How the Big Cell Phone Companies Are Getting Away with Ripping You Off Each Month
If you live in America, there’s a good chance you’ve not been overjoyed by your wireless plan. Simply by using a device essential to your daily life, you have been screwed. Let us count the ways.
If you overestimate how many voice minutes, text messages and data usage you need, you get screwed. If you underestimate, you also get screwed. If you have a contract, you get screwed if the service ends up being bad. If you don’t have a contract, you may find that a company can suddenly raise prices, and so you may get screwed there, too. Studying your bill often reveals still more ways you have been screwed. Did someone with a foreign number text you? Unlucky you! Did you download a ringtone thinking it was free? Oops! You’re screwed. Your bill is a maze of fees: activation fees, upgrade fees, early-termination fees, 411 fees, mysterious third-party fees, fees no one can understand. Customer service is mostly a joke.
Why is this happening to you? Because of a game called Oligopoly.
Heads They Win, Tails You Lose
Does Oligopoly sound familiar? Remind you of another game you used to play called Monopoly? You’ve got it. Oligopoly is its first cousin.
An oligopoly is a market dominated not by one, but by a small number of players. Because the number of players is so small, serious price competition doesn’t happen very much. Instead oligopolists tend to do sneaky things like put their heads together to figure out ways to raise prices, protect their turf, and limit consumer choices. They typically deploy armies of lobbyists to accomplish these goals. Some of these lobbyists go on to careers as regulators or vice versa (more on that in a moment).
The market for wireless providers is a classic case of oligopoly, currently dominated by AT&T, Verizon and Sprint, with T-Mobile bringing up the rear. In recent years, the number of players in the carrier market has shrunk, with the size of individual players increasing through mergers and acquisitions. Last year, AT&T gobbled up Leap Wireless, T-Mobile swallowed MetrocPCS and Japan’s Softbank bought Sprint.
When you get down to it, the wireless market is really a duopoly between AT&T and Verizon, which have about two-thirds of the market between them. They are the big boys, with Sprint and T-Mobile considered the challengers.
T-Mobile, the smallest of the four, has been shaking up the industry with its "Un-carrier" strategy — chucking contracts, eliminating roaming charges for international carriers, and getting rid of other annoying features of standard wireless plans in order to attract customers. T-Mobile CEO John Legere, a blustery character, recently tweeted that he plans to keep up the heat in early 2014. He might, for example, just get crazy and bundle all the service fees and taxes into one simple price for consumers.
In an oligopoly, this behavior will not do. Customers must not get better deals and lower prices. They should not get simple bills that an ordinary human can understand.
The other companies could take comfort that they already have millions of customers locked into unfriendly plans, but that’s not foolproof, because some customers will just break their contracts, and others will refuse to renew. What the big boys really want to do is just gobble up T-Mobile and be done with it. AT&T tried this in 2011, but was thwarted by the antitrust division of the United States Department of Justice.
Sprint, thinking it had a better shot at taking over T-Mobile because it is smaller than the big boys, is now trying to buy the company. Some argue it would be a good thing for consumers if Sprint bought T-Mobile, because the newer, larger company would be in a better position to compete with Verizon and AT&T. On the other hand, in oligopoly, three is not a crowd. Eventually, it is likely that Sprint would act like it was one of three carriers and coordinate with the big boys to keep prices high and customers powerless.
Federal regulators have taken a break from doing not much of anything to mull all this over.
What we’ve got here is a big nasty oligopoly slugfest. The business media are cheering that all of this is going to be good for customers, because in their free-market fairy tale, the market is self-regulating and competition rises to give the consumer the best deal.
Don’t count on it. Pretty much since the 1980s, oligopolies have been running the show in America. In the era of deregulation, only the most extreme anti-trust violations get the attention of the Justice Department. The revolving door between industry and government ensures that everybody ends up playing golf together and cutting deals that don’t do much for you and me.
American consumers are held hostage by oligopolies in nearly every aspect of our lives: when we go to the bank, when we flip on the TV, when we sign up for health insurance plans. These highly concentrated industries regularly bilk us, but alas, we have nowhere else to turn. As Tim Wu explained in a recent New Yorker article, oligopolies are simply monopolies wearing a mask:
“…Our scrutiny and regulation of monopolists is well established—just ask Microsoft or the old AT&T. But when three or four firms pursue identical practices, we say that the market is ‘competitive’ and everything is fine. To state the obvious, when companies act in parallel, the consumer is in the same position as if he were dealing with just one big firm. There is, in short, a major blind spot in our nation’s oversight of private power, one that affects both consumers and competition.”
You can say that again. It looks like we have choices on everything from breakfast cereal to credit cards. But even when we try to choose an “independent” brand, chances are we’re just dealing with a ginormous company in disguise.
In theory, the Federal Communications Commission is supposed to make sure that wireless carriers, who are leaseholders on the public spectrum, actually serve the public interest. In reality, the agency has been letting the wireless industry screw Americans for more than a decade under the laughable theory that there’s actually real competition in the market.
In 2012, President Obama appointed Tom Wheeler to head the FCC. Wheeler is a venture capitalist, an Obama fundraiser, a former top telecom lobbyist, and a man the president described as “the only member of both the cable television and the wireless industry hall of fame.” Not exactly the rÃ©sumÃ© of a consumer watchdog.
Delara Derakhshani, policy counsel of the Consumers Union, testified before the Senate Commerce Committee in June 2013 on the numerous ways consumers get screwed because the wireless industry is particularly uncompetitive and consumer unfriendly, allowed by regulators to do horrible things like locking mobile devices when a customer tries to switch carriers. The industry appears to be caving to public pressure on unlocking, so that’s a little bit of good news. But the FCC clearly needs to rouse itself and crack down on a whole host of abusive practices.
The Competitive Carrier Association, comprised of smaller carriers which have banded together to take on the big boys, has urged the FCC to strengthen policies that safeguard competition, like promoting competitive access to devices and limiting the amount of spectrum one company is able to buy. It has asked the FCC to set up a wireless competition taskforce in order to restore competition.
Tom Wheeler has shown some openness to setting aside spectrum for smaller companies so that the big boys don’t eat it all up. But let’s face it. This guy is a former industry lobbyist, and one would have to set aside quite a bit of skepticism to imagine him turning into the caped crusader for consumers.
If Sprint is allowed to buy T-Mobile, there’s a chance that many of those customer-friendly changes introduced by T-Mobile could disappear. The big boys could be the big winners, which is why investors are looking to put their money in AT&T if the merger happens. But even if T-Mobile remains a separate company, the oligopolists have plenty of tricks up their sleeve to make sure consumers don’t win in the end. If the public gets too angry about certain forms of gouging, like two-year contracts with high termination fees, the companies will just move to other practices. A fee here, a reduced service there. You know, business as usual.
Until we have regulators who are committed to working for the public, oligopolies will continue to rule the roost. And Americans will pay and pay, while the oligopolies recycle some of those earnings right back to one place where their messages always get through: Congress and “our” political parties.