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FCC says wireless market is 'concentrated'

This is a reversal from previous reports, which indicated the wireless market in the United States was sufficiently competitive.

The Federal Communications Commission warned Thursday in a new report that the wireless industry is becoming more concentrated.

In its annual report on competition, the FCC reversed years of findings that the market is competitive. The report didn't say that the market is not competitive, rather that it has become more concentrated over recent years.

Specifically, the FCC said since 2003, market concentration has increased 32 percent. The report indicates that 60 percent of the nation's subscribers and revenue come from the country's two largest wireless providers: AT&T and Verizon Wireless. The FCC noted that these companies are continuing to gain customers as other national operators, Sprint Nextel and T-Mobile USA, have been losing subscribers.

AT&T expressed concern over the results.

"For six successive reports, the FCC has confirmed what is obvious to any consumer who watches television, walks down a busy main street or reads a newspaper--that the wireless market is intensely competitive, with new choices in services, applications, and devices available almost weekly," Robert Quinn, AT&T senior vice president of regulatory affairs said in a statement. "That's why it's so disappointing that this FCC seems reluctant to acknowledge the market's success. Even more baffling is that it is contradicting its own evidence, and the evidence of our own eyes. The U.S. wireless market is working, delivering choices and value."

CTIA, the wireless trade group representing wireless operators in the U.S., also expressed concern over the report.

"We believe the commission missed an opportunity today to truly highlight one of the few glowing examples of investment, innovation and consumer choice in the U.S. economy," CTIA president and CEO Steve Largent said in a statement.

Some in the wireless industry are worried that the FCC will use the new findings as justifications for more regulation of the wireless industry.

"Because the FCC's decision is a dramatic break from years of solid precedent, we can't help but worry that this seems intended to justify more regulation in a market where it is clear beyond doubt that regulation is simply unwarranted," AT&T's Quinn said.

The FCC is already on a path toward creating Net neutrality regulation. And Chairman Julius Genachowski has said publicly that he believes the new rules should encompass wireless services. The wireless industry opposes this. Wireless operators and the CTIA contend that wireless networks are different than wired networks because they are limited by a finite amount of spectrum. Therefore, they argue that rules applying to wireline services should not also apply to wireless services.

The FCC is also in the process of reclassifying all broadband traffic as a regulated Title II service. While this does not explicitly include wireless, it could also include wireless broadband services.

During the FCC's open meeting Thursday, Democratic Commissioner Michael Copps applauded the achievements of the wireless industry, but added that the report suggests that "some things are not right" in the wireless industry. And he said that the commission needs to stay vigilant about protecting consumers, and "use whatever policy levers we have available to ensure good outcomes for American consumers."

Republican commissioners warned against heavy-handed regulation. During the meeting, the two Republicans said that Americans have many choices when it comes to wireless service. Republican Commissioner Robert McDowell said the report "appears to lay the foundation for more regulation."

Chairman Genachowski tried to remain neutral. "This report does not seek to reach an overly simplistic yes-or-no conclusion about the overall level of competition in this complex and dynamic ecosystem, comprised of multiple markets," he said at the meeting.

Meanwhile, smaller wireless companies were happy to see the FCC recognize that some regulation is needed to encourage more competition in the market.

"While the wireless retail market remains competitive and has brought unimagined innovation and value to American consumers over the past decade, Sprint remains concerned that for competition to continue to flourish, changes must be made to the underlying regulatory structure which govern the USF (Universal Service Fund) system, switched access, and special access," Vonya McCann, senior vice president of government affairs for Sprint Nextel, said in a statement. "Sprint is encouraged that the Federal Communications Commission recognizes the importance of competition in this space and plans to address these areas of concern as it continues its work to implement the National Broadband Plan."