Forget Duopoly – Fear the Quadropoly!

by on September 10, 2008 · 6 comments

Scott Cleland has an unusually even-keeled post today (Where are the bullets and bolding, Scott?!) about how Google undermines its own policy arguments on net neutrality regulation by promoting more sources of broadband – in this case, satellite.

What has always mattered, of course, is getting more broadband platforms up and running. The debate over net neutrality regulation is a sideshow, and probably a detriment to communications progress as it casts a cloud of regulatory uncertainty over the industry. Higher costs, slower rollouts, and lower profits from uncertain regulations probably chills investment in any potential new broadband platform.

But I’m here to tell you, Scott, that even if Google helps put a couple more broadband platforms in place, the goalposts will move.

Today, I came across a letter sent by Senate Antitrust Subcommittee Chairman Herb Kohl (D-WI) asking the four major wireless providers why the price of text messaging has gone up. He says that the price has gone from 10 cents per message sent or received in 2005 to 20 cents on all four carriers.

My experience is different: unlimited text messaging, email, Web browsing, and IM for $20/month – and this price hasn’t changed in the several years I’ve been on this plan. Oh, but – sorry – I interrupted Senator Kohl from losing sleep on my behalf:

What is particularly alarming about this industry-wide rate increase is that it does not appear to be justified by rising costs in delivering text messages. Text messaging files are very small, as the size of text messages are generally limited to 160 characters per message and therefore cost carriers very little to transmit. Text messaging files are a fraction of the size of e-mails or music downloads.

This is helpful info, but I think his recipients probably already knew this. It almost kinda looks like he was writing this for a non-technical audience of, say, . . . reporters?

Also of concern is that it appears that each of companies has changed the price for text messaging at nearly the same time, with identical price increases. This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace.

Amen! And have you noticed how gas stations, airlines, grocery stores, electronics retailers, and every other merchant seem to match each others’ prices – at nearly the same time? This is definitely evidence of a lack of price competition. On Neptune on a Tuesday.

Anyway, there you go. A quadropoly is prima facie evidence of lacking competition.

Too bad Senator Kohl’s letter couldn’t be as good on economics as it is on explaining what a text message is. There are dozens of reasons why the price of (individually priced) text messages might have gone up over the last few years even in the face of overall competition.

One might be low elasticity of demand. It would be hilarious if one of the recipients of this letter responded pointing that out:

. . . and what we have found in our research that a relevant part of our customer base doesn’t care one whit what they pay for text messaging. Heck, we don’t think they even read their bills! They’re rich – what can we do? In a price-sensitivity environment like that, we felt we were compelled to increase prices and capture the surplus for our shareholders. (We were unable to do this with the market segments that moved to all-you-can-eat pricing, of course.) . . .

These are never decisions we take lightly, Senator, and we hope that you can sympathize even though your retail-chain-store fortune was made by pricing everything you sold at its cost to you. . . .

But again, there are endless reasons why individual-unit text message prices might go up. Rather than quadropoly being evidence of lacking competition, it is the point at which there is no plausible argument that competition lacks.

  • Scott Cleland

    Well said …even if it could have used some bullets and bolding :)

  • http://pobox.com/~adamm Adam Marcus

    Someone should point out to Senator Kohl that (at least in the case of Verizon), if the carrier raises its rates, it can be characterized as having an adverse effect on the customer which gives the customer the right to terminate their contract without an Early Termination Fee. This has been done successfully not [url=http://consumerist.com/consumer/readers/script-for-escaping-verizon-contracts-without-fee-based-on-text-message-rate-raises-234164.php]once[/url] but [url=http://crastinate.com/2008/07/27/video-tutorial-how-to-get-out-of-your-verizon-contract-without-an-early-termination-fee/]twice[/url]) in the past year. This alone wont solve the problem of collusion (if that is the case), but if enough customers jump ship when a carrier raises its rates, it may be enough.

  • bradencox

    Perhaps this is another reason for increase?:

    As more people have unlimited or at least a base package of text messages included within their monthly subscription, there's less people on a la carte text messaging. The billing operations required to track and bill each message is a fixed cost, and the smaller the people on the a la carte system the higher the cost per message for a company's a la carte billing ops.

  • bradencox

    Perhaps this is another reason for increase?:

    As more people have unlimited or at least a base package of text messages included within their monthly subscription, there's less people on a la carte text messaging. The billing operations required to track and bill each message is a fixed cost, and the smaller the people on the a la carte system the higher the cost per message for a company's a la carte billing ops.

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