Cell Transfers

The U.S. Court of Appeals for the District of Columbia has upheld an FCC rule mandating cell-phone number portability between carriers. The theory here is that absent such portability, users will be "locked in" to one carrier, stifling competition. I suppose for some imaginable user utility function, you can squeeze that result out of a model. But you've got to wonder whether the FCC checked to see whether that model fit the reality:

According to the Cellular Telecommunications and Internet Association, wireless subscription prices have fallen 30 percent in the last five years, and 30 percent of the 146 million wireless users in the country switch carriers annually; some estimates put the cost of complying with the FCC's rule at $1 billion and up.

I have no idea how the compliance costs will scale, but it seems at least plausible to think that smaller carriers will be at a disadvantage here, which would certainly be an "anti-competitive" result. Even absent that consideration, though, the theory at work here is worrisome. Transaction costs are often assumed away in economic models of perfect competition; the FCC seems to have taken that to mean that the existence of transaction costs, which are always present in real world markets, constitutes a priori market failure. So now cell carriers—which, in effect, means cell users—must all bear the real costs of an option that only a fraction of users will actually exercise.

There's a new Cato book covering issues in this ballpark, by the way: What's Yours is Mine. It's worth checking out if you're interested in this sort of thing.