Is Corruption Responsible For�80% Of Your�Mobile�Phone�Bill? No, Not Really

from the well,-a-lack-of-competition dept

Mon, Apr 23rd 2012 9:13am — Mike Masnick

Tech Jay points us to an interesting report by Matt Stoller arguing that, in the US, "corruption" is responsible for 80% of your mobile phone bill. Unfortunately, that's a bit of an exaggeration. However, it does raise some useful points about problems of US competition in the market. The key point Stoller uses is that we pay a hell of a lot more for mobile service in the US than elsewhere:

You see, according to the Organization for Economic Cooperation and Development, people in Sweden, the Netherlands, and Finland pay on average less than $130 a year for cell phone service. Americans pay $635.85 a year. That $500 a year difference, from most consumers with a cell phone, goes straight to AT&T and Verizon (and to a much lesser extent Sprint and T-Mobile). It’s the cost of corruption. It’s also, from the perspective of these companies, the return on their campaign contributions and lobbying expenditures. Every penny they spend in DC and in state capitols ensures that you pay high bills, to them.

There's an unfortunately big leap in logic there, in not exploring any other possible reason for the difference in bills. Some of it likely is due to lobbying, but not necessarily all of it. The real issue that seems to come out in the piece is the significant lack of competition in the market -- some of which is due to lobbying efforts and consolidation by the market, but not all of it.

The Stoller piece keys off of the regulatory fight over Lightsquared, arguing that it was blocked due to massive incumbent lobbying against this potential upstart competitor. That tells part of the story. It's absolutely true that the telcos did not want to see new entrant competition from the likes of Lightsquared, but it also completely ignores the fact that the technological issues around Lightsquared are real and the project was blocked not just because of incumbent lobbying, but because of significant problems in avoiding interference. To not even admit that is pretty bad.

However, as we did note in our discussion over Lightsquared, the real problem in the market is the lack of real competition in the space. For years and years, we've been arguing that the market needs more competition in this space to keep dominant players from charging monopoly rents, while decreasing their investment in innovation. In fact, Stoller does a nice job showing how investment as a percentage of revenue has clearly decreased as consolidation has shrunk the number of competitors:

So, we agree that the real problem here is competition, and there's little doubt that massive lobbying by AT&T and Verizon has been used to try to limit competitors, but that's not the only reason for the lack of competition in the space, and it's certainly not the sole reason for our mobile phone bills being higher in the US than in Scandanavia. There are certainly many other issues including coverage and population density, standards lock-in and other aspects. Certainly, though, there are things like spectrum reform, antitrust enforcement and related issues that are heavily lobbied.

Finally, it's a bit silly to argue that all lobbying is "corruption." As we've noted lobbying can often go in the other direction -- and plenty of "lobbying" is perfectly reasonable. One of the key complaints we have about politicians regulating the internet is that they're regulating something they don't understand. One way that they can and do actually learn about things they don't understand is through lobbyists. The problem is the imbalance in lobbying, where you have some lobbyists with excessive influence, and those who represent the public interest often having much less exposure (public interest lobbying groups, obviously, don't have as much money).

Lack of competition is a huge issue in the mobile world. The crony capitalism of companies getting regulations they want through lobbying is a huge issue. The fact that we pay more for weaker service is a real issue. But to lump all that together and claim that 80% of our mobile phone bills are due to corruption is a huge and exaggerated logical leap.

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Filed Under: bills, competition, corruption, mat stoller
Companies: lightsquared

41 Comments

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weneedhelp (profile), 23 Apr 2012 @ 9:21am

Finally, it's a bit silly to argue that all lobbying is "corruption."
All lobbying is bribery. FTFY
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Anonymous Coward, 23 Apr 2012 @ 9:23am

No, all lobbying is bad. When you donate money to a government official that is clearly bribery because you are expecting a certain result. It doesn't matter if there is some good lobbying out there, the process in which all lobbying takes place is the issue. I
It's a mix of all these issues with the cell phone market. But also a lot of ridiculous contracts from the service providers is also a problem. You're not forced into a 2-year plan but you kind of are. I have a no-contract virgin mobile phone it sucks, it's on the sprint network which gets beat up everyday by the bigger companies. But you know what, it's an android phone for $35/mo. Your iphone and it's service is not worth thousands of dollar a year.
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Anonymous Coward, 23 Apr 2012 @ 9:27am

That doesn't seem to take into account the subsidies that most Americans pay for the phone itself. After all, if you're getting an $800 iPhone every two years for 199.99, it would make some sense that Americans pay $300 (though not really $500) more per year, wouldn't it?
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:Lobo Santo (profile), 23 Apr 2012 @ 9:28am

Re: But...
If you live in a system where corruption/bribery is pretty much the only way to get things done (like in the US), then if you want to get any good laws passed, you still have to play the evil/stupid bribery game.
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TtfnJohn (profile), 23 Apr 2012 @ 9:36am

It's not just the United States that pays far more than the global norm for wireless services. Canada, if anything, pays marginally more. Scandinavia has many of the problems North America does including population density and terrain issues. North American cell companies hold on like grim death to standards well behind those of the rest of the planet that reduce congestion on the cell networks and expand coverage but that would mean investment in the physical plant something that is declining to the near zero point for cell operators in North America if the graphic is near to being correct.

Other than lack of competition, and new entrants to the field are heavily lobbied against for a variety of mostly invalid reasons, there is no other explanation for the difference in fees.
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varagix, 23 Apr 2012 @ 9:38am

Re:
That's assuming that everyone always buys the new smart phones. I know people who still use the old 'dumb' phones that came out before that, and a lot of people I know aren't willing to pay to 'keep up' with new technology when the old tech suits their purpose just fine.
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Mr. Smarta** (profile), 23 Apr 2012 @ 9:39am

80%?
I think it is. Just like my carrying my mobile phone in my front pocket, 80% of my testicular cancer will be from my mobile phone since it has "perfectly safe" radio emissions (doesn't cause tumors apparently), so it sort of works out in the end. :-|
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Anonymous Coward, 23 Apr 2012 @ 9:41am

The chart is a bit of misdirection, because it includes the period of time of the initial buildout at significantly higher costs. The cost of equipment today is better, and the requirement to "build out" isn't as high. Clearly, if there is already cellular service and at least 2G wireless, there is little pressure to rip it all up and rebuild it overnight.

The chart really tries to imply something that just isn't right.

As a side note, it should also be considered normal that with fewer players, you have less costs in equipment. If each player was putting up a base station side by side in each market, and 1 of them leaves, it's not like the others will suddenly put up ANOTHER base station just to keep equipment spending up.

It's a misleading chart that draws a misleading conclusion.
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Anonymous Coward, 23 Apr 2012 @ 9:44am

Re: Re: But...
No you're wrong. It only perpetuates the system. To change how it works you need to bypass it.
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Jay (profile), 23 Apr 2012 @ 9:55am

Re: Re: Re: But...
How? You don't have enough good reps to outweigh the bad. You have a Judicial system that works against you. And you have a President that is forced into more authoritarian positions by the pressure of a consolidated media industry.

The deck is significantly in the favor of those wishing to subvert and control democracy.
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Machin Shin (profile), 23 Apr 2012 @ 9:56am

Re:
The chart is not as misleading as you might think. Yes the points you make are good ones. The costs of various things have come down and they don't have the need to try and expand into new areas like they used to.

On the other side they are getting more customers and now spending less on equipment. This means their profits are climbing steeply because they are no longer innovating to compete in the market. The towers are built and the cost of the tech is down, so imagine where we would be if they had continued to invest in innovation? We very well could have 4G nation wide and their network would be able to handle all the data without the stupid "data caps"
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Anonymous Coward, 23 Apr 2012 @ 10:01am

Re: Re: Re: Re: But...
Well that is simple. Ignore the government and create a consumer migration.
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Anonymous Coward, 23 Apr 2012 @ 10:06am

So only 60% of it is due to corruption? Yes lobbying isn't corruption and not having competition isnt corruption but lobbying so you never have competition....?
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Mesonoxian Eve (profile), 23 Apr 2012 @ 10:40am

"But to lump all that together and claim that 80% of our mobile phone bills are due to corruption is a huge and exaggerated logical leap."
I can accept part of this being true, but I can't fathom some of it is not due to corruption, especially when it comes to the fact every one of these companies charge the same base price for phone access (price fixing) and two of the largest now impose data caps (more price fixing, price gouging).

I can forgive Verizon, just a little, as they actually show proof of doing something extra with the money, with their FIOS system, but those who are one it say the price doesn't reflect the offering, as it's much too high when compared to other services.

Worse, these companies are also in "bed" with cable companies, because I find it extremely difficult to believe AT&T's U-Verse has to start out with the same price as its competitors.

In the days of true competition, wasn't it reasonable to believe prices would come down? We saw this originally when these phone companies, more back in the day, were offering unlimited access for a lower price than what we see today.

Maybe "corruption" isn't proper here, but something's truly wrong with an industry where customers have no choice but "Get Screwed" or "Get Screwed with 4G, the Nation's Fastest Network".

It's one of the reasons I no longer carry a cellphone, or I should more accurately state it as "A two-year agreement which punishes me for using less than 2 hours a month to communicate."
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Jay (profile), 23 Apr 2012 @ 11:03am

Re:
That's a problem that I'm seeing here. How can we make the broadband market more competitive when it's been captured by a few large competitiors?
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Anonymous Coward, 23 Apr 2012 @ 11:12am

Re: Re:
" This means their profits are climbing steeply because they are no longer innovating to compete in the market. "

Actually, that would appear not to be true.

The decreases (as a percentage) have come during the period where we have had a strong building out of 3G and even 4G services. We have seen market places continue to expand, and more and better services to the public. How do you think your Ipad would have run 5 years ago? Probably not very well.

Capital expenditures aren't always the best way to look at things. Is work updating software or changing the firmware of an existing tower to offer new services considered a capital expenditure, or just an ongoing expense?

Remember: companies are not building new towers as often as before, but rather are upgrading the services offered on them. That's a big change.

Remember also: when it comes to GSM providers, many of them are outsourcing their rural networks to third party "tower" companies. They are renting tower space rather than paying for it up front, which move it from a capital expense and turns it into a rental expense. They are also doing more piggy back deals (where competiting carriers agree to share a tower asset and compatible hardware), and they are also doing more deals where they don't build towers, they just install on a building or such - renting the space rather than buying the land.

The business model is changing. Trying to measure it only by direct capital expenditures is entirely misleading.
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Anonymous Coward, 23 Apr 2012 @ 11:14am

Re: Re:
The market isn't captured - it's that nobody wants to come in and make the initial investment to create access to the marketplace. Nobody wants to come in and run new fiber to every house, nobody wants to network an entire city before they turn on a single client. The capital required to get there is huge, and the downward pressure on retail prices makes it even less desirable.

It's why the internet is generally available through existing legacy players, who have spent the money over decades to wire up the city, town, or region. Nobody wants to come in and blind spend that sort of money to get an unknown number of customers back.
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Keii (profile), 23 Apr 2012 @ 11:49am

I still believe it's silly to own the wireless spectrum on which cellular networks operate.
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The eejit (profile), 23 Apr 2012 @ 11:55am

Re: Re: Re: Re: Re: But...
OR, we can kill the Batman. That'd work too.
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Anonymous Coward, 23 Apr 2012 @ 11:57am

Re: Re: Re:
It's why the internet is generally available through existing legacy players, who have spent the money over decades to wire up the city, town, or region. Nobody wants to come in and blind spend that sort of money to get an unknown number of customers back.

Didn't they take government money to do a lot of the initial build?
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Michael Long (profile), 23 Apr 2012 @ 12:02pm

Re:
"No, all lobbying is bad. When you donate money to a government official..."

There's a difference between campaign contributions and meeting with someone to explain your viewpoint, or those of the people you're representing.

Heck, there's even a difference between campaign contributions where the expectation is a quid pro quo, and donating to the individual whose policies you believe best represent yours.
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Michael Long (profile), 23 Apr 2012 @ 12:05pm

Re: Re:
"...know people who still use the old 'dumb' phones that came out before that..."

You can assume that, but we just passed the 50% mark and it doesn't seem to be slowing down. My girlfriend, for example, has two boys and a family plan, and they're been upgrading to iPhones each time the subsidy kicks in.
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DCX2, 23 Apr 2012 @ 1:07pm

Re: Re: Re:
Nobody wants to make the investment? Tell that to Monticello, Minnesota. http://www.techdirt.com/articles/20081010/0838322515.shtml

Existing legacy businesses use their government-funded initial build-outs as an expensive barrier to entry for new competitors. Maybe it's time to strengthen those common-carrier laws and include the ISPs whose build-outs were financed by the public.
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xebikr (profile), 23 Apr 2012 @ 1:10pm

Re: Finally, it's a bit silly to argue that all lobbying is "corruption."
You just don't understand how Washington works. Fortunately the code has been leaked:

public class Washington extends Republic implements corruption{ private Discussion backRoomDealings; private Discussion jobOffers; private Discussion retreat; public Discussion lunch; public Discussion pressReleases; private Funding bribe; private CorporatePocket pocket; public Funding donation; public Servent politician; public boolean passed = false; public Lobbying getInfluence(Servent politician){ Lobbying sucessfulLobbying = true; if (politician.isCorrupt() && backRoomDealings.schedule(politician)){ try{ politician. add(jobOffers); politician.add(bribe); pocket.add( politician); return sucessfulLobbying; }catch(NotEnoughOffered yet){ getInfluence(politician); } }else{ & nbsp; try{ politician.add(donation); po litician.add(lunch); politician.add(retreat); pock et.add(politician); return successfulLobbying; }catch(NotEnoughOffered yet){ getInfluence(politician); } } } public void passLaw(){ Law proposedLaw; //maybe implement this as multi-threaded... while(proposedLaw != passed){ for(Servent politician : congress){ getInfluence(politician); } } & nbsp;} public boolean isABribe(){ if (donation > 0 && politician.HadDiscussionWith() == true){ return true; }else{ return false; } } }
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Anonymous Coward, 23 Apr 2012 @ 1:30pm

Re: Re:
Americans can't compete with lobbyists and super pacs. so your minute donation to them is meaningless.
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Vincent Clement (profile), 23 Apr 2012 @ 1:36pm

Re: Re:
Sorry, but people are replacing their smartphones more often.
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Anonymous Coward, 23 Apr 2012 @ 4:10pm

Re: Re: Re: Re: Re: Re: But...
Are you stupid? Or just trolling?

That phenomenon, of "bypassing the system", is a common subject of commentary on Techdirt, and is probably the ONLY way we'll ever actually have any real freedom.

Surely you aren't enough of a fool to think that perpetuating bribery will somehow stop it.
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Anonymous Coward, 23 Apr 2012 @ 4:12pm

Re: Re: Re:
So the people who already bought smartphones, thus exhibiting their tendency to follow tech trends, are continuing to follow tech trends?

Gosh! How utterly and soundly this rebukes the point you were responding to!

Oh, wait. It doesn't.

No internets for you.
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Anonymous Coward, 23 Apr 2012 @ 4:14pm

Re: Finally, it's a bit silly to argue that all lobbying is "corruption."
All lobbying is blackmail. "If you don't do this, we won't give you our money."

It is -also- bribery.
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S, 23 Apr 2012 @ 4:17pm

Re: Re: Re: Re:
These laws and more can be yours, for the low, low price of your local senator's eternal soul!

We at Corruption, Inc. (also known as the US Legislative Branch) will happily sell you time-share access to your local representative's soul for the low, low price of $100,000 per hour!*

*Results are not guaranteed; whether or not you succeed in swaying your representative's opinion during your time allotted is up to you. Good luck!
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The Moondoggie, 23 Apr 2012 @ 5:31pm

Re: Re: Finally, it's a bit silly to argue that all lobbying is "corruption."
*offtopic*

Ugh, is that C#(C-sharp)? Can't you use vb.net instead? It's a lot easier.
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Dave, 23 Apr 2012 @ 7:07pm

Re: Re: Re: Finally, it's a bit silly to argue that all lobbying is "corruption."
Looks like Java. vb.net? Really? You can't run a government on that!
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WysiWyg (profile), 24 Apr 2012 @ 2:10am

Re:
You're forgetting that it works the same way here in Sweden.
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WysiWyg (profile), 24 Apr 2012 @ 2:13am

Compatibility.
I remember a couple years back when Google first announced the Nexus One. It was a HUGE thing that you would be able to choose any carrier you wanted. I remember thinking "wait, what now? It this a NEW thing!?".

I still have to remind myself that you "over there" can't count on your cellphone being compatible with all the operators. Meanwhile, here in cold Sweden, I can use my cellphone with any operator I want. Which is a good thing.
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Anonymous Coward, 24 Apr 2012 @ 2:52am

Re: Re: Re: Re: But...
Bring the law making to the public, thus you just need to elect official that will enact those laws for ya, that is what the public needs to do.

The thing is, this is easier said than done, but still doable.

The first people who get something like the Tea Party but with legislation ready to be enacted will rip all the glory for changing America LoL
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Derek Kerton (profile), 24 Apr 2012 @ 8:52am

Price is Irrelevant Without A Stated Quantity
I haven't seen the Finland data that shows the average annual bill to be only $130, but assuming that's true...

It is irrelevant to compare that to the USA without ALSO talking about how much data per year the average Finn transmits, and how many minutes of voice.
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WysiWyg (profile), 25 Apr 2012 @ 12:46am

Re: Price is Irrelevant Without A Stated Quantity
I live in Sweden, and I pay 59 kronor (about 9 dollars) a month. For this I get to call other people who uses the same provider as me (Telia/Halebop) for free (which in my case means the two that I would ever call ;-)), and I get 3000 free SMS a month.

I do pay for data (which I rarely use), but luckily there is a maximum per day (9 kronor or about 1 dollar).

Should point out that I'm not paying off a phone.
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stfueveryone, 26 Apr 2012 @ 8:35pm

It's not a lobbyist's job to educate...
It's not a lobbyist's job to educate. It's a lobbyist's job to get favorable action for their client. The RIAA & MPAA's lobbyists spend most of their time lying their asses off to our representatives. It used to be the job of the Office of Technology Assessment, until a Newt-led Congress de-funded it and shut it down in 1995.
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Toot Rue (profile), 2 May 2012 @ 10:06am

Re: Re: Finally, it's a bit silly to argue that all lobbying is "corruption."
printf(STDERR "Awesome!\n");
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xolo x900 (profile), 26 Jun 2012 @ 3:34am

First Intel Inside Mobile Phone
Do you know the first Intel Inside Mobile Phone in India is XOLO X900 , with good attractive look.
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On the inside, 22 Jul 2012 @ 4:37pm

Customers pay for corrupt construction managers
Did you consider that the costs of building the actual cell sites can be manipulated by corrupt construction managers that ask for and accept kick-backs. For example a cell site can be constructed for under $80,000 by the time all the kick-backs are taken care of that site is now awarded to the selected general contractor for $120,000. Then that costs is passed on to the consumer. South Florida has the highest level of corruption, especially at T-mobile and Metro PCS.
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