Verizon Shows Just How Competitive The Wireless Industry Really Is By Simply Refusing To Compete On Price
from the let's-play-make-believe dept
You’ll recall that the CTIA recently argued that the wireless industry doesn’t need to be governed by net neutrality rules (or any rules, really) because it’s a sector that’s just so gosh-darned competitive. And while it’s true T-Mobile has been shaking things up of late (thanks in part to regulators blocking the AT&T acquisition), the market’s big four players continue to make it clear that once you dig past a number of largely cosmetic promotions, the sector still isn’t really all that competitive. That’s especially true when it comes to seriously competing on price, something all four major carriers repeatedly make clear they intend to avoid at any cost.
Case in point is T-Mobile’s latest effort to offer rollover data, or letting users store unused bits and bytes at the end of the month for future use. I already noted how AT&T’s competitive response to this was to offer a rollover service of its own that’s largely a joke; rolled over data allotments only having a shelf life of one month, and that data being unusable until you finish your normal data allotment. Yet that’s better than Verizon Wireless, which responded to the growing trend toward rollover data by refusing to participate entirely:
“We’re a leader, not a follower,” (Verizon CFO Fran Shammo) said in an interview on Thursday…”We did not go to places where we did not financially want to go to save a customer,” Shammo said. “And there’s going to be certain customers who leave us for price, and we are just not going to compete with that because it doesn’t make financial sense for us to do that.”
Of course, when a market is truly competitive, you’re not supposed to have a choice in the matter. While Verizon pretends it doesn’t compete on price because it offers a “premium experience,” the reality is Verizon doesn’t compete on price because it has used regulatory capture to build a market that ensures it never has to. The result is a Verizon-AT&T duopoly that owns most of the nation’s spectrum, dominates 80% of the retail market, and enjoys a stranglehold on the special access (fiber backhaul) market. As a result, Sprint’s been barely hanging on for years, and T-Mobile’s owner Deutsche Telekom isn’t sure T-Mobile can survive long-term. What the media calls a “price war” is more like a “light price scuffle.”
It’s something worth remembering the next time someone (usually a wireless industry lobbyist) tries to tell you the wireless industry is ultra-competitive (or doesn’t need net neutrality protections) simply because there are four companies in play. What we usually see, with the occasional exception, is a pantomime of real competition. In this case, Verizon can’t even be bothered to go that far.
Filed Under: competition, rollover, wireless
Companies: verizon
Comments on “Verizon Shows Just How Competitive The Wireless Industry Really Is By Simply Refusing To Compete On Price”
no, the UK wireless market is ultra-competitive, even with “only” six major carriers.
So Verizon is on record saying they don’t care about customers, only money.
The “rollover” plans really irritate me. They run along the same lines as “sponsored data” programs (an internet company pays your ISP to grant you unlimited data for their product) and “unlimited streaming” programs. They’d all make sense IF data was a limited or costly resource.
The truth is that data doesn’t cost the ISPs anything. It’s an imaginary resource. Bandwidth is the amount of data transferred per second and only has relevance within that specific point in time. Somehow the ISPs have convinced people that data matters. It doesn’t. Before the techies start shouting out “well, wait a minute…” let me explain.
The original idea behind data caps (beyond the “let’s get more money for nothing” part) is that if people are worried about their data limits they’ll tend to use less data at any given time. In other words, they’ll “save” it so they don’t run out. By encouraging end users to use less data overall, the hope was that it would alleviate the peaks so they didn’t have to create a huge infrastructure to handle the spikes.
So what’s the issue with these programs? They only work when you assume data is a limit, not bandwidth. Letting you “save up” data does nothing to alleviate bandwidth issues. To give a better example, consider two users…the first downloads 20 gb of data per day for 30 days, and the second downloads 100 gb of data per day for 5 days, then doesn’t download anything for the rest of the month. Which one causes more bandwidth problems?
The second. During that period, this user creates a much higher load on the ISPs than the first user. In a perfect world, everyone would use exactly the same amount of bandwidth at all times. This doesn’t happen, though; we all browse and download/stream in spikes, and usually all around the same times of day. Yet if you believe that data is a limited resource, the second user only used 500 gb of data, and the first used 600 gb, so clearly the first is causing the internet to slow down for more people, right? Nope.
Unlimited data plans for a specific service work the same way. If I use T-Mobile I can stream, say, 250 gb of music from Pandora or Google Play, but what if I wanted to stream 250 gb from Jango or Sony Music Unlimited? I hit my data cap. But if you think about it, the actual load on the T-Mobile servers is identical regardless of which streaming service I use.
If that’s the case, why can’t you just let me stream whatever I want? It works if I use your approved stuff, so clearly you have the capacity.
Oh, right, because the whole problem is BS and a money grab. I forgot.
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From a technically standpoint, I wouldn’t even say that bandwidth is the major issue with wireless. Most POPs have ample bandwidth, but lack enough sectored radios to handle the client base. Any PtMP radio installation has to deal with a specific limit of clients per radio. As clients converge in one specific area, you run into issues of lost packets do to radio overload. The solution is usually to decrease power and install another POP to offload some of the clients to a new radio. You usually notice this type of effect in major metros where signal strength is fine but the network slows to a crawl, but is also common during events and the like where the tower just can’t handle the increased load.
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I was thinking primarily in terms of cable, not wireless, but either way it doesn’t change my point. In fact, for wireless, data caps have even less relevance because if the limit is the number of users connected it doesn’t matter how much data they’re using at all. Therefore charging for data used makes no sense from a technical standpoint.
I’d love to see a technical reason why data caps are necessary, but so far it doesn’t make sense.
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There is no reason, because caps can’t reduce simultaneous network load. I.e. it’s a pure rip off.
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I’d love to see a technical reason why data caps are necessary, but so far it doesn’t make sense.
It doesn’t make sense to you or me, but it makes sense to a greedy company. They can charge you again for something they already charged you for. Double/Triple/Quadruple-dipping is the name of the game. Them solid gold Humvees and diamond swimming pools don’t come cheap.
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It’s not a technical reason, beyond what you described above. It’s about simplicity, and psychological reasons.
1 – Psych – As you noted, if people are capped, they will make some conscious decisions about their use, and reduce it. They will reduce constantly streaming apps, total video downloads per month, etc. That helps reduce aggregate demand a lot. Though, as you said, peaks are still peaks. But then, they are lower peaks, yes?
2 – Simplicity – I’m sure every ISP would love to tell customers:
“You can have X GB of data between the hours of 1am and 6am, X GB between 6am and 3pm, X between 3pm and 10pm, and x between 10pm and 1am. For mobile use, you can have unlimited when in non-congested cell sectors, but are limited to a slower bandwidth when in congested cells. Premium customers will have access to priority data in congested cells, and economy customers will have their traffic shaped based on real-time congestion issues. Thank you, please sign up now.”
But how many people do you think really want to get into the sausage making when they shop ISPs? Truth is, most people can’t even comprehend the concepts in the paragraph above, even though it’s based on what you have identified as the actual technical facts, and real-time supply and demand. Nope. People want it simple. That’s what cell carriers and long-distance carriers learned when they ditched complicated rate plans with time-of-day complexities and regional local-toll fees. People gravitated to “one rate” and “no roaming” and “unlimited” plans, because they could understand them, and not be surprised at month’s end.
Here, read this, and tell me if you think the average american wants their services priced using this logic:
https://en.wikipedia.org/wiki/Peak-load_pricing
The logic is sound, but 40% of Americans don’t believe in evolution, so I’ve a feeling they’re not down for this kind of complexity.
Perhaps in a more competitive market, with dozens of carriers, one would emerge as the geek-speak carrier with real-time demand-based data pricing. But the consumer market has indicated it wants certainty and clarity, not spot market pricing.
So, in conclusion, simple caps achieve an imperfect balance of two goals:
– the carriers want you to use less data during peaks, and to extract as big profits as possible at all times
– the majority of consumers want simplicity, a billing plan they can understand, and predictable & lower bills.
More competition in our market would most certainly lower the bills, but I wouldn’t hold your breath for peak-load economics pricing, even if we increase competition.
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“They will reduce constantly streaming apps, total video downloads per month, etc.”
And the need to do so dramatically complicates using the internet. It means that you need to keep a running total in your head of how much you’ve used, and predict how much bandwidth each use will take, every time you want to use the internet.
This effect alone makes me allergic to caps. As a customer, it’s just too much of a pain in the ass and is yet another thing that I’ll have to worry about.
“Simplicity – I’m sure every ISP would love to tell customers:”
I’m sure they would, but caps don’t have anything to do with that. It’s not like the only two feasible options are caps vs an insanely complicated billing scheme.
Plus, a scheme where the price of internet changes according to the ISPs current load would be as awful as caps and for many of the same reasons: it eliminates predictability of cost and increases the amount of cognitive load on the part of the user.
I don’t understand why the usual method of pricing can’t continue to work: divide the cost of operation by the number of customers, add a margin for capital expenses (upgrades), add another margin for profit, and charge everyone that rate.
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“I’m sure they would, but caps don’t have anything to do with that. It’s not like the only two feasible options are caps vs an insanely complicated billing scheme.”
No, those aren’t the only two options. But caps help solve three of the goals: They offer simplicity, they get carriers the ability to upsell and get more profit, and they reduce aggregate demand, both per month and peak.
Sure, there are other options, but the proposal by JP was to charge people in ways more closely tied to reality. Well, reality is really @#$# complicated. Peak load pricing being just one, static element. For reality, we should also factor in the long-term capital expenditure rents, and allocate those to the correct customers.
So, what we’re looking for as an ideal billing model is maybe not closely tied to reality, but will be a simplification of it. It would get “those who want data more” and “those who want more data” to pay more, would fund capital investment in network capacity, and would let light users join in for lower rates.
Tiered rates with caps do that.
Please offer better suggestions. You may well come up with one. But “I want unlimited because caps don’t make sense.” isn’t better.
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“But caps help solve three of the goals: They offer simplicity, they get carriers the ability to upsell and get more profit, and they reduce aggregate demand, both per month and peak.”
They do not offer simplicity, and reducing demand is a BS goal. But I get your point.
“Please offer better suggestions.”
I already did, but I have more. If, for example, we have to have some sort of metered service (which I don’t think we do and personally hate), then why not just have metered service like we do with electrical service? Just charge x cents per megabyte and be done with it.
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why not just have metered service like we do with electrical service? Just charge x cents per megabyte and be done with it.
That would probably do even more to discourage use of mobile devices on the internet than caps. One could argue about how important mobile services and apps really are to society, but it seems to me like discouraging their use is not a good thing.
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Right. Metered service is very fair, and can correctly account for capital investment as well as operational expenses…except that you’d have to have time-of-use price changes to be totally fair and account for peak-load pricing – just as many electricity utilities now do.
And then, also, nobody wants the mental math of calculating the cost of each bit of data they transceive, as Nasch’s comment illustrates.
So, another economically sound idea loses out because it is very much the opposite of simple.
Tiered service basically achieves a similar goal, but removes the detailed mental math. Choose a tranche that seems to fit you, and move up or down depending on your usage. BTW, rollover (as discussed in this article) really helps smooth out the individual user’s demand from month to month, making Tiered service an even better solution for consumers.
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I don’t understand why the usual method of pricing can’t continue to work: divide the cost of operation by the number of customers, add a margin for capital expenses (upgrades), add another margin for profit, and charge everyone that rate.
I hope that doesn’t happen. I don’t need much mobile data, so I’m willing to accept a cap in exchange for a lower price. If my carrier decided to switch everyone to unlimited data and charge accordingly, I would be paying more for a service I don’t get much additional value out of.
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That. It doesn’t matter if they limit everybody to 1Gb. If all the customers decide to use that 1Gb at the same time the network will slow to a crawl. What has to be done is to balance the load so in terms of internet they could sell a plan for those who only check e-mails and use whatsapp or something. Speed wise. So if you want to do your basic things X kbps are enough for you and you pay Y dollars. If you surf the web and watch the occasional Youtube video then X mbps are enough and you’ll pay Z dollars. If you want full streaming capacity you’ll have it but the cost will be much steeper. They can also make plans that are unlimited on times of less usage and capped (again, speed wise) at peak times.
None of those solutions to deal with network congestion go through data caps but rather plain old bandwidth.
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” If all the customers decide to use that 1Gb at the same time the network will slow to a crawl.”
Yeah, you’re right. But you do understand you are talking in a total hypothetical, which bears no resemblance to the real world, right?
Meanwhile, the ISPs have perfect information on the real time loads of their networks over time, and you can easily view public versions of same. Look at the red graph half way down this article:
http://www.digitaltrends.com/computing/are-bandwidth-caps-about-easing-congestion-or-protecting-television/
So, why use your unrealistic hypothetical? You’ll go much farther if you start from known reality, and argue from there.
BTW, I hope you guys also note that the peaks aren’t as dramatic as you might have thought. It’s the 5AM trough that stands out the most.
competition is more than one seller
Sure wireless is competitive! There’s more than one seller, more than one company, so by definition its competition. Of course, they don’t compete on price, service, quality, coverage, geography, or innovation. But they do compete a lot, really. Not a day goes by that I don’t get a mailing from AT&T or Verizon, asking me to switch to them or upgrade. All the services, coverage, and prices are more or less identical, crappy, and much too expensive, but hey, they’re fighting for my business every day.
Re: competition is more than one seller
Ha. Funny, and largely true. An example I often have used is that, while US celcos certainly competed pretty hard on the price for the “bucket of minutes” in the first decade of this century, and now compete on the price of a bucket of data, there has been almost NO competition on the price of international roaming for voice or data.
Basically, the industry has learned that when consumers shop for a phone, they can only juggle one or two factors on which to compare carriers. That removes any pressure to compete on other factors, which can still be used to gouge customers.
But as a point of order, to an economist, a competitive market is one in which the participants are “price takers” not “price makers”.
If the sellers, as VZW is doing in this article, are able to choose their price at will for a commodity product, the market is not competitive.
I guess Verizon is the only company that has taken a bold stand with a public admission of having a quality standard. So it makrs sence if they are not bothered that their customers are leaving on the price issue.
Since Friday, I’ve learned something incredible regarding the “Big 3” wireless companies (Sorry, Sprint – you’re a verb, not a company).
I was in the market for a new Windows phone as T-Mobile’s selection is… Nokia. Ugh. I seriously gave consideration to AT&T (as I will never be a Verizon customer ever again) because they had the HTC One M8 For Windows.
Talking with a co-worker, I was stunned to find out that neither AT&T nor Verizon offer VoIP, aka WiFi calling. Sure, there are apps, like Skype, but the basic principle of using LTE for voice is unheard of to these two companies.
That right there killed any potential chance of me becoming an AT&T customer. Plus, as a bonus, turns out T-Mobile finally does have the HTC One (though it’s an online only purchase since most stores don’t carry it).
Best of two worlds: the no-hassle pricing of T-Mobile and I get to keep my WiFi calling.
If anyone from T-Mobile’s marketing department reads this site: Why the hell aren’t you advertising one of the best damn features the company offers?
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I’d just buy an unlocked, company-free phone, really.
As for the voip I think the telcos should just drop regular lines and go full VoIP much like the over the air broadcasters should free the spectrum and make their stuff available on the Internet. But maybe this is just too modern.
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To get T-Mobile WiFi Calling, you must have a T-Mobile purchased phone. The WiFi Calling feature is built into the phone’s ROM, it isn’t just an app that can be installed onto any phone.
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To get T-Mobile WiFi Calling, you must have a T-Mobile purchased phone. The WiFi Calling feature is built into the phone’s ROM, it isn’t just an app that can be installed onto any phone.
I have a rooted phone running a non-stock ROM, and had no problem installing and using the T-Mobile WiFi calling .apk file. It doesn’t work on every ROM, but it does not need to be an official ROM to work.
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I understand why people in urban areas feel that way, but I really hope it never happens. As someone who lives in Applachia, I currently have one – that’s it – provider for cable television, Internet and VOIP, that being Time Warner (granted I could use Vonage over Time Warner). Because of how rural the area is (southeastern Ohio, near the WV border), we have no cellular/wireless coverage and getting satellite television or Internet reception is nearly impossible due to the hills and trees. If we lost free through the air TV, Time Warner would have absolutely no competition, free or paid, for television. Speaking for myself, I don’t pay their ridiculous cable fees and just watch my TV OTA, losing that ability would not be in our public interest, even if Appalachia is a unique example compared to the rest of the country.
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These regions need another approach. You can use VoIP on bigger centers and still use the normal thing on more isolated areas. I’d say the Government has the obligation to bring these services to these regions even if it means no profit.
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Wifi calling is one of the reasons I went with T-Mobile. I don’t get a strong signal outside work and in the building it’s about dead to dead where I am and no one else is any better. At home it’s better, but Wifi Calling is clearer. At my brothers house, he’s in a dead zone. My Cell works great there because of Wifi Calling. Works great on my iPhone 6.
I have heard AT&T was getting it for early this year. I’m just glad I don’t have to rush out of my office to outside before the person hangs up because they can’t hear me when I can kind of hear them because of a single bar signal. For the most part T-Mobile has been great.
It’s been just as good as AT&T was signal wise when I was with them without all the Negatives like my phone being locked down, and the plus like with Wifi Calling, or that nice ASUS Router I got for free from them. Why not, it was free. Walked into a store and just asked for one. Didn’t cost me a penny.
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If anyone from T-Mobile’s marketing department reads this site: Why the hell aren’t you advertising one of the best damn features the company offers?
What’s so important about wifi calling? All the carriers are offering unlimited minutes now that they’re not allowed to slam their customers with exorbitant overage fees. Are you often in places with poor cellular coverage and good wifi? Or are you trying to save minutes on a pay as you go plan?
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You should check out Republic Wireless.
Their entire shtick is trying to do everything over WiFi they possibly can, while still retaining Cellular signal in case you aren’t near a WiFi.
No caps or anything, the only ‘downside’ is that the phone pesters you to connect to any open WiFi in the area because it really really wants to offload data usage to WiFi instead of cell towers. Although I guess the other downside is a limited choice of phones, the Moto X is pretty good.
(It does calls and text over WiFi. Text over WiFi, afaik, is relatively rare…)
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I’ve had one of their phones since pre-launch. Works pretty well. Android smartphone, choose your model, and the phone price is subsidized a bit. Then, $20/mo, unlimited voice, sms, data. (My understanding is that you might get a nastygram if you use too much cellular data.)
CrushU, I’m not sure if you’re right about SMS on Republic. Google Voice and Hangouts, and iOS iMessage all do SMS on wifi in one way or another. But either way, SMS over wifi is probably not pursued, since the effort is fruitless due to the minimal data traffic impact of SMS.
I don’t know about what these people are talking about but who cares about wifi calling? Really I pay verizon good money to make calls on my always available network….really?