A new study of the FCC's most recent assessment of competition in the U.S. wireless market refutes the agency's failure to find effective competition in the wireless industry.

The report, written by economists Gerald Faulhaber (former chief economist for the FCC), Robert Hahn and Hal Singer, found the commission's 2010 and 2011 analyses of wireless competition failed to take proper account of declining prices and the entry of successful new competitors into the marketplace, two pieces of evidence that the authors say are strong indictors of robust competition in the U.S. wireless industry.

To test the FCC's conclusion, the authors analyzed a database of thousands of cell phone bills and found no statistically significant relationship between what a customer paid and the concentration of wireless providers in that customer's local area.

"The [FCC's] 14th and 15th Wireless Report downplayed direct evidence of competition – namely, aggressive pricing behavior, robust entry, and continued long-term reduction in prices – all of which strongly support a conclusion of 'effective competition,'" the authors wrote.

The study claims that the FCC's past two reports focus "excessive attention on outdated measures of competition." "The FCC's own evidence shows that wireless providers have been cutting wireless prices to fend off rivals. This is the opposite of the way monopolists behave," they wrote.

Faulhaber, Hahn and Singer noted that the Bureau of Labor Statistics' Consumer Price Index (CPI) shows that wireless prices had fallen 40 percent since 1998. Additionally, the Government Accountability Office said wireless prices dropped 50 percent from 1999 to 2009, and a recent report by Nielsen found that prices for both texting and wireless data have fallen sharply.

Nielsen also noted that the cost of data services is down nearly 90 percent from 47 cents per MB to just $0.05 MB since 2008. In general, these price drops have been accompanied by dramatic increases in usage.

The authors voiced concern over the commission's failure to assign greater weight to direct evidence of competition such as price trends and market entry. They warned that the commission's approach, which focused mainly on market concentration, has been largely abandoned by economists as well as federal antitrust agencies.

The economists credited the Federal Trade Commission (FTC) for identifying a new and better approach to market analysis in its 1996-97 review of the proposed merger of Staples and Office Depot. They said the FTC examination set the modern standard for review by using direct evidence to determine whether the merger would actually raise prices.

Faulhaber, Hahn and Singer took their criticism a step further by suggesting that the FCC itself has erected a barrier to entry by creating a shortage of radio spectrum required for wireless service.

"If regulators are opposed to consolidation as a means of addressing the spectrum crunch, then the remedy is not to deny a licensee the right to sell or trade their spectrum as they see fit, but rather to release more spectrum," they concluded.