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Press Helps Carriers Justify Sky High LTE Prices
Spectrum Bogeyman, Selective Amnesia and Fauxconomics
by Karl Bode 09:44AM Monday Oct 22 2012
Over the last few months several reports have surfaced pointing out that U.S. residents pay significantly more for fiber than their European counterparts. The New York Times highlighted that U.S. LTE is up to seven times more expensive than it is overseas. Verizon Wireless, for example, charges $7.50 per gigabyte of LTE -- three times the European average of $2.50 and ten times the 63 cents per gigabyte charged in Sweden. Another study pointed out how 4G pricing is 20% higher than 3G pricing was, despite being considerably more efficient.

The reason for this is not complicated: the majority of the U.S. wireless sector is controlled by two companies, who, thanks to feeble competition and duopoly power (spectrum hoarding, regulatory capture, special access market dominance), have collectively jacked up the price of data to protect themselves from the looming loss of SMS and voice revenues. That's courtesy of AT&T and Verizon's new shared data plans, which offer unlimited voice and SMS, but impose per device fees and data overage charges of $15 per gigabyte. The latest earnings reports show shared data has consumers paying more than ever for their data.

While outlets like the Times and Bloomberg News correctly noted the high prices were the result of two carriers dominating the contract market, it's entertaing to see some analysts pretending this market power plays absolutely no role in soaring prices. Hal Singer at Forbes informs his readers that they're not really being overcharged for service by an uncompetitive duopoly, they're just dealing with "supply and demand":
quote:
As any first-year economic student understands, prices are determined by supply and demand conditions. When performing international price comparisons, one should account for these differences before proclaiming that U.S. consumers spend “too much” on a particular service. Of course, it is much easier to generate readership (and hence advertising dollars) with fantastic claims that our wireless markets are not competitive.
Any second year economic student will tell you, supply and demand only sets prices in competitive, functioning markets. In the United States, you've got two carriers -- AT&T and Verizon -- pushing their way toward 75% domination of the contract wireless data market. What sets prices in a duopoly suffering from regulatory capture? Predators. Almost as if they're getting their talking points from a single source (gosh, could that be possible? If so, golly, from who?) Roger Entner over at Fierce Wireless also insists high prices aren't due to duopoly power, they're due to supply and demand and the spectrum bogeyman:
quote:
The fatal flaw is that it does not take into account the basic tenet of economics that a "price" is established at the point where supply and demand are at equilibrium. Higher demand for LTE in the U.S. than in Europe, combined with a more limited spectrum inventory to support LTE in the U.S. may well bedevil American consumer advocates until the FCC opens the spectrum spigot
Except as we've noted more than a few times, the "spectrum bogeyman" isn't supported by real data -- it's a lobbying tool used by carriers (like the Exaflood before it) to scare regulators and the press into signing off on poor behavior (if we don't overcharge/fight net neutrality/merge the Internet will explode). Most carriers now say they have plenty of spectrum to deploy LTE fully, and if there's a shortage it's the result of inefficient use of spectrum, like AT&T's slow refarming of 2G network spectrum.

Both writers positions are virtually indistinguishable from that of the major carriers: competition in the industry is perfectly healthy, duopoly abuse and regulatory capture doesn't exist, and if there is price gouging going on -- it's because of the spectrum bogeyman or due to the hallucinations of simpletons who don't understand economics.


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