New Mexico, and in September 2004 announced that it will extend its telemetry services to the Gulf of Mexico later the same month. 87 79 See Virgin Mobile USA, LLC, Comments, at 2 (filed Apr. 26, 2004) (“ Virgin Mobile Comments”). For a detailed discussion of the venture, see Seventh Report, at 13026. 80 Virgin Mobile Comments, at 2. 81 Eighth Report, at 14839. 82 Eighth Report, at 14839; Boost Mobile, Coverage Maps (visited May 17, 2003) . 83 Nextel, SEC Form 10- K (filed Mar. 11, 2004), at 3. 84 See Application for Transfer of Control of Metrocall USA, Inc. and Associated Request for Waiver of Electronic Filing Requirements in Connection with the Merger of Metrocall Holdings, Inc. and Arch Wireless, Inc., dated April 9, 2004. Since the Eighth Report, WebLink Wireless, Inc., another major paging/ messaging company was merged into Metrocall. Metrocall to Acquire WebLink, Press Release, Metrocall, Nov. 19, 2003. 85 SkyTel Communications, Inc. is a wholly owned subsidiary of MCI (formerly WorldCom) that was acquired on October 1, 1999. See Fifth Report, at 17720- 17721. Mike Dano, Nationwide paging down to one carrier, RCR WIRELESS NEWS, Apr. 5, 2004, at 3+. 86 See Brad Smith, Early Data Models Drain Finances, WIRELESS WEEK, Apr. 15, 2004 (“ Early Data Models Drain Finances”). 87 Space Data Launches New Wireless Telemetry Service in West Texas Oil and Gas Fields, Press Release, Space Data Corporation, Apr. 14, 2004; Space Data Launches New Wireless Telemetry Service, Press Release, Space Data Corporation, Apr. 15, 2004; Space Data Floats Wireless Data Network Over the Gulf, Press Release, Space Data Corporation, Sept. 14, 2004; Space Data Corporation Receives Patent for Airborne Constellation, Press Release, Space Data Corporation, Feb. 2, 2004. 20 Federal Communications Commission FCC 04- 216 21 4. Satellite Providers 43. As of year- end 2003, a number of carriers were providing mobile satellite services (“ MSS”) in the United States. 88 Both Globalstar Telecommunications LTD. (“ Globalstar”) and Iridium Satellite LLC. (“ Iridium Satellite”) are using Big LEO MSS licenses to offer mobile voice and data services to a variety of mobile terminals, including hand- held terminals, and to fixed terminals. Inmarsat Ltd. (“ Inmarsat”) and MSV, the successor to Motient Services Inc., which had previously entered into a joint venture with Mobile Satellite Ventures (Canada) Inc. and the Canadian licensee of MSS satellite MSAT- 1 (TMI Corporation), were also providing voice and data communications via satellite in the L- band at year- end 2003. The companies offer voice and data services in fixed and mobile environments. The mobile environment consists of a laptop- sized or larger terminal that can be transported from one location to another. Another company, ICO Global Communications (Holdings) Ltd., has launched one of its twelve U. K.- authorized satellites to operate in the 2 GHz MSS band, but has not yet begun commercial service. C. Horizontal Concentration 44. The level of market concentration generally depends on both the number of competing carriers per market and the distribution of their respective market shares. Thus, market concentration can result from both a relatively small number of carriers competing in the relevant market and a relatively high degree of inequality in the distribution of market shares among incumbent carriers. In conjunction with entry conditions and the way carriers and consumers behave and interact, market concentration affects the likelihood that a single carrier unilaterally, or a small group of carriers through coordinated action, could successfully exercise market power. 45. The basic economic principle for defining the scope of the relevant geographic market is to include customers facing the choice of similar competitive alternatives in the same geographic market. Because U. S. mobile telephony carriers have different- sized geographic footprints, any individual mobile carrier does not compete with all other mobile carriers in each and every part of the country. This suggests that the relevant geographic market for mobile telephony services is narrower than the entire nation. An attempt to measure concentration in mobile telephony services at the national level would understate the actual level of market concentration because the underlying geographic market definition would be too broad. At the same time, defining the appropriate regional or local geographic market for mobile telephony services is a highly complex exercise due to various factors, including the relatively large number of licensed carriers, the variety of geographic schemes used to license different spectrum bands, the wide variation in carriers’ geographic footprints, and the difficulty of collecting accurate information on the geographic coverage each mobile carrier provides in its license areas. To simplify the measurement task, we base our analysis of market concentration on uniform geographic areas that may be broader or narrower than the relevant geographic market. In particular, we estimate the number of 88 In order to place a satellite telephony call, an “outbound” communication from an MSS mobile phone is transmitted up to the satellite, using “service link” frequencies. The satellite then retransmits the signal back down to the earth, using “feeder link” frequencies, to a gateway ground station, where the call is interconnected with terrestrial networks, such as the PSTN. The return or “inbound” communication works the exact opposite way. The communication from the terrestrial network is transmitted from the gateway earth station up to the satellite, and then retransmitted by the satellite back down to the MSS mobile telephone. In systems with inter- satellite links, the inbound and outbound communications may be transmitted through multiple satellites in order to complete the connection between the originating mobile telephone and the receiving gateway ground station. 21 Federal Communications Commission FCC 04- 216 22 competitors per market on a county- by- county basis, and we provide concentration measures at the level of EAs. 1. Number of Mobile Telephony Competitors 46. To track the level of competition in the mobile telephone sector, the Commission compiles a list of counties with some level of coverage by mobile telephone providers. This data is based on publicly- available sources of information released by the operators such as news releases, filings with the SEC, coverage maps available on operators’ Internet sites, and information filed publicly 89 with the Commission in proceedings or with applications. 90 47. As previously discussed, there are several important caveats to note when considering these data. First, to be considered as “covering” a county, an operator need only be offering any service in a portion of that county. Second, multiple operators shown as covering the same county are not necessarily providing service to the same portion of that county. Consequently, some of the counties included in this analysis may have only a small amount of coverage from a particular provider. Third, the figures for POPs and land area in this analysis include all of the POPs and every square mile in a county considered to have coverage. 91 Therefore, this analysis overstates the total coverage in terms of both geographic areas and populations covered. 48. On the other hand, this county- by- county analysis reflects a significant improvement in accuracy. In past Reports, the Commission provided summaries of estimated coverage by BTAs. Starting with the Fifth Report, the Commission decided to re- estimate and enhance these coverage maps using county boundaries in an attempt to provide a more precise picture of network deployment. Moreover, while the newer broadband PCS and digital SMR entrants have less complete networks, the original cellular licensees have extensive networks that provide almost complete coverage of the entire land mass of the continental United States. 92 Cellular licensees were originally awarded a geographical area (CMA) as a license area, but they only retained that portion of the CMA where they had built out and 89 This data is not based on information that is subject to a protective order. 90 The Commission has buildout rules for geographic area licenses, although they do not require operators to deploy networks such that the entire geographic area of a specific license receives coverage. For example, the construction requirements for the 30 megahertz broadband PCS licenses state that an operator’s network must serve an area containing at least one- third of the license area’s population within five years of the license being granted and two- thirds of the population within 10 years. See 47 C. F. R. § 24.203( a). Similarly, the construction requirements for the 10 and 15 megahertz broadband PCS licenses state that an operator must cover one- quarter of a license area’s population, or provide “substantial service,” within five years of being licensed. See 47 C. F. R. § 24.203( b). The details concerning exactly which geographic areas or portions of the population should be covered to meet these requirements are left to the operators. In addition, decisions about whether to increase coverage above these requirements are left to the operators. For information on the buildout requirements for cellular licenses, see 47 C. F. R. §§ 22.946, 22.947, 22.949, 22.951. For information on the buildout requirements for non- site based SMR licenses, see 47 C. F. R. §§ 90.665 and 90.685. 91 All population figures are based on the Bureau of the Census’s 2000 county population. 92 See Appendix B, Maps 2- 3, at B- 3 – B- 4. In overlapping cellular Service Area Boundaries (SABs) over census block groups, we found that less than one- tenth of one percent of the US lacked cellular coverage. FCC internal analysis. Wireless coverage is so pervasive, in fact, that the Wall Street Journal ran an article rating hotels on their lack of wireless service for those who desire to get away from it all. Nancy Keates and Shawn Young, Destination: Unreachable, WALL STREET JOURNAL, Apr. 23, 2004, at W1. 22 Federal Communications Commission FCC 04- 216 23 expanded their wireless networks. 93 49. To date, 276 million people, or 97 percent of the total U. S. population, have three or more different operators (cellular, PCS, and/ or digital SMR) offering mobile telephone service in the counties in which they live. 94 However, these counties make up only 62 percent of the total land area of the United States, reflecting the nation’s uneven population distribution. 95 Roughly 250 million people, or 87 percent of the U. S. population, live in counties with five or more mobile telephone operators competing to offer service, while 216 million people, or 76 percent of the population, live in counties with six or more mobile telephone operators competing to offer service. Finally, 84 million people, or almost 30 percent of the population, can now choose from among seven or more different mobile telephone operators providing service somewhere in their counties, an increase of 16 percent from what was reported in the Eighth Report. 96 2. Concentration Measures for Mobile Telephony Services 50. This section reports the results of using the Herfindahl- Hirschman Index (“ HHI”) to measure market concentration with respect to the provision of mobile telephony services in EAs. 97 The value of HHI reflects both the number of market competitors and the distribution of their market shares. In general, the value of HHI declines as the number of firms increases and it increases with rising inequality among any given number of firms. 98 51. In principle, the market shares used to calculate HHIs can be based on various output measures, such as revenues or the number of subscribers. For reasons of data availability we have elected to calculate each mobile carrier’s market share based on the number of subscribers served by each carrier. The number of subscribers served by each carrier is determined based on the Commission’s NRUF data, 93 Cellular licensees were originally awarded a geographical area (CMA) as a license area, but they only retained that portion of the CMA where they had built out and expanded their wireless networks. See Amendment of Part 22 of the Commission’s Rules to Provide for the Filing and Processing of Applications for Unserved Areas in the Cellular Service and to Modify other Cellular Rules, First Report and Order and Memorandum Opinion and Order on Reconsideration, 6 FCC Rcd 6185, 6196- 6200 (1991). Initial cellular system operators were given a five-year period during which to expand their systems within the CMAs in which they were licensees. Id. 94 See Appendix A, Table 5, at A- 9. 95 Id. We note that the land area of these counties, 2. 2 million square miles, is almost 50 percent larger than the combined land area of the 25 member countries of the recently expanded European Union (1.5 million square miles). 96 See Appendix A, Table 10, at A- 11. 97 The HHI is calculated by summing the squares of the individual market shares of all firms competing in the relevant market. When a single firm is the sole supplier in the relevant market (a pure monopoly), the HHI attains its maximum value of 10,000 (100 x 100). As the structure of a market becomes progressively more atomistic, the value of HHI approaches 0. 98 For example, if four carriers are identified as participants in the relevant product and geographic market and each carrier accounts for 25 percent of total sales, the value of HHI would be 2500 [( 25) 2 x 4]. If the number of carriers increases to five, each with a 20 percent market share, the value of HHI would decline to 2000 [( 20) 2 x 5]. On the other hand, if there are still only four carriers but the top carrier has a 40 percent market share while each of the remaining three carriers has 20 percent, the value of HHI would increase from 2500 to 2800 [( 40) 2 + (20) 2 x 3]. 23 Federal Communications Commission FCC 04- 216 24 which track phone number usage information for the United States. The methodology used to compile NRUF data is described in Section VI. B. 1 on subscriber growth. As discussed in detail there, limitations of the NRUF data can result in miscounting of subscribers in a given geographic area. In this regard, we measure the number of subscribers served by each carrier for a given EA because using EAs reduces the distortions arising from the limitations of the NRUF data. 52. In addition to the limitations of the NRUF data, the methodology used to calculate the HHIs for EAs has its own limitations. The methodology gives equal weight to a mobile carrier that reports assigned numbers in one county as it does to a carrier that reports assigned numbers in all counties, or at least more than one county, within the EA. In effect, the methodology is based on the implicit assumption that the EA is the relevant geographic market, so that each carrier with assigned numbers in the EA is competing head to head with all other carriers operating in the EA. However, to the extent that carriers have different coverage areas that do not overlap, not all carriers with assigned numbers in an EA are in fact direct competitors. The implication is that the HHIs for EAs will tend to understate systematically the actual level of market concentration because the underlying geographic market definition is overly broad. On the other hand, there may be factors that would cause the relevant geographic market to be broader. For these reasons, we emphasize that, in using the EA to calculate market shares for the purposes of this report, we are not concluding that the EA is the relevant geographic market for other purposes. 99 53. Based on NRUF data as of December 2003, the average value of the HHIs weighted by EA population is 2151, and the median value is about 2360. 100 The values of HHIs for individual EAs range from a low of 1325 in EA 107 (covering parts of Wisconsin, Iowa and Minnesota, including the Twin Cities) to a high of 7155 in EA 121 (covering parts of Nebraska and Colorado). Thus, the values of the weighted average HHI and also the HHIs in more than half of all EAs are lower than 2500, which would be the value of HHI for a hypothetical market in which there are four carriers with equal market shares. 54. As a benchmark for examining the EAs with relatively high HHIs, we note that the value of HHI in a market that is equally divided among three competitors is approximately 3333. However, there are six or more competitors in all of the EAs with HHIs in excess of 3300, and the vast majority of the EAs in this category have in excess of ten competitors operating in at least some area within the EA. This suggests that the high values of HHI in these EAs are generally due not to the number of competitors, but rather to the limited effect of competitive entry to date in eroding the market shares of one or both carriers holding the two original cellular licenses. 55. In interpreting these HHIs, it is worth noting that the economic literature does not provide a theoretical or empirical basis for the existence of any critical threshold level of concentration above which adverse competitive effects are likely. 101 In addition, the specific technological and economic 99 In other contexts, such as the Commission’s review of license transfers and assignments, the relevant geographic market for calculating HHIs may be greater or less than an EA. 100 See Appendix A, Table 3, at A- 4. The simple mean (not weighted by population) is 2730. 101 Barry C. Harris and David D. Smith, The Merger Guidelines Vs. Economics: A Survey of Economic Studies, Perspectives on Fundamental Antitrust Theory, American Bar Association, Section of Antitrust Law, July 2001, at 10- 12. This includes the 1800 HHI level used in the DOJ/ FTC Guidelines to identify markets that are considered to be “highly concentrated.” See U. S. Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines, 57 Fed. Reg. 41557 (Apr. 2, 1992, as revised Apr. 8, 1997), at §1.51 (“ DOJ/ FTC Guidelines”). 24 Federal Communications Commission FCC 04- 216 25 characteristics of an industry are important determinants of the level of market concentration. Of particular importance is the relationship between economies of scale and the potential size of the market. In industries where the scale of output at which a firm can fully exploit scale economies (the minimum efficient scale) is large relative to potential demand, there will be room in the market for only a small number of firms operating at the lowest possible cost. In theory, therefore, market concentration in such industries will tend to be high relative to industries characterized by greater potential demand or smaller minimum efficient scale. 56. In light of the impact of technological and economic factors in determining the level of market concentration, it is noteworthy that the estimated values of HHIs for EAs tend to increase as the EA population declines. In other words, consistent with the theoretical considerations noted above, market concentration tends to be higher in EAs with a smaller potential subscriber base. For example, the EA with the highest HHI has the smallest population, and the EA with the second highest HHI (EA 142, covering parts of Nebraska and Wyoming) has the third smallest population. 57. However, some EAs are clear exceptions to this pattern. In particular, there are a number of EAs with mid- sized or relatively large populations that also have relatively high HHIs. Such apparent discrepancies may arise partly because the EAs also vary with regard to other important determinants of market demand and cost besides total population, including factors such as the age distribution of the population, per capita income, population density, urbanization, and the size and composition of the business sector. 102 Absent a more systematic analysis of the possible relationship between these explanatory factors and market concentration, we cannot make a determination of the extent to which market concentration in any given EA is explained by potential market demand and cost considerations. 3. International Comparison of Mobile Market Concentration 58. Concentration in mobile markets abroad provides another benchmark against which to evaluate U. S. mobile market concentration. This section compares the structure of mobile telephony markets in the United States and selected countries with regard to the number of market competitors and concentration measures calculated using HHIs. We note that international differences in mobile market concentration may reflect a variety of factors, including differences in the regulatory environment. 59. One comparison of mobile telephone markets in 46 countries indicates that the number of mobile market competitors in the fourth quarter of 2003 was higher in the United States than in any of the other countries. 103 In particular, the United States is listed as having “6+” players, whereas the only other countries with as many as six players are Hong Kong and Taiwan. Several other countries, including the United Kingdom, the Netherlands, and Malaysia, are listed as having five players. The vast majority of Western European countries and also comparable Asian- Pacific countries such as Japan, South Korea, and Australia are shown as having only three or four mobile players as of the end of 2003. However, these data on the number of mobile players per market are not strictly comparable since all Western European countries and most of the Asian countries identified above have licensed mobile carriers on a 102 The average cost of serving a given market tends to decline with higher population density and urbanization because high concentrations of subscribers make it easier for operators to provide adequate coverage with less infrastructure deployment. See Eugence C. Signorini, Wireless Coverage in the United States: Leaving a Lot to Be Desired, THE YANKEE GROUP REPORT, Vol. 1, No. 11, Aug. 2000, at 8. 103 Michel Morin and Linda Mutschler, Global Wireless Matrix 4Q03, Merrill Lynch, Global Securities Research, Mar. 19, 2004, at 2 (“ Global Wireless Matrix 4Q03”). 25 Federal Communications Commission FCC 04- 216 26 nationwide basis rather than by smaller geographic regions. As detailed above, the number of mobile competitors per market in the United States varies by region, ranging from as many as seven or more in some areas to fewer than four competitors in some other areas. Nevertheless, as previously mentioned 97 percent of the total U. S. population live in counties with a minimum of three different mobile operators, the same as the maximum number of national mobile carriers in Japan, South Korea, and most of the smaller Western European markets. 60. Since European regulators awarded nationwide licenses for second- generation GSM and third- generation services, national boundaries are the relevant geographic market for measuring concentration in European mobile markets. For purposes of comparison, we computed HHIs based on subscriber shares as of the fourth quarter of 2003 for the following seven countries: Finland, France, Germany, Italy, the Netherlands, Spain and the United Kingdom. 104 The lowest HHI values are found in the United Kingdom (2481) and the Netherlands (2538). Mobile subscribers in the United Kingdom are relatively evenly divided among the four GSM operators, and a fifth operator, a 3G start- up, launched service in 2003. 105 The Netherlands, with five GSM operators, is the only European country to have awarded more than four GSM licenses. The values of HHI in the remaining countries range from a low of 3375 in Germany to a high of 4122 in Finland. The relatively high values of HHI in this group of countries reflect two factors. One is the small number of competitors per market, with four carriers in Germany and Italy and only three carriers in the remaining countries. Second, each market tends to be dominated by the top two competitors, which have a combined market share ranging from 78 percent in Spain to 84 percent in Finland and France. 106 61. Recalling that for EAs in the United States the average value of the HHIs weighted by EA population is 2151 and that the median value is about 2360, it is evident that concentration is somewhat higher in the two least concentrated European mobile markets (the United Kingdom and the Netherlands) than in the U. S. mobile market on average. If we take the top 25 percent of EAs by HHI values, we find that the European mobile markets with higher concentration levels (in other words, with HHIs ranging from 3375 to 4122) would fall within this top 25 percent. At the same time, there are 22 EAs with higher mobile market concentration levels than Finland, the European country with the highest mobile market HHI among the European countries included in this comparison. D. Consolidation and Exit 62. Consolidation and exit of service providers, whether through secondary market transactions or bankruptcy, may affect the structure of the mobile telecommunications market. A reduction in the 104 The subscriber shares used to calculate HHIs for European mobile markets were taken from Global Wireless Matrix 4Q03, at 50- 52, 61, 67, 77, and 85. 105 The HHI calculation for the United Kingdom (UK) is based on the assumption that all five UK operators had nationwide coverage at the end of 2003. However, having launched service in March 2003, 3G start- up Hutchison initially provided urban and main artery coverage throughout the country, and as of the first quarter of 2004 its coverage was approximately 70 percent of the population. See Atsushi Umino, Developments of Third-Generation Mobile Services in the OECD, OECD, Mar. 2004, at 38 (“ Developments of Third- Generation Mobile Services in the OECD”). Since Hutchison did not have nationwide coverage as of December 2003, the HHI of 2481 somewhat understates mobile market concentration in the United Kingdom at that time. If Hutchison’s relatively negligible market share (0.4 percent) as of the end of 2003 is ignored, the value of HHI based on the assumption that there are four nationwide operators in the UK is 2502. 106 Global Wireless Matrix 4Q03, at 2. 26 Federal Communications Commission FCC 04- 216 27 number of competing service providers due to consolidation or exit may increase the market power of any given service provider, which in turn could lead to higher prices, fewer services, and/ or less innovation. However, consolidation does not always result in a negative impact on consumers. Consolidation in the mobile telecommunications market may enable carriers to achieve certain economies of scale and increased efficiencies compared to smaller operators. If the cost savings generated by consolidation encourage the newly enlarged carrier to compete more aggressively, consolidation could result in lower prices and new and innovative services for consumers. 107 Moreover, it is unlikely that competitive harm will result from consolidation among service providers licensed to operate in separate geographic markets. 63. Among the policies potentially affecting consolidation in this market, the Commission eliminated (effective January 1, 2003) a rule limiting the amount of spectrum a CMRS licensee could own or control in a given licensed area. 108 Until recently, the Commission had retained the cellular cross-interest rule in Rural Service Areas (“ RSAs”), at the same time creating a waiver process in recognition that there may be RSAs in which such cross interests would not create a significant likelihood of substantial competitive harm. 109 On July 8, 2004, the Commission also eliminated the cellular cross-interest rule then applicable only in RSAs and transitioned to case- by- case competitive review for all applications related to transactions involving cellular licenses. 110 64. Since the end of 1999, carriers have been building nationwide footprints 111 through various forms of transactions. 112 One of the driving forces behind many of these transactions has been the desire of large regional carriers to enhance their ability to compete with existing nationwide operators that offer attractive nationwide pricing plans. 113 Also, as the Commission has previously concluded, operators with larger footprints can achieve certain economies of scale and increased efficiencies compared to operators with smaller footprints. 114 More recently, national operators have sought to fill in gaps in their coverage 107 See Jonathan B. Baker, Developments in Antitrust Economics, JOURNAL OF ECONOMIC PERSPECTIVES, Vol. 13, No. 1, Winter 1999, at 182. 108 Spectrum Aggregation R& O, 16 FCC Rcd at 22693, ¶ 49. 109 Spectrum Cap Order, at 22708- 22710. See, also, Rural NOI, at 25561. 110 FCC Adopts Measures to Increase Rural Investment and Facilitate Deployment of Spectrum- Based Services in Rural Areas, News Release, Federal Communications Commission, Jul. 8, 2004 (“ Rural Order PN”) 111 Generally, “footprint” is an industry term of art referring to the total geographic area in which a wireless provider offers service or is licensed to offer service. 112 The Commission must consent to the transfer of control or assignment of all spectrum licenses used to provide wireless telecommunications services. 47 C. F. R. § 1.948. 113 See Fifth Report, at 17699 (For a complete discussion of the motivations for this phenomenon, see Fourth Report, at 10159- 10160). 114 See Seventh Report, at 12997. One study found bigger companies get better equipment prices because of their size. Shawn Young, As Wireless Firms Grow, So Can Costs, WALL STREET JOURNAL, Apr. 29, 2004, at B4. However, the study also found that the cost of signing up new customers increases as wireless companies get bigger. 27 Federal Communications Commission FCC 04- 216 28 areas, 115 as well as to increase the capacity of their existing networks. Since the writing of the Eighth Report, a number of transactions between market participants have been announced. We discuss the transactions involving the largest impact, either through the exchange of subscribers or spectrum licenses, on the structure of the market below. In addition, we discuss some of the carriers that have declared bankruptcy and/ or announced other restructuring plans during the past year. 1. Sales and Swaps 65. Cingular / AT& T Wireless – On February 17, 2004, Cingular Wireless announced an agreement to acquire AT& T Wireless for $41 billion in cash. 116 According to the companies, the combined entity would have 46 million subscribers, surpassing Verizon Wireless as the largest wireless operator, with coverage in 97 of the top 100 markets and combined 2003 revenues exceeding $32 billion. 117 The companies, which are both committed to GSM technology, claim that the combined entity would generate more than $1 billion in operating and capital expenditure savings in 2006, and in excess of $2 billion in annual savings beginning in 2007. 118 The companies predict that the acquisition, which requires regulatory approval, will be completed “as soon as late 2004.” 119 66. Cingular / Nextwave Telecom – On August 5, 2003, Cingular Wireless and NextWave Telecom announced an agreement for Cingular to purchase spectrum from NextWave in 34 markets for $1.4 billion. 120 The licenses, which cover approximately 83 million people, are primarily in markets where Cingular already provides service. 121 In February 2004, the Commission approved assignment of these licenses from NextWave to Cingular. 122 115 For a more complete discussion of the motivations for this phenomenon, see Fourth Report, at 10159- 10160. 116 Cingular to Acquire AT& T Wireless, Create Nation’s Premier Carrier, News Release, Cingular Wireless, Feb. 17, 2004. AT& T Wireless and Cingular Wireless filed applications for Commission consent to the transfer of control in March 2004. See Application No. 0001656065 (filed Mar. 17, 2004). 117 Id. 118 Cingular to Acquire AT& T Wireless, Create Nation’s Premier Carrier, News Release, Cingular Wireless, Feb. 17, 2004. Some analysts argue that the acquisition is an attempt to offset the decline in Cingular’s parent companies’ wireline businesses. Almar Latour and Jesse Drucker, Stocks of Cingular’s Parents Ring Out, WALL STREET JOURNAL, Feb. 2, 2004, at C1. 119 In a related transaction, Cingular Wireless, AT& T Wireless, and Triton PCS signed a non- binding letter of intent, contingent on the closing of Cingular Wireless’s acquisition of AT& T Wireless, to trade Triton PCS’s network in Virginia for certain AT& T Wireless network assets and customers in North Carolina and Puerto Rico. Cingular, AT& T Wireless and Triton PCS Sign Letter of Intent to Exchange Operations in N. Carolina, Puerto Rico and Virginia, News Release, Cingular Wireless, July 8, 2004. Additionally, AT& T Wireless and Triton PCS will terminate their exclusivity agreement in return for the surrender of AT& T Wireless’s equity in Triton PCS. See Section III. D. 5, Affiliations, infra. 120 Cingular Wireless and NextWave Telecom Agree to Terms for Spectrum Licenses, News Release, Cingular Wireless, Aug. 5, 2003 121 Id. 122 Applications for Consent to the Assignment of Licenses Pursuant to Section 310( d) of the Communications Act from NextWave Personal Communications, Inc., Debtor- in- Possession, and NextWave Power Partners, Inc., 28 Federal Communications Commission FCC 04- 216 29 67. American Cellular / Dobson – On August 19, 2003, Dobson announced that it had completed its acquisition of American Cellular Corporation (“ American Cellular”), following the successful restructuring of American Cellular's debt and equity ownership. 123 American Cellular had been equally owned by Dobson and AT& T Wireless, although Dobson operated the American Cellular markets, under the brand name “Cellular One.” 124 AT& T Wireless, which along with Dobson had acquired American Cellular in February 2000, no longer has an equity stake in the subsidiary. 125 The combined company provides service to roughly 1.6 million subscribers in 16 states using its TDMA/ GSM network. 126 2. Joint Ventures 68. T- Mobile / Western Wireless – In May 2004, T- Mobile and Western Wireless announced an agreement to expand GSM/ GPRS coverage in the western United States. 127 Under the agreement, Western Wireless is building a GSM/ GPRS network to cover approximately 4 million people in 65 BTAs using PCS spectrum purchased from T- Mobile. 128 The spectrum is primarily in areas where Western Wireless has already constructed a network, but where T- Mobile has not. 129 By overlaying a GSM network on top of Western Wireless’s existing infrastructure, the companies hope to realize significant economic and resource efficiencies by utilizing Western Wireless’s existing leases, tower structures, and other components of its cellular network. 130 Western Wireless plans to sell roaming services both to T-Mobile and other operators, and may also utilize the network for its own retail customers. 131 69. Cingular / T- Mobile – In May 2004, Cingular and T- Mobile announced that they were ending Debtor- in- Possession, to subsidiaries of Cingular Wireless, Inc., Memorandum Opinion & Order, WT Docket No. 03- 217, FCC 04- 26 (rel. Feb. 12, 2004). Under the terms of the purchase agreement as well as the term sheet entered into between the United States Government and NextWave, following consummation of the transaction, Cingular paid $714 million to the Commission for the benefit of the U. S. Treasury in full satisfaction of all claims related to the licenses it purchased. 123 Dobson Communications Completes Acquisition Of American Cellular Corporation, News Release, Dobson, Aug. 19, 2003. 124 Eighth Report, at 14810- 14811, note 196. 125 Dobson Communications Completes Acquisition Of American Cellular Corporation, News Release, Dobson, Aug. 19, 2003. 126 Id. On Sept. 22, 2003, AT& T Wireless sold all of its ownership interest in Dobson’s common stock. AT& T Wireless, Annual Report 2003, at 41. 127 T- Mobile USA and Western Wireless To Expand GSM/ GPRS 1900 Footprint in Rural U. S., News Release, T- Mobile, May 5, 2003. 128 Id.; ULS File No. 0001406731 (filed Aug. 20, 2003). 129 ULS File No. 0001406731 (filed Aug. 20, 2003). 130 Id. 131 Id. 29 Federal Communications Commission FCC 04- 216 30 their infrastructure sharing joint venture in California, Nevada, and New York. 132 Under terms of the deal, T- Mobile will pay $2.5 billion for Cingular’s network in California and Nevada, and will receive $200 million for unwinding the venture. 133 In addition, Cingular is selling T- Mobile 10 MHz of spectrum in San Francisco, Sacramento, and Las Vegas for $180 million, but will receive 10 MHz of spectrum in New York City. 134 The companies expect the deal to close at the beginning of 2005. 135 The transaction is contingent on Cingular's acquisition of AT& T Wireless, as well as regulatory approval once the transaction between Cingular and T- Mobile is submitted to the Commission. 136 3. Restructurings 70. Leap Bankruptcy – As reported in the Eighth Report, on April 13, 2003, Leap Wireless International, Inc. (“ Leap”) 137 filed a voluntary petition for reorganization under Chapter 11 of the U. S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California. 138 On October 22, 2003, the Bankruptcy Court approved Leap’s Fifth Amended Joint Plan of Reorganization. 139 The company’s emergence from bankruptcy is contingent on obtaining FCC approval for assignment of its wireless licenses. 140 71. Ntelos Bankruptcy – As reported in the Eighth Report, Ntelos, Inc. (“ Ntelos”) filed for Chapter 11 bankruptcy protection in the U. S Bankruptcy Court for the Eastern District of Virginia on March 4, 2003. 141 Ntelos, which had 266,000 wireless customers at the end of 2002, had missed interest 132 Cingular, T- Mobile USA To End Joint Network Venture, News Release, Cingular Wireless, May 25, 2004. See Seventh Report, at 13001, and Eighth Report, at 14808, for a description of the venture. 133 Taska Manzaroli, Deutsche Telekom to Acquire Cingular Network in Two States, DOW JONES NEWSWIRES, May 25, 2004. 134 COMMUNICATIONS DAILY, May 26, 2004, at 5. 135 Taska Manzaroli, Deutsche Telekom to Acquire Cingular Network in Two States, DOW JONES NEWSWIRES, May 25, 2004. 136 Id. See also ULS File No. 0001771442. 137 See Section VII. A. 2, Wireless Alternatives, infra, for a discussion of Leap’s service offerings. 138 See Eighth Report, at 14808. 139 Order Confirming Debtor’s Fifth Amended Joint Plan of Reorganization, In re: Leap Wireless International, Inc., and Cricket Communications, Inc., et al., Case Nos. 03- 3470- All through 03- 3535- All, (Bankr. S. D. Cal.) (Oct. 22, 2003). 140 ULS File No. 0001546977 has been designated as the lead application, and all pleadings and other submissions filed in the matter that pertain generally to the transaction and not to a particular application are available through this file number. See also, Leap Wireless International, Inc., Debtor- in- Possession, Seeks FCC Consent for the Assignment of Broadband Personal Communications Services Licenses to Leap Wireless International, Inc., Public Notice, 18 FCC Rcd 26763 (2003). 141 Eighth Report, at 14809. 30 Federal Communications Commission FCC 04- 216 31 payments of more than $24 million on loans from commercial debt holders in February 2003. 142 On September 9, 2003, Ntelos announced that it had completed its financial restructuring and emerged from Chapter 11 proceedings. 143 The company’s Joint Plan of Reorganization, which was confirmed by the U. S. Bankruptcy Court for the Eastern District of Virginia on August 12, 2003, became effective on September 9, 2003. 144 Under the company’s Joint Plan of Reorganization the restructured company will be privately held, primarily by former noteholders. 145 Existing shares of Ntelos common stock (NTLOQ) were cancelled, along with the company’s senior and subordinated notes and outstanding preferred stock. 146 The company still provides service in Virginia, West Virginia, Kentucky, Tennessee, and North Carolina. 147 72. NextWave Telecommunications Inc. and NextWave Power Partners, Inc. (“ NextWave”) – NextWave was the high bidder for 95 C, D, E and F block broadband PCS licenses covering 174 million POPs in auctions held between 1995 and 1997. On June 8, 1998, NextWave filed for Chapter 11 bankruptcy protection in the U. S. Bankruptcy Court for the Southern District of New York. Following extensive litigation, the U. S. Supreme Court held that NextWave’s licenses had not automatically cancelled for non- payment while it was in bankruptcy. 148 As part of its reorganization process, NextWave obtained FCC approval to transfer certain of its C and F block PCS licenses to Cingular. 149 In April 2004, NextWave entered a settlement agreement with the FCC whereby it will retain certain of its C and F block licenses, and will return the remaining licenses to the FCC. On May 25, 2004, this settlement agreement was approved by the bankruptcy court. 150 73. Horizon PCS Bankruptcy – On August 15, 2003, Horizon PCS, Inc. (“ Horizon PCS”), a Sprint PCS affiliate, announced that it had filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Ohio. 151 142 NTELOS in Active Discussions with Debtholders, News Release, Ntelos, Feb. 18, 2003. 143 NTELOS Completes Restructuring and Emerges From Chapter 11, News Release, Ntelos, Sept. 9, 2003. See also, ULS File Nos. 0001433008, 0001433014, 0001433028, 0001433042, 0001433048, 0001433051, 0001433045, 0001433033 0001433010, and 0001433442. 144 Id. 145 Id. 146 Id. 147 See http:// www. ntelos. com. 148 FCC v. NextWave, 537 U. S. 293 (2003). 149 Applications for Consent to the Assignment of Licenses Pursuant to Section 310( d) of the Communications Act from NextWave Personal Communications, Inc., Debtor- in- Possession, and NextWave Power Partners, Inc., Debtor- in- Possession, to subsidiaries of Cingular Wireless, Inc., Memorandum Opinion & Order, WT Docket No. 03- 217, FCC 04- 26, (rel. Feb. 12, 2004). 150 Order Granting Motion Pursuant to Section 363 of the Bankruptcy Code, In re: NextWave Personal Communications, Inc. et a