Verizon Shows Just How Competitive The Wireless Industry Really Is By Simply Refusing To Compete On Price
from the let's-play-make-believe dept
You'll recall that the CTIA recently argued that the wireless industry doesn't need to be governed by net neutrality rules (or any rules, really) because it's a sector that's just so gosh-darned competitive. And while it's true T-Mobile has been shaking things up of late (thanks in part to regulators blocking the AT&T acquisition), the market's big four players continue to make it clear that once you dig past a number of largely cosmetic promotions, the sector still isn't really all that competitive. That's especially true when it comes to seriously competing on price, something all four major carriers repeatedly make clear they intend to avoid at any cost.Case in point is T-Mobile's latest effort to offer rollover data, or letting users store unused bits and bytes at the end of the month for future use. I already noted how AT&T's competitive response to this was to offer a rollover service of its own that's largely a joke; rolled over data allotments only having a shelf life of one month, and that data being unusable until you finish your normal data allotment. Yet that's better than Verizon Wireless, which responded to the growing trend toward rollover data by refusing to participate entirely:
"We're a leader, not a follower," (Verizon CFO Fran Shammo) said in an interview on Thursday..."We did not go to places where we did not financially want to go to save a customer," Shammo said. "And there's going to be certain customers who leave us for price, and we are just not going to compete with that because it doesn't make financial sense for us to do that."Of course, when a market is truly competitive, you're not supposed to have a choice in the matter. While Verizon pretends it doesn't compete on price because it offers a "premium experience," the reality is Verizon doesn't compete on price because it has used regulatory capture to build a market that ensures it never has to. The result is a Verizon-AT&T duopoly that owns most of the nation's spectrum, dominates 80% of the retail market, and enjoys a stranglehold on the special access (fiber backhaul) market. As a result, Sprint's been barely hanging on for years, and T-Mobile's owner Deutsche Telekom isn't sure T-Mobile can survive long-term. What the media calls a "price war" is more like a "light price scuffle."
It's something worth remembering the next time someone (usually a wireless industry lobbyist) tries to tell you the wireless industry is ultra-competitive (or doesn't need net neutrality protections) simply because there are four companies in play. What we usually see, with the occasional exception, is a pantomime of real competition. In this case, Verizon can't even be bothered to go that far.
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Filed Under: competition, rollover, wireless
Companies: verizon
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The truth is that data doesn't cost the ISPs anything. It's an imaginary resource. Bandwidth is the amount of data transferred per second and only has relevance within that specific point in time. Somehow the ISPs have convinced people that data matters. It doesn't. Before the techies start shouting out "well, wait a minute..." let me explain.
The original idea behind data caps (beyond the "let's get more money for nothing" part) is that if people are worried about their data limits they'll tend to use less data at any given time. In other words, they'll "save" it so they don't run out. By encouraging end users to use less data overall, the hope was that it would alleviate the peaks so they didn't have to create a huge infrastructure to handle the spikes.
So what's the issue with these programs? They only work when you assume data is a limit, not bandwidth. Letting you "save up" data does nothing to alleviate bandwidth issues. To give a better example, consider two users...the first downloads 20 gb of data per day for 30 days, and the second downloads 100 gb of data per day for 5 days, then doesn't download anything for the rest of the month. Which one causes more bandwidth problems?
The second. During that period, this user creates a much higher load on the ISPs than the first user. In a perfect world, everyone would use exactly the same amount of bandwidth at all times. This doesn't happen, though; we all browse and download/stream in spikes, and usually all around the same times of day. Yet if you believe that data is a limited resource, the second user only used 500 gb of data, and the first used 600 gb, so clearly the first is causing the internet to slow down for more people, right? Nope.
Unlimited data plans for a specific service work the same way. If I use T-Mobile I can stream, say, 250 gb of music from Pandora or Google Play, but what if I wanted to stream 250 gb from Jango or Sony Music Unlimited? I hit my data cap. But if you think about it, the actual load on the T-Mobile servers is identical regardless of which streaming service I use.
If that's the case, why can't you just let me stream whatever I want? It works if I use your approved stuff, so clearly you have the capacity.
Oh, right, because the whole problem is BS and a money grab. I forgot.
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I'd love to see a technical reason why data caps are necessary, but so far it doesn't make sense.
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It doesn't make sense to you or me, but it makes sense to a greedy company. They can charge you again for something they already charged you for. Double/Triple/Quadruple-dipping is the name of the game. Them solid gold Humvees and diamond swimming pools don't come cheap.
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1 - Psych - As you noted, if people are capped, they will make some conscious decisions about their use, and reduce it. They will reduce constantly streaming apps, total video downloads per month, etc. That helps reduce aggregate demand a lot. Though, as you said, peaks are still peaks. But then, they are lower peaks, yes?
2 - Simplicity - I'm sure every ISP would love to tell customers:
"You can have X GB of data between the hours of 1am and 6am, X GB between 6am and 3pm, X between 3pm and 10pm, and x between 10pm and 1am. For mobile use, you can have unlimited when in non-congested cell sectors, but are limited to a slower bandwidth when in congested cells. Premium customers will have access to priority data in congested cells, and economy customers will have their traffic shaped based on real-time congestion issues. Thank you, please sign up now."
But how many people do you think really want to get into the sausage making when they shop ISPs? Truth is, most people can't even comprehend the concepts in the paragraph above, even though it's based on what you have identified as the actual technical facts, and real-time supply and demand. Nope. People want it simple. That's what cell carriers and long-distance carriers learned when they ditched complicated rate plans with time-of-day complexities and regional local-toll fees. People gravitated to "one rate" and "no roaming" and "unlimited" plans, because they could understand them, and not be surprised at month's end.
Here, read this, and tell me if you think the average american wants their services priced using this logic:
https://en.wikipedia.org/wiki/Peak-load_pricing
The logic is sound, but 40% of Americans don't believe in evolution, so I've a feeling they're not down for this kind of complexity.
Perhaps in a more competitive market, with dozens of carriers, one would emerge as the geek-speak carrier with real-time demand-based data pricing. But the consumer market has indicated it wants certainty and clarity, not spot market pricing.
So, in conclusion, simple caps achieve an imperfect balance of two goals:
- the carriers want you to use less data during peaks, and to extract as big profits as possible at all times
- the majority of consumers want simplicity, a billing plan they can understand, and predictable & lower bills.
More competition in our market would most certainly lower the bills, but I wouldn't hold your breath for peak-load economics pricing, even if we increase competition.
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And the need to do so dramatically complicates using the internet. It means that you need to keep a running total in your head of how much you've used, and predict how much bandwidth each use will take, every time you want to use the internet.
This effect alone makes me allergic to caps. As a customer, it's just too much of a pain in the ass and is yet another thing that I'll have to worry about.
"Simplicity - I'm sure every ISP would love to tell customers:"
I'm sure they would, but caps don't have anything to do with that. It's not like the only two feasible options are caps vs an insanely complicated billing scheme.
Plus, a scheme where the price of internet changes according to the ISPs current load would be as awful as caps and for many of the same reasons: it eliminates predictability of cost and increases the amount of cognitive load on the part of the user.
I don't understand why the usual method of pricing can't continue to work: divide the cost of operation by the number of customers, add a margin for capital expenses (upgrades), add another margin for profit, and charge everyone that rate.
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No, those aren't the only two options. But caps help solve three of the goals: They offer simplicity, they get carriers the ability to upsell and get more profit, and they reduce aggregate demand, both per month and peak.
Sure, there are other options, but the proposal by JP was to charge people in ways more closely tied to reality. Well, reality is really @#$# complicated. Peak load pricing being just one, static element. For reality, we should also factor in the long-term capital expenditure rents, and allocate those to the correct customers.
So, what we're looking for as an ideal billing model is maybe not closely tied to reality, but will be a simplification of it. It would get "those who want data more" and "those who want more data" to pay more, would fund capital investment in network capacity, and would let light users join in for lower rates.
Tiered rates with caps do that.
Please offer better suggestions. You may well come up with one. But "I want unlimited because caps don't make sense." isn't better.
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They do not offer simplicity, and reducing demand is a BS goal. But I get your point.
"Please offer better suggestions."
I already did, but I have more. If, for example, we have to have some sort of metered service (which I don't think we do and personally hate), then why not just have metered service like we do with electrical service? Just charge x cents per megabyte and be done with it.
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That would probably do even more to discourage use of mobile devices on the internet than caps. One could argue about how important mobile services and apps really are to society, but it seems to me like discouraging their use is not a good thing.
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And then, also, nobody wants the mental math of calculating the cost of each bit of data they transceive, as Nasch's comment illustrates.
So, another economically sound idea loses out because it is very much the opposite of simple.
Tiered service basically achieves a similar goal, but removes the detailed mental math. Choose a tranche that seems to fit you, and move up or down depending on your usage. BTW, rollover (as discussed in this article) really helps smooth out the individual user's demand from month to month, making Tiered service an even better solution for consumers.
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I don't understand why the usual method of pricing can't continue to work: divide the cost of operation by the number of customers, add a margin for capital expenses (upgrades), add another margin for profit, and charge everyone that rate.
I hope that doesn't happen. I don't need much mobile data, so I'm willing to accept a cap in exchange for a lower price. If my carrier decided to switch everyone to unlimited data and charge accordingly, I would be paying more for a service I don't get much additional value out of.
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None of those solutions to deal with network congestion go through data caps but rather plain old bandwidth.
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Yeah, you're right. But you do understand you are talking in a total hypothetical, which bears no resemblance to the real world, right?
Meanwhile, the ISPs have perfect information on the real time loads of their networks over time, and you can easily view public versions of same. Look at the red graph half way down this article:
http://www.digitaltrends.com/computing/are-bandwidth-caps-about-easing-congestion-or-protect ing-television/
So, why use your unrealistic hypothetical? You'll go much farther if you start from known reality, and argue from there.
BTW, I hope you guys also note that the peaks aren't as dramatic as you might have thought. It's the 5AM trough that stands out the most.
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competition is more than one seller
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Basically, the industry has learned that when consumers shop for a phone, they can only juggle one or two factors on which to compare carriers. That removes any pressure to compete on other factors, which can still be used to gouge customers.
But as a point of order, to an economist, a competitive market is one in which the participants are "price takers" not "price makers".
If the sellers, as VZW is doing in this article, are able to choose their price at will for a commodity product, the market is not competitive.
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I was in the market for a new Windows phone as T-Mobile's selection is... Nokia. Ugh. I seriously gave consideration to AT&T (as I will never be a Verizon customer ever again) because they had the HTC One M8 For Windows.
Talking with a co-worker, I was stunned to find out that neither AT&T nor Verizon offer VoIP, aka WiFi calling. Sure, there are apps, like Skype, but the basic principle of using LTE for voice is unheard of to these two companies.
That right there killed any potential chance of me becoming an AT&T customer. Plus, as a bonus, turns out T-Mobile finally does have the HTC One (though it's an online only purchase since most stores don't carry it).
Best of two worlds: the no-hassle pricing of T-Mobile and I get to keep my WiFi calling.
If anyone from T-Mobile's marketing department reads this site: Why the hell aren't you advertising one of the best damn features the company offers?
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As for the voip I think the telcos should just drop regular lines and go full VoIP much like the over the air broadcasters should free the spectrum and make their stuff available on the Internet. But maybe this is just too modern.
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I have a rooted phone running a non-stock ROM, and had no problem installing and using the T-Mobile WiFi calling .apk file. It doesn't work on every ROM, but it does not need to be an official ROM to work.
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I have heard AT&T was getting it for early this year. I'm just glad I don't have to rush out of my office to outside before the person hangs up because they can't hear me when I can kind of hear them because of a single bar signal. For the most part T-Mobile has been great.
It's been just as good as AT&T was signal wise when I was with them without all the Negatives like my phone being locked down, and the plus like with Wifi Calling, or that nice ASUS Router I got for free from them. Why not, it was free. Walked into a store and just asked for one. Didn't cost me a penny.
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What's so important about wifi calling? All the carriers are offering unlimited minutes now that they're not allowed to slam their customers with exorbitant overage fees. Are you often in places with poor cellular coverage and good wifi? Or are you trying to save minutes on a pay as you go plan?
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Their entire shtick is trying to do everything over WiFi they possibly can, while still retaining Cellular signal in case you aren't near a WiFi.
No caps or anything, the only 'downside' is that the phone pesters you to connect to any open WiFi in the area because it really really wants to offload data usage to WiFi instead of cell towers. Although I guess the other downside is a limited choice of phones, the Moto X is pretty good.
(It does calls and text over WiFi. Text over WiFi, afaik, is relatively rare...)
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CrushU, I'm not sure if you're right about SMS on Republic. Google Voice and Hangouts, and iOS iMessage all do SMS on wifi in one way or another. But either way, SMS over wifi is probably not pursued, since the effort is fruitless due to the minimal data traffic impact of SMS.
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