Wal-Mart is often cast as a villain by some labor unions, local politicians and small retailers, but for the average consumer Wal-Mart has been a savior: A relentless price-cutting machine that instantly changes the dynamics of every market it touches. Indeed, when Wal-Mart decides to jump into a sector by offering a new good or service in its stores, something akin to “the Southwest effect” on steroids kicks in: That market segment is often transformed overnight in that the good or service Wal-Mart starts delivering is essentially instantly commoditized. For the seller of that good or service, this is both a blessing and a curse: They gain the massive market reach that goes along with being in Wal-Mart’s 8,000 retail stores. On the other hand, they instantly surrender any semblance of pricing power they once had. And this typically also puts downward pressure on prices not just for the particular good carried in the Wal-Mart stores, but for that entire market segment more generally. [This exact scenario is currently playing out in the book marketplace as Wal-Mart has gone to war with Amazon in cost-cutting bonanza.]
The reason I bring all this up is because, as most of you probably already heard, Wal-Mart jumped into the prepaid cell phone business this week with the launch of Straight Talk:
a new solution in no-contract cellular, exclusively at more than 3,200 Walmart stores nationwide starting October 18, 2009. Straight Talk will bring to the market a new low price for no-contract wireless service with two prepaid plans now available to customers nationwide at $30 and $45 a month. Straight Talk will only be available in Walmart stores and online at www.Walmart.com and www.StraightTalk.com. The average U.S. adult spends $78 on his or her cell phone bill to receive 1000 minutes a month. By switching to the $30 Straight Talk plan, for example, the average 1,000 minutes-per-month consumer could save more than $500 per year and still be on a reliable nationwide network.
I don’t want to overplay the significance of this development, but I really do believe that Wal-Mart’s presence in this field is significant, at least for entry-level mobile phones. While it would be easy for those of us who use more advanced smartphones to shrug off the Wal-Mart announcement, it would be a mistake for reasons made clear by David Worthington over at Technologizer: Continue reading →
In a week in which neutrality regulation is making a lot of news, I hope that Robert Hahn and Hal Singer’s terrific new study, “Why the iPhone Won’t Last Forever and What the Government Should Do to Promote its Successor” gets some attention. It provides a wonderful overview of how dynamically competitive the mobile marketplace has been over the past two decades and why critics are wrong to get worked up about the short-term “dominance” of Apple’s iPhone. Here’s the abstract of their paper:
Because of the overwhelming, positive response to the iPhone as compared to other smart phones, exclusive agreements between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. In this paper, we document the myriad revolutions that have occurred in the mobile handset market over the past twenty years. Although casual observers have often claimed that a particular innovation was here to stay, they commonly are proven wrong by unforeseen developments in this fast-changing marketplace. We argue that exclusive agreements can play an important role in helping to ensure that another must-have device will soon come along that will supplant the iPhone, and generate large benefits for consumers. These agreements, which encourage risk taking, increase choice, and frequently lower prices, should be applauded by the government. In contrast, government regulation that would require forced sharing of a successful break-through technology is likely to stifle innovation and hurt consumer welfare.
“New technologies often seemingly emerge from nowhere, but also frequently lose their luster quickly,” Hahn and Singer go on to argue. As evidence they cite the recent examples of Second Life and MySpace, which were hyped as potentially become dominant providers in their respective areas just a few years ago, but now are subjected to intense competition. “[T]he the mobile handset market is subject to these same disruptive forces,” they argue: Continue reading →
Yesterday up on Capitol Hill, I hosted a very interesting discussion about “Next-Generation Parental Controls & Child Safety Efforts.” I thought I’d provide a quick recap here for those who couldn’t attend. [Note: audio of the event will be up shortly at the link above and transcript is in the works.] The event featured Steve Crown, Vice President and Deputy General Counsel of Microsoft Corporation’s Entertainment & Devices Division; Dane Snowden, Vice President of External & State Affairs of CTIA – The Wireless Association; and Stephen Balkam, Chief Executive Officer of Family Online Safety Institute.
Steve Crown of Microsoft kicked the show off with a terrific overview of some the current and next-generation parental control tools and awareness efforts that Microsoft is deploying to help empower parents and keep kids safer both online and in gaming environments. Crown outlined Microsoft’s 5-prong strategy regarding how they have approached these issues on the gaming front, and I think it represents an excellent model of how sensible industry self-regulation and “best practices” can go a long way toward addressing concerns that many parents and policymakers have. The five strategies Crown outlined were: (1) Respect both the freedom of game creators and freedom of choice for game consumers; (2) empower parents with ratings, tools, and information; (3) use independent ratings (like the ESRB) to label content; (4) require all games be rated before they can be used on a platform so that parents can implement blocking controls; and (5) respect regional laws and rating systems in different parts of the globe.
In my book on
Parental Controls & Online Child Safety: A Survey of Tools & Methods, I’ve documented many of the empowerment tools that Microsoft has deployed in recent years to make this empowerment vision a reality. One of the most important things MS does on its XBox 360 console is to provide an immediate “out-of-the-box” prompt for parents to set up parental controls and establish other limitations on online chat, spending, or Internet access. Microsoft announced another cool new feature in November 2007, the “Family Timer.” It lets parents limit how and when children play games on the console. This is similar to the time management tools Microsoft offers in its Vista operating system for PCs. Incidentally, my wife has asked me to start using the Family Timer on our XBox — not for our kids, but for me! This particular 40-year-old man is still a big kid at heart.
Continue reading →
Last summer, my PFF colleague Barbara Esbin and I explained that, while many consumers dislike not being able to get popular smartphones like the iPhone on the wireless network of their choice, such exclusive deals actually benefit consumers. Barbara summarizes her testimony (PDF) as follows:
the dynamic created by the exclusive arrangement between Apple and AT&T that produced the iPhone allowed the two companies to bridge the gap between the technologies of today and the disruptive innovations of tomorrow. Moreover, it is undeniable that the breakthrough success of the iPhone has spurred a wave of competitors. If every wireless carrier had been able to sell the iPhone when it was initially released, I noted, it seems unlikely there would have been as much carrier support for developing competing products like the Google G1, RIM Blackberry Storm, Samsung Instinct or Palm Pre.
In a new
PFF
essay, my colleague Barbara Esbin and I address a recent petition filed by the Rural Cellular Association (RCA) asking the FCC to prohibit exclusive arrangements between wireless handset producers and carriers. The RCA petition claims that large wireless companies have an unfair market advantage by giving their customers exclusive access to certain advanced smart phones, such as the Apple/AT&T iPhone—and that this anticompetitive practice is harmful to rural consumers served by RCA members.
In the piece, we debunk RCA’s arguments premised on a supposed lack of competition in wireless markets. RCA will likely now redouble these arguments by pointing to Verizon’s planned acquisition of Alltel (by far the smallest of the “Big 5” carriers), which was announced the day our piece was published. But even with four large carriers instead of five, the wireless market remains vibrantly competitive—especially as compared to 1992, when the FCC decided that even the two-carrier market was “extremely competitive,” and rejecting arguments that it ban exclusive handset arrangements. Continue reading →
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