It is difficult to believe that October marks the 20-year anniversary of when the first commercial cellular service was launched in Chicago. Who could have accurately predicted how quickly and drastically wireless would change our lives?
Look around or listen at any public place and you will likely witness the impact that cellular technology is having on the lives of most Americans-maybe it’s even your phone that’s ringing. Such casual observations on the growth of cell phones and other mobile gadgets have recently been quantified in the FCC’s eighth report on the status of the U.S. wireless industry. The industry’s numbers are impressive, especially considering the turmoil that other telecom sectors have experienced during the past few years. The total number of U.S. cell-phone subscribers climbed to 142 million at the end of 2002, producing a nationwide penetration rate of 49 percent.
And it’s not just your imagination-people are talking on their cell phones more than ever before. The average subscriber uses her phone about 427 minutes, or more than seven hours, each month. While this is only a 12-percent increase from 2001, it represents a nearly fourfold increase from 1997. This growth in usage has largely been driven by-as Economics 101 would tell us-lower prices. The average per-minute price of wireless service dropped 70 percent between 1997 and 2002 to around 11 cents.
While greater usage has resulted from lower prices, lower prices have been a direct effect of increased competition among wireless carriers. Currently, 95 percent of the U.S. population lives in areas where at least three carriers provide service, and 83 percent lives in areas with at least five carriers. The percentage of the U.S. population served by six or more carriers jumped from 53 percent to 71 percent during the past year.
As I reflect on these statistics, I believe they are a perfect example of the good that can come from the government putting its trust in market forces. The consumer benefits we currently see in the wireless industry are the by-product of pro-competitive, deregulatory policies the Federal Communications Commission and Congress began implementing 10 years ago.
During the 1990s, the FCC helped transform the wireless industry from a stagnant cellular duopoly to an environment of meaningful and flourishing competition. Yet the commission did not accomplish this by forcing or mandating additional wireless competitors. It did not distort market forces to inject artificial competition. It instead laid the groundwork for competition to develop on its own by eliminating a significant barrier to entry and freeing a key resource for mobility: spectrum.
Beginning in 1995, the commission auctioned 120 megahertz of spectrum-the A though F broadband PCS licenses in the 1850-1950 MHz band-that could be used to offer mobile telephone service. By auctioning the spectrum, the FCC allowed the market to determine its worth and enabled the spectrum to end up in the hands of the entity that valued it most. More importantly, wireless licensees had, and still have, the freedom to decide which services to offer using the spectrum, which technologies to deploy, and what prices to charge. The commission also gave licensees the option to sell all or portions of their spectrum bands or geographic license areas to other entities post-auction with FCC approval.
The results of these policy choices are evident. There are now six competing nationwide wireless carriers. The price of cellular minutes has plunged to the point where wireless service is now an alternative to landline phone service. Over the years, mobile carriers have introduced innovative services such as national calling plans with no roaming or long distance fees. More recently, they have been upgrading their networks to sell data and multimedia features, such as text messaging, ring tones and digital photo capabilities.
Several providers also offer niche wireless services such as always-on email access and push-to-talk voice capabilities. These developments have added a new layer of freedom to our everyday lives and have made it cheaper and easier to keep in touch with friends and family.
Yet there is still room for more regulatory growth. Just as the industry is evolving its business plans and experimenting with new technologies, the FCC is continuing to implement innovative policies and building on the “wireless way.” We recently decided to allow greater flexibility in secondary markets for spectrum by permitting licensees to lease their spectrum to other parties. In addition, the commission’s Spectrum Policy Task Force has recommended the greater use of both the property rights and commons models of spectrum allocation, and less use of command-and-control systems. These developments show we are committed to putting an even greater level of trust in market forces.
The FCC must also determine how to apply the “wireless way” of introducing competition to the other sectors of the telecom industry that we regulate. After all, isn’t the American public entitled to the same benefits of wireless competition-lower prices and greater innovation-with their broadband, wireline and media services as well?
John Muleta is the chief of the FCC’s Wireless Telecommunications Bureau.
