How lobbyists jacked up your cell phone rate

by Susie
Do you know anyone who likes their companies and who’s happy with the amount they’re paying? Me neither. Now I’m even more convinced it was a good idea after reading this piece by Matt Stoller in the Republic Report:

Last year, a new company called Lightsquared promised an innovative business model that would dramatically lower cell phone costs and improve the quality of service, threatening the incumbent phone operators like AT&T and Verizon. Lightsquared used a new technology involving satellites and spectrum, and was a textbook example of how markets can benefit the public through competition. The phone industry swung into motion, not by offering better products and services, but by going to Washington to ensure that its new competitor could be killed by its political friends. And sure enough, through three Congressmen that AT&T and Verizon had funded (Fred Upton (R-MI), Greg Walden (R-OR), and Cliff Stearns (R-FL)), Congress began demanding an investigation into this new company. Pretty soon, the Federal Communications Commission got into the game, revoking a critical waiver that had allowed it to proceed with its business plan.

And so Americans continue to have a small number of expensive, poor quality cell phone providers. And how much does this cost you? Take your phone bill, and cut it by 80%. That’s how much you should be paying. 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.

[…] Once AT&T or Verizon has paid for its network and licensed spectrum from the government, the cost of adding an additional customer is very low. That means that the biggest providers with bigger networks and more licensed spectrum make more money. It’s not only that their costs are lower, but also because they can keep other players out through control of the political system. That is, they can move towards monopoly in the industry. And monopoly means higher prices for you, and more profits for them. Here’s the data.

Verizon and AT&T’s Average Revenue Per User (ARPU) are substantially higher than any other national carrier’s. Verizon’s wireless profit margins (EBITDA) are substantially higher than all other carriers except AT&T. And Verizon and AT&T together control four-fifths of the entire wireless industry profits, the only two major carriers to control double-digit shares of the industry’s total profits. Over the past 3 years Verizon and AT&T’s share of total industry profits has steadily increased while everyone else’s declined.

Stoller goes on to explain that the money didn’t go back into the business to improve service, no indeedy. It went into buying up other cell companies so there was no competition. If you don’t like your service, it doesn’t matter — because all the companies are just as bad. (As someone who switched carriers last week, I’ll testify to that.)

To reduce prices in such a system, you need either competition in the form of more networks (with the same or different technology) or price regulation. The Federal Communications Commission has neither forced more competition, nor has it restricted price gouging. In fact, by doing things like killing Lightsquared, it has ensured high prices for all of us. Furthermore, the FCC has allowed a small number of big players like AT&T and Verizon to buy up much of the public airwaves (or “spectrum”) available for cell phone use, just to keep out competitors. It tends to allow big mega-mergers to go through (with the exception of the recent T-Mobile and AT&T merger). Meanwhile, Congress is trying to tie the hands of the FCC on making more spectrum available for anyone to use, and broadcasters are also throwing their lobbying into the ring, because they want to be able to control more spectrum to transmit television signals.

Why does the FCC and why does Congress want us to have high cell phone costs? Well, they don’t, not really. It’s more accurate to say they don’t particularly care about our problems, but are responding to an entirely different problem that is completely unrelated to cell phones. The government is responding to the need for campaign contributions for politicians.

[…] In other words, we are stuck with big bad cell phone companies not because those companies are good at providing cell phone service (which anyone with a dropped cell phone call knows), but because they are good at corrupting markets through political donations. AT&T has the single biggest donor group (known as a “Political Action Committee”) in Washington, DC.

Again, that’s on average $500 a year, $40 a month, or $1.50 a day, from you, straight into the pockets of Verizon and AT&T.

6 thoughts on “How lobbyists jacked up your cell phone rate

  1. Susie,

    Please, don’t be like the folks who watch Fox, remain ignorant about an issue, and then rush around parroting the most inane things.

    As a previous poster indicates LightSquared is in the wrong. They bought spectrum for one kind of [non-interfering] use and are arguing that they should be allowed to choose another [extremely interfering] use.

    Very simplistically, it’s as if your neighbor got a city permit for a flagpole but instead of erecting a flagpole they announce they are putting up a 30 floor condominium building.

    The granting of the original permit was based on several factors including neighborhood impact. A flagpole is normally pretty inoffensive. A 30 story building cuts off sight lines, implies huge traffic increases, and much in the way of construction circumstances that affect many many people.

    You would not claim that the city was playing politics if they denied and prevented the construction of the huge condominium based on the fact that the property owner only applied for and got the original flag pole permit.

    Notice, please, that this argument is not against 30 story condominiums, nor is it against competition in the telecommunications area, nor is it in favour of inappropriate lobbying interference.

    The argument here is against lying corporations, and ill informed public commentary.

    LightSquared said essentially, we will buy spectrum to do X which is deemed ok by everyone.

    Then they turned around and said, well, X doesn’t work for us now so we’re going to do Y, even though it will break GPS for a large number of people and even though it was not something they have a right to do under the terms of their spectrum purchase agreement which does not allow such interfering use.

    Had this been permitted to go through, I can well imagine a very indignant posting from you on the abject failure of the regulatory process to protect the public from predatory lobbying by corporate interests.

    If you’re going to comment on issues with a technical aspect you have an obligation to understand the technical component or you risk being used as a shill and a pawn as in this case.

    You are usually sharper than this. I hope your health returns fully and quickly.



  2. Not sure I believe the “interference” argument. The “kill the competitor” argument is the one that sounds most likely to me!

  3. Hmmm, from what I’m reading, the interference was “POTENTIAL.” That’s different from actual interference!

  4. Susie, as someone who worked in the wireless industry for 15 years (got bored with it), I can tell you that the cited article looks good, but when reality happens, it’s hyperventilating bunk. First of all, there is no possible way Lightsquared would be able to provide a satellite based product thatvis cheaper than current wireless. Never happen.

    The costs for wireless carriers are not cheap. They make money on number of customers for talk, and push data, features, and accessories to make up. They aren’t out there just screwing people, as suggested. I’m writing this on my Droid, so I’m not going to get much deeper and write a book. There are a number of reasons why wireless is cheaper in Europe. The US has a long way to go before even coming close. Lightsquared would not be the answer. For reference, go look up Iridium. Maintaining a satellite system would not be cheap, nor would the phones.

    PS: not trying to be condescending, just hard to go back and retype with a smartphone.

  5. (Wow, defensive drones almost immediately. If you read this blog much, you’d know that Suzie is wildly on the anti-corporate side in just about every post I’ve seen with a science component. And yet I’ve never seen you folks commenting to set the record straight before. Only when it concerns Lightsquared. Interesting.)

    Suzie’s main point is well proven. Lack of oversight, regulation, and anti-monopoly enforcement, has sent US cell phone rates throught the roof. Last time I looked, in 2009, US had a de facto rate of around 80 cents per minute, against a Swedish rate of around 15 or so. (How can the US rate be so high? Largely a matter of factoring in the cost of unused minutes, which people have in bucketloads to avoid overage charges.) Sounds like nothing has changed. Why should it?

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