Natanel Barookhian's Blog

Encouraging a more competitive mobile marketplace

Americans are overcharged for mobile phone use (calling, data, and texting). How do I know? Well, I’ve had the chance to do quite of a bit of travelling to many parts of the world over the past few years and there is a stark difference between what others outside the country pay for mobile vs. what we pay here in the US.

A case in point, is in the Israeli mobile wireless market. A few weeks ago an upstart mobile company called Golan Telecom came into the market (not an MVNO) and offered an unlimited plan (that’s right, unlimited) with free calling, text, and data for 99 ILS/month, or about $25 USD. This plan also includes unlimited calling to 32 countries worldwide. That’s mind boggling number when compared to standard services which offer the same here for $100 or even way more.

Shortly after this was introduced, the entire market for mobile phones crashed, and all of the prices came tanking down. Why do you think this is so, and why haven’t American companies been able to replicate the same type of competitive forces to decrease prices here? More specifically, the fact the you can get an unlimited plan on T-Mobile for $50, hasn’t caused either Verizon or at&t to bring down their rates.

The reason for this is threefold:

1. Long term contracts
2. Stickiness factors
3. Perceived quality

Regardless of which cell provider you are, #1 and #2 all work to your advantage (or disadvantage) equally, though it is in the area of perceived quality (#3), which is the biggest differentiator between the front-runners and the competitors, and it also happens to be the area with the most opportunity from a regulatory point of view.

Are there real solutions? I’m not positive. But could the government be doing a better job? Certainly. For starters, they could alter the way they issue and sell off their spectrum from an uneven competition between the have and have-not’s, to a more collective system where all of the players have access to the same pool of spectrum and which they share based on their needs. Additionally, they could regulate the players, and enforce a new system which encourages all of the players to share their towers and other resources with each other more generously. Finally, the wireless players have all done a great job of signalling to each other of their intent to raise prices through various schemes and ‘new plans.’ Is there some form of larger collusion at play here? Maybe, maybe not. The government could be doing a better job of investigating, or at least threatening to investigate, all of the bigger players for collusion. It would certainly cause them to be a bit more careful in the future, or perhaps alter their behavior.