Hanging Up on Carterfone: The Economic Case Against Access Regulation in Mobile Wireless

Abstract

Recently, Professor Tim Wu recommended subjecting the U.S. mobile wireless industry to Carterfone type regulation governing attachment of devices to the network, and others have sought such "open" access regulation also for suppliers of software applications. Carterfone was applied to a regulated monopoly Bell system and its precedent simply does not fit today's wireless industry. We document that the U.S. mobile wireless industry (a) is not highly concentrated, relative to industries typically subject to access regulation, and to the European mobile wireless industry, (b) displays competitive behavior, and (c) is continuing to deliver performance that compares favorably both over time, and with Europe. The industry, therefore, presumptively is not a candidate for intrusive access regulation. Professor Wu's alleged examples of "restrictive" practices do not alter this presumption. Some of the allegations are factually wrong, and others describe practices of individual carriers that have not been adopted industry wide; moreover, the alleged practices plausibly serve beneficial purposes. Finally, Carterfone regulation succeeded largely because the technology of the public switched telephone network was relatively simple and stable, whereas mobile wireless technology is much more complex and rapidly changing. Thus, access regulation of this industry is unwarranted as a matter of economics: the costs are likely to be substantial, and the threshold case that "competition is not working" has not been made.

Keywords: Carterfone, Mobile Wireless Competition and Regulation, Access Regulation

JEL Classification: L96, L98, L86, L88, L51, L10, L23