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Monday, May 24, 2010, 11:15 am PT (02:15 pm ET)

FCC finds lack of 'effective competition' in US wireless industry

A new report from the Federal Communications Commission did not describe the U.S. wireless industry as having "effective competition" for the first time in years, suggesting major carriers — including AT&T, the exclusive provider of the iPhone — could come under federal scrutiny.

U.S. wireless carriers — including AT&T, the exclusive provider of Apple's iPhone in the U.S. — could find themselves under government review, based on the FCC's specific omission from the report filed last week. One senior regulator told Reuters that the change was prompted by consolidation in the U.S. wireless market, which has four major players in AT&T, Verizon, Sprint and T-Mobile.

"The lack of the key phrase could set the stage for U.S. regulators to impose policies and regulations to increase competition for consumers who are demanding more data plans on their mobile handsets to surf the Internet and watch videos," the report said.

The last time the FCC did not believe there was "effective competition" in the wireless market was in a report filed in 2002. The most recent report covers 2008 and a portion of 2009.

Robert Quinn, AT&T senior vice president of federal regulatory policy, reportedly said that it is "clear beyond doubt that regulation is simply unwarranted."

FCC Chairman Julius Genachowski said that the change is by no means an indication that the commission will take action. He said that the FCC is looking to take "smart actions to spur competition," but in some cases the best thing to do may be nothing.

Though all five FCC commissioners voted in support of the report, the two Republicans on the commission voiced some disagreement with the findings. Specifically, FCC member Meredith Attwell Baker said she believes there is sufficient competition in the market.

The FCC made its interest in the U.S. wireless industry known last August, when it said it would look into major U.S. wireless carriers in an attempt to increase competition, innovation and consumer protection in the market. The commission issued a number official notices of inquiries, revealing that it would conduct investigations related to wireless innovation and investment, mobile wireless competition, and additional opportunities to protect and empower consumers in the communications marketplace.

The details of the report came just before AT&T revealed it will increase the early termination fee for smartphone customers under contract after June 1. AT&T customers who have a two-year contract with a smartphone, including the iPhone, will need to pay a $325 early termination fee, up from the previous $175 cost. AT&T also reduced the fee to $150 for feature and messaging phones.

AT&T's change follows a previous move by competitor Verizon — the largest wireless provider in the U.S. — to begin charging a $350 early termination fee for smartphone users. Google and T-Mobile also charged a combined $550 for those who canceled their contract on the Nexus One handset. Both actions have brought the fees under scrutiny from the FCC.

Under the rule of Genachowski, the FCC has been active in the wireless market, including an inquiry into the non-acceptance of the Google Voice application by Apple for the iPhone App Store. The commission also showed interest in rural markets where customers can't access limited products like Apple's iPhone.