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From the Nov. 30, 1998 issue of Wireless Week
Economists Oppose Single 3G Standard
By Caron Carlson
WASHINGTON--A former FCC chief economist has weighed in on the side of the North American GSM Alliance, voicing
support for multiple competing standards in the third-generation wireless marketplace.
Joseph Farrell, FCC chief economist between 1996 and 1997 and now professor of economics at the University of
California-Berkeley, and Michael Topper, senior manager of Cornerstone Research, authored an economic white paper on 3G
standards, which the GSM Alliance released last week. The authors conclude that the benefits of multiple standards will be
achieved best by permitting both wideband code division multiple access technology and cdma2000 to compete with time
division multiple access.
In Farrell and Topper's opinion, the government should mandate standards only if it is convinced that a market failure will be
worse than the inefficiencies of government mandate. The economists are careful to distinguish between a converged standard
resulting from market forces or private standards-setting bodies and one resulting from government mandate, asserting that both
run counter to competitive benefits, but the latter is worse than the former.
The white paper disputes several claims made by proponents of a converged standard. First, addressing the claim that
convergence will create consumer benefits from economies of scale in production and seamless nationwide roaming, the
economists say these benefits are likely to evolve without a converged standard.
Second, the argument that convergence will spur the creation of jobs in the United States is questionable given evidence that
wireless manufacturing jobs are internationally mobile, they contend. They note that equipment using the European-"born"
global system for mobile communications standard is built in the United States and Asia as well as Europe, while the
U.S.-originating CDMA and TDMA standards are incorporated into products built overseas. "It would therefore be a leap of
faith to assume that a U.S.-mandated third-generation standard would lead to lasting benefits for U.S. manufacturers or
manufacturing workers," the paper said.
Farrell and Topper present several other arguments against mandated convergence: Multiple standards can create more
product variety, create stronger incentives for innovation, reduce incremental buildout costs and avoid "thorny problems"
created by regulation.
Perhaps the white paper's most reassuring finding for the layperson is the learned scholars' determination that "there appears to
be much uncertainty about the relative technical merits of proposed third-generation standards." Permitting the two proposals to
compete will allow the market to judge their relative performance merits, rather than force policy makers to do so in the dark.
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