Last week the Consumer Federation of America published a response (http://www.consumerfed.org/pdfs/CFA-Rebuttal-of-Phoenix-Center-and-ITIF.pdf) to a Phoenix Center critique of our analysis of the abuse of market power by the dominant incumbent wireless carriers, i.e. AT&T and Verizon (http://www.consumerfed.org/pdfs/comparing-apples-to-apples-11-2013.pdf. The Phoenix Center has responded by admitting it made a mistake, which it dismisses as a mere typographical error. The Phoenix Center also takes offense at our questioning of the motives behind its earlier, baseless attack on our analysis. Given the most recent response from the Phoenix Center, our suspicions are strengthened.

The Phoenix Center claims its typo is inconsequential. We disagree. The difference between the misrepresentation of the evidence and the reality is huge. The Phoenix Center originally claimed that AT&T and Verizon have a CAPEX that is 86% higher than T-Mobile (which is the firm we used as the competitive referent because Sprint was absorbing an acquisition). In the corrected analysis, the difference is only 12%. We show that combining the relatively small difference in CAPEX with very large differences in pricing and cash flow provides good evidence of the abuse of market power by AT&T and Verizon.

We have provided a wide range of additional evidence that points to the abuse of market power,

(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2241995,

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1979789,

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2030907),

The Phoenix Center continues to ignore this compelling evidence of the abuse of market power including:

• structure (e.g. high and rising concentration, exit and vertical integration),
• conduct (e.g. overcharging competitors for inputs like special access and roaming, strategic acquisition of spectrum, efforts to buy a disruptive wireless competitor, massive, strategic acquisition of spectrum, and joint ventures with wireline competitors that remove their incentive to compete in wireless) and
• performance (e.g. abusive rates, terms and conditions of service, excess profits, and inefficient use of spectrum compared to competitors)

It is understandable that the Phoenix Center, confronted with an embarrassing error, would minimize it as a mere “typo” and insist that the conclusion of its original attack on CFA still stands. But it severely strains credulity to believe that the Phoenix Center mistake was a mere typographical error, which Wikidictionary defines as “A mistake made during the process of typing, especially one caused by a slip of the fingers; often shortened to typo.” The Phoenix Center misread the FCC table from which it extracted the data, misread (or ignored) the FCC text accompanying the table, and built an argument on that erroneous basis. Moreover, anyone even vaguely familiar with the cellular industry should know it was incorrect. Anyone who read and paid the slightest attention to the source document would not have made this mistake. It was not a failure of typing or even proof reading, it was an error of thought and analysis.

Trying to sweep Phoenix Center’s mistake under the rug as a mere typo or paper over it with theoretical bluster will not alter the basic fact that the Phoenix Center made a major mistake with important policy implications. The Phoenix Center’s response to criticism of its analysis serves to amplify our warning to the decision makers the Phoenix Center is trying to influence that its analysis has little relevance to the actual state of the market and its validity should be questioned. More theoretical navel gazing should not distract decision makers from recognizing that policies are necessary to deal with the abuse of market power by the dominant wireless companies. One such policy should be to ensure that the upcoming spectrum auction promotes competition by setting a limit on the amount of additional high quality/low frequency spectrum the dominant incumbents can add to their already massive advantage in holdings of this spectrum.

Mark Cooper, markcooper@aol.com, (301) 384-2204