Robert Hahn is director of economics at the Smith School, University of Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy. Peter Passell is a senior fellow at the Milken Institute and a consultant to the Legatum Institute's Prosperity Index Group. They are cofounders of Regulation2point0.org, a web portal on regulatory policy.
Conventional wisdom would suggest that the two U.S. telecom leaders, AT&T and Verizon, will remain the industry leaders for a long time. But conventional wisdom is often wrong in the information technology biz, where companies must run all-out just to stay in place.
Everyone who follows the telecom industry knows that these two companies are competing head-to-head, investing billions to build faster networks with broader coverage. The prize: a greater share of the profits from selling wireless mobile services to smartphone and tablet users (who will soon be almost all of us).
Less well appreciated are the competitive threats these companies face from the outside. Indeed, to understand why the conventional wisdom could be wrong this time around, check out the maneuvering of two information technology moguls, Charlie Ergen and Masayoshi Son, who are itching to play in bigger leagues.
Ergen is the chairman of Dish Network, the satellite TV provider, which owns a huge swath of that most precious information age resource—the electromagnetic spectrum. Spectrum is a key ingredient (some would say the key ingredient) in the construction of networks that give consumers access to information anytime, anywhere. Which explains why Ergen recently held talks with Google about partnering on a new wireless network.
Masayoshi Son is the billionaire chief executive of Softbank, a Japanese IT company that succeeded in the fiercely competitive Japanese telecom market by undercutting the prices of the established giants. His company has now plunged head first into the American wireless ferment by offering to purchase 70 percent of Sprint shares for a cool $20 billion. Sprint has the spectrum to challenge the leaders in wireless, but has, to date, remained an also-ran. Son is hoping to change that with his hands-on management style and experience in trimming Godzillas down to size.
Son and Ergen are planning state-of-the-art wireless networks that would swallow market share at the expense of Verizon and AT&T—and, one presumes, widen consumer choice. But both face regulatory hurdles.
Softbank's purchase of a controlling interest in Sprint needs to be approved, and there's bound to be pushback to the idea of foreign control of a wireless network. Ergen, for his part, is wrangling with the Federal Communications Commission over technical issues—specifically, how to manage the use of Dish's spectrum for wireless in ways that pose no threat of interference to users of neighboring spectrum turf. Both, plainly, deserve a chance.
These latest challenges to incumbent wireless telecoms offer important lessons for regulators. First, this market is, indeed, "contestable" in the parlance of antitrust nerds: Potential (as well as actual) competition deters any inclination on the part of the market leaders to raise prices or to cut corners on service .
Second, regulators have a lot of discretion to delay market entry, which they would be wise to use sparingly. It could make all the difference.
Last, and most important, we should all be skeptical of applying conventional wisdom to the issue of market concentration in the IT industry. There's plenty of evidence that today's kings of the hill are at risk of losing their crowns tomorrow.