Broadband, Airline Industries Are Incredible Innovators -- When It Comes To Giving You Less But Claiming It's More

from the nickel-and-dime-you-to-death dept

There are certainly some similarities between the airline and broadband industries. Both are pampered, uncompetitive markets suffering from regulatory capture that allows them to literally write the laws that govern their respective business segments. Both insist that constantly skyrocketing prices are justified by an ever-improving "customer experience," while the actual customer experience continues to get worse as companies consolidate and competitors dwindle. Taking their cues from banking "innovations" in the 80s, both industries have also become obsessed with screwing over their customers via the use of increasingly sneaky fees.

This New Yorker article by neutrality godfather Tim Wu makes this rather clear, noting that the airline industry made $31 billion largely from fees in 2013, a number that's sure to have skyrocketed in 2014 as the airlines get increasingly "creative" in below-the-line charges for basic amenities that used to just be part of standard service. Some friends of mine recently rode Allegiant Air, and told me the company charged a $5 fee just to print your boarding pass on top of the usual assortment of annoying fees (it's worth noting their beverages, including water, also aren't complimentary).

While the airlines like to frame this as an increase in consumer choice (hey, you can choose to not enjoy a pillow!), Wu aptly notes how this approach to price discrimination in less competitive markets consistently results in making your customers more miserable:

"But the fee model comes with systematic costs that are not immediately obvious. Here’s the thing: in order for fees to work, there needs be something worth paying to avoid. That necessitates, at some level, a strategy that can be described as “calculated misery.” Basic service, without fees, must be sufficiently degraded in order to make people want to pay to escape it. And that’s where the suffering begins. The necessity of degrading basic service provides a partial explanation for the fact that, in the past decade, the major airlines have done what they can to make flying basic economy, particularly on longer flights, an intolerable experience."

Earlier this year, Mike had already pointed out more than a few similarities between the broadband and airline industries, and how this behavior is closely tied to the net neutrality debate. Wu doesn't even mention broadband, though both industries feature oligopolies that abuse the lack of competition to keep the bar at ankle height to cut costs, then enjoy charging consumers more if they'd like to be less miserable. The overall transaction costs (physical, mental and monetary) of such a model become absurdly high, reducing the utility of the service and incentivizing an approach where consumers have to pay to elevate themselves beyond intentionally poor or constrained service, resulting in the flying experiences most of us know and love today.

The broadband industry isn't much different (something Stacey Higginbotham pointed out recently as well). That consumers are being given amazing new levels of choice and flexibility is AT&T's justification for the company's Sponsored Data effort, which erects entirely arbitrary consumer usage caps, then charges companies an extra fee if they'd like to bypass them. Likewise, T-Mobile argues that exempting only the biggest music services from the company's usage caps delivers great benefits to the consumer (despite tilting the playing field against smaller operators). While the net neutrality conversation (and the feeble rules we've seen so far) focuses on outright blocking of websites or throttling of connections or services (even though even the worst-behaved ISPs now avoid both), the real danger at the moment is the all-too-clever efforts that constrain the user while pretending to offer greater freedom.

Like the airline industry, in regulatory conversation there's a tendency to see these efforts as simple pricing creativity, when the only creative thing about them is in convincing consumers that less is more. Without meaningful network neutrality rules (in the stark absence of real competition), we're creating a slippery slope of intentionally hamstrung services where your only option is to pay a steep premium if you'd like to be treated even remotely like a human being.

Filed Under: airlines, broadband, competition, fees, incentives, innovation, oligopolies, tim wu, tolls