Chaz Motter

Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

Non Price Competition within the Wireless Phone Industry

I chose the wireless communications industry to do my non-price competition analysis

on. I chose the wireless telecommunications industry due to the fact that I own stock in Sprint

and have been noticing quite a drop in their share prices. I believe this to be only temporary as

they have been spending more than they are making for the past couple of years. From what I

have gathered in my research thus far this money has been spent on upgrading their network

infrastructure. I still consider them to be a safe investment due to the nature of this industry. I

hope to confirm this during my research for this paper as I gain more insight into the overall

health and long term stability of Sprint. I would classify the wireless communications industry

as an Oligopoly. Within the wireless communication industry there are not very many large

players. I would say this industry is currently dominated by four major companies ATT, Sprint,

Verizon and T-Mobile. These four large companies are able to maintain a very large share of the

industry due to high barriers of entry into the market place. Some examples would be the cost of

building the complex infrastructure needed to have a reliable mobile network. This infrastructure

includes complex switching equipment, a large transport network such as fiber optics or copper

transmission lines, and expensive wireless towers. The major products that are offered by the

companies in this field would include cellular services and wireless internet. We are going to

explore the way these four major companies compete with each other on a non-price basis. Also I

will detail which companies are the leaders in the field and hope to find out why they are able to

control larger shares of the marketplace.

 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

The four major leaders in the wireless communications field in order of market share are

Verizon with 31.3%, AT&T with 26.6 %, Sprint with 16.1%, and T-Mobile with 12.2%1. You can

see that the market is clearly ruled by Verizon lets start with them and see how they have been

so successful at getting and retaining such a large portion of wireless customers. According to

Fool.com Verizon has the greatest number of cities with 4G LTE and at one point they controlled

more of this space then the other three large players combined2 this is currently the fastest and

most reliable wireless service available currently. This is a huge advantage to draw in customers.

I know when the company I work for was deciding on a wireless carrier the most important

factor to them was the network coverage. Can you guess who they chose? If you said Verizon

you would be correct. After further research into this network advantage it turns out Verizon does

not have the only comparative advantage, our second largest company also shares in some of this

network advantage. The FCC controls and regulates the wireless spectrum that these companies

can transmit their signals over. According to Bloomberg Verizon and AT&T own a very large

amount of this spectrum in the low-band spectrum this allows them to transmit their signal over

much greater distances than companies that are operating on high-band spectrum. What this does

is allow these two giant companies to offer better coverage areas using fewer towers than the

smaller guys reducing their costs per square mile of coverage area.3 This network advantage is

1 http://money.cnn.com/2011/03/23/technology/sprint_verizon/ Please see Appendix

A for a chart of market shares controlled by each company.

2 http://www.fool.com/investing/general/2014/05/02/verizon-or-att-can-you-guess-
which-wireless-brand.aspx

3 http://www.bloombergview.com/articles/2013-03-07/wireless-competition-that-at-t-
and-verizon-need please see appendix A for coverage area chart.
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

not the only advantage that AT&T had over its competitors. According to Businessweek.com

AT&T gained an advantage when Apple first introduced the Iphone. AT&T was able to get

exclusive rights to the Iphone when Apple first introduced it to the marketplace4. While this did

not last long look at these figures from the same Business week article referenced above Since

the first iPhone came to market in mid-2007, AT&T has signed up more than 7 million

subscribers who wanted the devicemore than 40% of them from other networks . That is a

tremendous shift in market space for AT&T and while other networks eventually gained access to

the famous Iphone AT&T had already captured a large number of customers. This meant they

only needed to keep those customers happy so they stuck around. Further reading of the article

on fool.com shows that AT&T has the best customer loyalty2 of all these major carriers so

capturing these new customers 40% of which they grabbed from customers of other networks

was a big win for the carrier.

So how are the two smaller companies in this industry competing with these large companies

who seem to have some great advantages in the industry? Well Sprint has done so by offering

much more generous service plans they are the only network with unlimited data plans. But

according to an article on Slashdot.org Sprint is not doing enough to maintain the customers it

currently services or add new ones. According to the article Sprint had lost 2 million customers

in its second quarter last year this equated to a $1.6 billion dollar loss5. While the other

4
http://www.businessweek.com/technology/content/apr2009/tc20090429_594307.ht
m

5 http://tech-beta.slashdot.org/story/13/07/30/142228/sprint-may-have-unlimited-
data-plans-but-not-unlimited-customers
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

companies put caps on data for their service plans and charge absurd amounts of money when

you go over these limits Sprint has decided to use this to stand out. So if you are willing to

sacrifice a little speed and a smaller coverage area Sprint might offer a better option for you. T-

Mobile is taking a similar approach. They are simplifying their service plans and getting rid of

contract that lock customers into service for 1 or 2 years and getting rid roaming and other fees6.

As technology is always evolving who know what the latest and greatest network to develop will

be. Maybe Sprint and T-Mobile will be able to upgrade their networks to greater speeds and

serve larger areas in the future. It is also rumored that Sprint is trying to purchase T-Mobile to

expand its customer base and network6. This would further strengthen the oligopoly that is

dominating the wireless market and would more than likely not be good for consumers.

So as we can see the wireless telecommunications industry competes on multiple non-price

levels with each company trying to carve out its niche to capture customers. The real question is

why these companies arent forcing lower prices on the marketplace. It seems like Sprint or T-

Mobile would be able to gain more customers if they simply lowered their prices right. Wrong

one of the features of oligopolies is the fact that these firms are interdependent on each other

whenever they make a decision they must take into account how the competition will react to

these decisions. If they get into a price war everyone loses. So while collusion is illegal in the

USA it is clear that these companies understand competing on a price basis would be bad for

everyone involved. This is why these companies will continue to compete on non-price aspects

of the business to gain and retain consumers. Each company has something different to offer the

market place and use those unique features to ensure they stay major players in this industry. It
6 http://www.alternet.org/economy/how-big-cell-phone-companies-are-getting-away-
ripping-you-each-month?page=0%2C1&paging=off&current_page=1#bookmark
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

seems that these companies are in it for the long haul and their mutual dependency on one

another should help ensure they stay not only in business but at the top of the wireless

telecommunications food chain so to speak. I do not think any of these four companies will be

going away anytime soon unless they are able to get a merger passed through the US antitrust

agencies that have been ensuring these companies dont get any bigger than they already are.

After researching this industry for this paper I still feel like my stock investment in Sprint will

turn out to be a good choice in the long run due to the oligopoly market they get to enjoy and

their large share of the market they maintain control of. I hope for my investments stake they just

continue to grow.
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

Appendix A

http://money.cnn.com/2011/03/23/technology/sprint_verizon/
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

http://www.permaculturemarin.org/t-mobile-lte-network-map/
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

http://lifehacker.com/5939237/whats-the-best-wireless-carrier
 Chaz Motter
Econ 202-01
Karen Rapp Shultes
Due 12/03/2014

Bibliography

1. http://money.cnn.com/2011/03/23/technology/sprint_verizon/

http://www.fool.com/investing/general/2014/05/02/verizon-or-att-can-you-guess-which-

wireless-brand.aspx

2. http://www.bloombergview.com/articles/2013-03-07/wireless-competition-that-at-t-and-

verizon-need

3. http://www.businessweek.com/technology/content/apr2009/tc20090429_594307.htm

http://tech-beta.slashdot.org/story/13/07/30/142228/sprint-may-have-unlimited-data-

plans-but-not-unlimited-customers
4. http://www.alternet.org/economy/how-big-cell-phone-companies-are-getting-away-

ripping-you-each-month?page=0%2C1&paging=off&current_page=1#bookmark
5. http://tech-beta.slashdot.org/story/13/07/30/142228/sprint-may-have-

unlimited-data-plans-but-not-unlimited-customers
6. http://www.alternet.org/economy/how-big-cell-phone-companies-are-getting-

away-ripping-you-each-month?

page=0%2C1&paging=off&current_page=1#bookmark