Gouged: More Money for Less Service


via pfollansbee.files.wordpress.com

AT&T recently announced that it will be moving it's phone upgrade date from 20 months to 24 months. This means, in essence, that if you want to upgrade your phone, you'll have to wait until you've reached your end of contract date in order to get another subsidized phone. This should sound familiar to you, given that Verizon changed their policy almost exactly two months ago in the same way, which should again sound familiar to you because they did the same thing two years prior (only moving from 12-month upgrades to 20-month upgrades).

This echoes Verizon's similarly consumer-unfriendly decision in 2009 change to raise the early termination fee from $175 to $350, which was followed up six months later by AT&T (in grand consumer-friendly fashion, AT&T only raised theirs to $325), and Verizon's decision to kill unlimited data plans shortly after AT&T killed unlimited data plans.

"How can companies continue to charge the same amount (or even more) for less service?"

This has left me wondering, "How can companies continue to charge the same amount (or even more) for less service?" To which the answer is, "There is an oligopoly in wireless service providers, and they can charge basically whatever they want." To explain, an oligopoly is a market that has only a few large players. Because there are only a few players, price and service collusion (basically, matching pricing and service relative to your few competitors) is common. Markets in which many large service providers exist would typically remove this inefficiency by competing.

Wireless service is particularly frustrating for someone like me, because I have no other way to make phone calls. I've basically never had a home phone as an adult, and as such, I need my phone to be reliable. I'm not alone either, it seems that over a third of households were wireless only at the end of 2012, more than double what it was in 2007.

This has left me with two choices for wireless service: AT&T or Verizon. This "choice" is how this oligopoly has thrived. Verizon and AT&T have realized that they are free to extort their customers for increasing amounts of money while offering less service as long as they do it in tandem. After all, what is their incentive to compete? The FCC has largely stayed out of their way under Genekowski, and the vast majority of consumers have been mum each time these policies change. So, the bottom line is, if we continue to sit idly by as services are eroded and prices are raised, this will continue. After all, what choice do we have?