Has anyone noticed that cell phone service plan pricing seems to be continuously rising? Sure there have been new features added, integrated cameras, applications, better Internet browsers, navigation, and many more features, but prices seem to keep rising. Some of the plans have been improving with more minutes added, and unlimited texting and moderate data usage allowed, but actual prices are not improving. Why is this the case?
During the 1980s and 90s following the breakup of AT&T (Ma Bell) and subsequent deregulation of telephone service was a boon to consumers. Actual prices were dropping on phone service. With the advent of voice over IP (VOIP) during the turn of the century, landline telephone costs have dropped to mere pennies per call or even less. With increased competition, many other tech products such as computers, televisions, calculators, operating systems and many others have seen dramatic drops in price. Why has cell phone service not kept up with the decline in other consumer technologies?
In developing nations, such as India and China fixed line telephones are not common-place. Yet cell phone products are the ubiquitous communications device. The market in developing nations cannot support $50-$100 price points when the average citizen makes $100 per month. Instead wireless providers must target $3-$7 price points per month for those consumers to make cell phones affordable. One possible explanation for the ability to lower cost for consumers is lower labor costs and lower costs for installing towers and marketing. However, that does not explain everything here in the US. While our labor is much more expensive many of the costs for equipment are still comparatively the same whether the equipment is installed in the US or in China. Part of the increased cost of doing business in the US is the high cost of wireless spectrum when purchased at auction from the FCC. Spectrum can cost billions of dollars. Then there is the cost of running multiple networks using different technology. Sprint runs a CDMA network as well as an 800-900 megahertz network known as iDEN for its Nextel line of Phones. Verizon uses a similar CDMA network as Sprint, and AT&T and T-Mobile utilize the GSM network similar to what is used in most of the rest of the world. However, the cost of running multiple networks is decreased competition as devices cannot be transferred amongst the different technologies, and different spectrum is required for each network type. This helps to maintain high prices for consumers, and a still heavily regulated marketplace also add to the regulatory burden consumers ultimately pay for.
One area where decreasing costs is becoming evident is in the prepaid market. The prepaid dealers work with the national carriers and lease spectrum and bandwidth from the national carriers at a discount. With lower cost marketing campaigns, the prepaid vendors have been able to reduce costs moderately for cell phone consumers that don't want to be bothered with long-term contracts with one particular cell phone provider. Sometimes, there is a high cost for purchasing the phone handset as it is not subsidized by a long-term contract. However, many of the devices can be purchased for less than $100. And just a few months with the reduced priced prepaid plan will save light cell phone users a significant amount of money over a national carrier contract. It is one bright spot, where consumers have seen reduced costs in their cell phone bills.
Of course, I love my cell phone, and all of its cool features! So despite prices not going down, I am not about to give up my smartphone. The added utility of the device more than makes up for the increased price I pay each contract renewal! Heck, my latest one has almost perfect GPS navigation, 4G speeds, cool games, and 1000’s of neat apps.
Anonymous. “Mobile Phone Adoption in Developing Countries.” Wikinvest. Retrieved April 21st, 2011 at: http://www.wikinvest.com/concept/Mobile_Phone_Adoption_in_Developing_Countries