FOR YOUR INFORMATION............................AUGUST 1, 1991


       FTC STAFF SAYS CELLULAR TELEPHONE SERVICE PROVIDERS
      SHOULD BE ALLOWED TO "BUNDLE" SERVICE WITH EQUIPMENT 

     Federal Trade Commission staff said today that consumers
most likely would benefit from a regulatory change to allow
cellular telephone service providers to "bundle" both service and
telephone equipment into a package and offer it for less than the
price of service and equipment sold separately.

     Currently, Federal Communications Commission rules prohibit
providers of cellular service from bundling service and telephone
equipment.  An FCC Notice of Proposed Rulemaking requested com-
ments on whether to lift this ban on bundling by the cellular
service providers it licenses, and staff of the FTC's Bureau of
Economics has sent comments to the FCC in support of such a
change.

     Because competitive harm from bundling is unlikely if no
market power exists, the lack of market power is used as a first
screen to separate beneficial or harmless bundling from poten-
tially harmful bundling, the staff said.  The FTC staff was
unable to conclude that cellular service is produced in a com-
petitively-structured market and adopted the assumption that
competition from other communications services would be insuf-
ficient to constrain cellular carriers from exercising market
power.  Consequently, the FTC staff could not exclude the
possibility that bundling may be used for anticompetitive
purposes.

     The theoretical potential that bundling can be used for
anticompetitive purposes, however, does not imply bundling should
be prohibited on a per se basis, staff said.  A per se prohibi-
tion of bundling would be appropriate only if the existence of a
net anticompetitive effect is probable, and the costs of a case-
by-case evaluation exceed the benefits from allowing bundling in
limited circumstances, staff continued.  Therefore, the FTC staff
reviewed the possible pro-competitive and anticompetitive effects

                            - more -
Cellular Bundling--08/01/91)

of bundling, including the use of bundling to pursue transaction-
cost and promotional efficiencies, to monopolize the cellular
equipment market, to price discriminate, and to evade rate-of-
return regulation.

     In sum, staff said, the economic analysis showed that
lifting the ban is unlikely to present an anticompetitive danger. 
If, in individual instances, bundling were to lead to anticom-
petitive behavior, the activities could be reviewed under the
antitrust laws, staff concluded.

     The comments represent the views of the staff of the FTC's
Bureau of Economics.  They are not necessarily the views of the
Commission or any individual Commissioner. 

     Copies of the FTC staff comments are available from the
FTC's Public Reference Branch, Room 130, 6th Street and Penn-
sylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY
202-326-2502.

                              # # #

MEDIA CONTACT:      Bonnie Jansen, Office of Public Affairs
                    202-326-2161

STAFF CONTACT:      Bruce Kobayashi, Bureau of Economics
                    202-326-3363

(cellular)