Tipping the FCCs Cap

Since last October, when Cingular Wireless officially launched, the top tier of the cellular industry has been clearly defined.

Since last October, when Cingular Wireless officially launched, the top tier of the cellular industry has been clearly defined. Weve got six nationwide operators, and that number likely wont change — despite the potential removal of the spectrum cap and the subsequent winnowing of the remaining smaller players.

The Federal Communications Commission has the spectrum cap in its sights, and many observers say the panel may remove the rules limiting operators to owning 45 megahertz in major markets and 55 MHz in rural areas.

The cap was established to encourage competition. The big operators contend that competition is extremely healthy and the limits should be lifted. With more spectrum, operators could better serve dense urban areas such as New York City, where they are running out of capacity.

Plenty of people are lined up on each side of the issue. Its difficult to predict what will happen if the cap is removed, but without it, the remaining small operators would surely be bought quickly — and that would be a shame, because the small players can be more innovative and nimble than their giant brethren.

However, its true that competition is healthy and that it would be very unlikely for the number of nationwide players to change. It wouldnt make sense for any of the behemoths to merge, because the result would be redundant. Each of their networks is too well built-out to imagine any of them combining or disappearing.

A report compiled by two professors at the request of Verizon Wireless and submitted to the FCC in April argues that the cap has encouraged competition and its positive effects. The report notes that the number of competitors and the complexity of pricing plans makes it unlikely that the operators would collude on pricing. Thats debatable — the airline industry has a number of competitors, and they often charge nearly identical fares for flights.

That report also says that the cap isnt the determinant for the number of competitors in each market, because some have the full 45 MHz while others make due with less.

The NextWave Telecom negotiations could make prospects for post-spectrum-cap consolidation even more interesting. Carriers that won licenses in the NextWave reauction are prevented from using them because of the legal wrangling over which company actually has rights to those licenses. Those same carriers might be tempted to buy smaller operators in the same markets where they won licenses, but may be reluctant to do a deal knowing that the NextWave spectrum may eventually be released.