Tag Archives: monopsony power

Monopsony in the Wireless Labor Market

NATE, the Communications Contractors Association, recently sponsored a report by the Brattle Group titled Market Failure in the Wireless Communications Infrastructure Service Industry. The report describes how the three national mobile networks (AT&T, T-Mobile, and Verizon) dominate the labor market for wireless contractors in a way that is undermining the development and retention of the workforce for this critical infrastructure.

The Brattle report calls the situation a monopsony. That is an economic term for a market where a buyer, or a small universe of buyers, has significant market power over vendors who serve the industry. Brattle believes the term applies since the three big cellular carriers collectively control 97% of the cellular market. The contractor market that sells labor to the carriers is comprised of numerous small companies.

The Brattle report describes how the three carriers collectively harm the contractor industry. The three carriers dictate the prices they are willing to pay for service. Contractors complain that the prices offered don’t account for local issues like labor rates, terrain, and weather. 80% of the contractors that responded to a Brattle survey say that prices offered by the carriers don’t cover their costs. The rates don’t cover costs like warehousing of materials, third-party compliance, or training costs for technicians.

The report also shows some interesting graphs that show that the carriers are slow to pay, further adding to the cost of working with them. They have charts that contrast the carriers and show that Verizon pays 75% of invoices within 30 days, while T-Mobile only pays 17%, and AT&T pays 15%. AT&T doesn’t pay more than 45% of its invoices for more than 60 days. Slow payments put a lot of pressure on contractors that must meet payrolls.

The behavior of the carriers is having a big impact on the contractor industry. 54% have downsized during the past three years. A lot of contractors have exited the market and are looking for work outside the cellular market. Attrition of knowledgeable technicians is killing institutional knowledge. The contractors fear that they won’t be able to respond to emergencies or support any effort in a few years to deploy 6G networks.

The Brattle report does not accuse the three big carriers of collusion but says that the desire of each to drive down operating costs is having the same impact as if they were colluding. The report warns that the industry is seeing a noticeable decline in institutional capacity. It takes time and on-the-job experience to train tower climbers – this is not a position that can be quickly ramped up. They warn that loss of experienced tower climbers is not only a concern for the industry but is a national security concern.

The report makes an interesting comparison to another monopsony industry, the companies that build airplanes. The airline industry has learned that it is most efficient if it pays enough to keep experienced workers, because that significantly reduces the time needed to build a new airplane.

The report believes that corrective action is needed. Brattle doesn’t know the best way to fix the problem, which could be done through policy, regulation, or the carriers deciding to change their practices.

This situation is a big contrast to the fiber construction industry because there are hundreds of companies building fiber, which creates significant competition to find a contractor for a project. However, there is a danger after the big spending on grants is completed that the number of companies building new fiber networks will shrink to be similar to the wireless industry.

Are Cable Companies a Broadband Monopoly?

One of the products my consulting firm offers are statistically valid surveys, and conducting surveys has let us get a close look in many communities at the mix between cable broadband and telco DSL. In the last few years, the percentage of DSL subscribers in towns with a good cable company network has plummeted.

It’s not unusual to see DSL market penetration in bigger towns of 10% or less, meaning in most cases that the cable company has essentially won the competitive battle. In most of these towns, we rarely see many DSL customers getting speeds faster than 15 Mbps on the DSL connection, and often a lot less.

We still occasionally see a town with a higher DSL penetration, often due to a telco like AT&T that upgraded the market to offer 50 Mbps DSL that uses two copper lines. But even in these markets, the cable companies have won most of the customers.

The primary reason we see people keeping DSL is price. We often find people paying $35 to $45 for a DSL connection who can’t or won’t upgrade to a more expensive cable modem connection. Many of these folks will hang on to the low-price connection until the day when the telco inevitably retires the telephone copper.

It’s obvious to me that the cable companies are already monopolies in most markets. Any company in any other sector that captured 85% to 95% market share would be deemed a monopoly. I think the cable companies now meet the simple market share test.

Another way to identify monopolies is by noting examples of monopoly behavior. Economists have created a list of changes that are typical monopoly behavior. For example:

  • Price Gouging. Monopolies raise prices over time when there are no competitors to keep them in check. Wall Street has been encouraging the big cable companies to aggressively raise broadband prices. All of the big ISPs have started the process of annually raising rates.
  • Poor Service. Customer service tends to worsen from monopolies because they have no incentive to do better. The big ISPs were already rated as being the worst among all industries at customer service, and there is no reason to think it will ever get any better.
  • Monopsony Power. This term refers to the tendency of monopolies to exploit their purchasing power by forcing low prices on their supply chain. Perhaps the best example of this is Comcast swallowing up the programmers that supply cable TV content.

The reason it’s important to always refer to the big cable companies as monopolies is that we have laws that can kick-in to curb monopoly abuses. However, it likely takes widespread recognition that the cable companies are monopolies to have any hope of awakening monopoly remedies.

The government has a wide range of possible ways to regulate and/or curb monopoly abuses:

  • Governments can fund or support competitors. In this country that likely means having grant programs to support those who would build networks to compete against the cable companies. There are no grants I know of that will fund a competitor to a cable HFC network.
  • The remedy that monopolies hate the most is price regulation. We don’t have to harken back very far into the past to a time when the FCC enforced price regulations over cable companies.
  • One of the most natural ways to regulate monopolies is to enforce some kind of rate of return regulation. Capping monopoly profits will hold down rates.
  • Both the FCC and the Federal Trade Commission have the authority to fine companies for monopoly abuses. These companies are so large that it’s hard to hurt them through penalties, but it is an arrow in the regulatory quiver.
  • Another interesting solution is divestiture – like was imposed on AT&T in 1984. Companies like Comcast are now conglomerations of multiple businesses including broadband networks, entertainment and content creation, and side businesses like cellular, smart home, and numerous other sidelines. Breaking these giant companies into pieces has some merit.

The FCC has gone out of its way to declare that it no longer has any authority over broadband, and thus little or no control over the big cable companies. But this could be changed quickly by by changing the law, and a new Telecom Act could push the FCC back into its original role as a broadband regulator. If the monopoly abuses grow too great, this can also end up at the Justice Department, which had a major role in the divestiture of AT&T.