25% of World's Wireless Capex on 5% of Users? Why?

Today, the leading U.S. wireless industry association – CTIA - released a report trumpeting that U.S. wireless service providers had increased their annual network investments from $25.3 billion in 2011 to $30.1 billion in 2012 (up 19%).

The press release announcing the report proudly proclaimed that the $30.1 billion invested in network equipment was the highest amount since CTIA began tracking such data in 1985, adding that U.S. carrier spend represented “25% of the world’s total wireless capital expenditures, even though the U.S. has only five percent of the world’s wireless users.”

There is a reason why, as the report highlights, that “U.S. wireless providers invested approximately $94 per subscriber, compared with $16 per subscriber for the rest of the world.”

And, in correlation, there is a reason why U.S. consumers pay two to three times as much for wireless service than do consumers in Europe.

A lack of competition.

On the service provider side of the equation, the President of the Competitive Carrier Association (CCA) – the second largest U.S. wireless association – summed up the situation nicely in his April 25, 2013 testimony to the U.S. Senate Subcommittee on Communications, Technology, and the Internet.  In describing the charter of his organization, the CCA President declared: “CCA’s diverse membership is bound together by a shared goal for competitive policies and a shared concern over the growing market power of the “Twin Bells”— AT&T and Verizon. Through a steady stream of acquisitions, these two dominant carriers have turned what once was a robustly competitive wireless marketplace into an industry marching towards duopoly.”

He’s right, and his comments to some extent explain why American consumers are shelling out hundreds rather than tens of dollars a month for wireless service.  But that’s not the whole story.

The fleecing of American wireless consumers is also a direct result of government policies and actions that have precluded U.S. carriers from having a competitive field of equipment vendors, which would lead not just to more innovative technologies, but also more rational and market-based pricing for network gear, which in turn would translate to savings for everyday American mobile phone users.  

Indeed, the network investment data in the CTIA report released today should not be seen as something we herald with pride, but, rather, as a sad reflection of unnecessary costs incurred by U.S. carriers and consumers due to government policies that actually discourage the type of competition that would drive more innovative and more affordable broadband for America.

For anyone who has tracked this blog or otherwise followed the travails of my employer Huawei, you’ll know where this is going.

In every country in which Huawei competes around the globe – over 150 markets – we have seen telecom infrastructure vendor margins decline to more rational levels as former incumbent vendors have been forced to price their gear to competitive market realities.  Is this because we sell our stuff at below market costs?  Nope.  Is this because we're subsidized by some government?  Nope.  It’s because we don’t suffer the historical and geographical and economic baggage and inefficiencies that pain our Western-based competitors.

Again, there is a reason why - as CTIA reports - that “U.S. wireless providers invested approximately $94 per subscriber, compared with $16 per subscriber for the rest of the world.”

The competitive market benefit that Huawei has introduced across the planet has been largely denied to U.S. carriers and consumers by a series of both formal and informal - generally murky -  U.S. Government policies and practices.  Is this because Huawei, by virtue of its heritage in China, represents some sort of national security threat to the U.S.?   No.  Such concerns have never amounted to anything beyond political bluster and buffoonery.

No, American carriers and consumers are being denied competition and more innovative and affordable broadband due to:

1) Mis-guided protectionism (there’s little domestic industry left to protect);

2) Rueful sour grapes (how did we let that happen to our domestic industry?);

3) Cyber-noia and Sinophobia (keep the people scared and justify the budget), and;

4) Ill-thought foreign policy (holding a legitimate multinational hostage based on its country of heritage will force a change in China’s cyber-behavior?).

So far, the cost of such ill-inspired anti-competitive policies and practices has been the higher prices and undue investment that CTIA seems to be celebrating in its report.  The perpetuation, however, of such policies and practices will doubtless mean greater and more far-reaching costs, in terms of American jobs, investment, innovation and the ability of American companies to compete fairly in increasingly global markets. 

Sadly, the old adage holds true: What goes around, comes around.