Federal Communications Commission FCC 04-216 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 6002(b) of the ) WT Docket No. 04-111 Omnibus Budget Reconciliation Act of 1993 ) ) Annual Report and Analysis of Competitive ) Market Conditions With Respect to Commercial ) Mobile Services ) ) 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 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 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