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Thursday, June 01, 2017

How America Could Save $65 Billion in Mobile Phone Bills

Tim Taylor:

How America Could Save $65 Billion in Mobile Phone Bills: It is a fact of nature that all countries have the same electromagnetic spectrum of radio frequencies. It is a fact of politics that countries have different rules for allocating these frequencies. And it is a fact of economics that people in different countries pay very different rates for their use of spectrum. Mara Faccio and Luigi Zingales ask: "Why does the price of the same basket of mobile phone services vary around the world from $10.07 to $47.25? Why does the price of a 1GB mobile-broadband internet plan vary from $11.24 to $100.28?" They investigate the question in a January 2017 working paper "Political Determinants of Competition in the MobileTelecommunication Industry"...  For those who prefer to get their economics via cartoon, the most recent issue of the Chicago Booth Review has you covered with on this topic.

Countries can affect the competitive situation of telecommunications industries in many ways, including the rules that govern entry, the extent of price regulation, whether phone numbers are easily portable when shifting between carriers, whether voice-over-internet calls are permitted, and so on. These rules vary substantially across countries. ...
The ... authors ... argue that the relatively small differences in quality cannot explain the relatively large differences in prices paid by consumers; indeed, the higher prices paid by consumers help to explain the high stock prices for major US carriers like AT&T, Verizon, T-Mobile, and Sprint. In looking at their overall data set, the authors write: "We test this hypothesis and we find no evidence that a higher degree of competition leads to lower quality of service or less investments. If anything, the results go in the opposite direction."

In the United States, the Federal Communications Commission just completed in March 2017 its first "incentive" auction, in which the broadcast TV companies that were allocated huge chunks of spectrum decades ago, but now deliver most of their content via cables, have an chance to sell off that spectrum to mobile services. As the FCC writes: "In the auction, TV broadcasters could voluntarily give up their current broadcast channel in exchange for a share of the proceeds from an auction of their channel to commercial wireless service providers to provide expanded mobile broadband services." This is a step in the right direction. But American consumers have every reason to keep comparing their mobile bills to those in Germany, Denmark, and elsewhere, and to get an answer from their government on why the electromagnetic spectrum that is naturally available everywhere should cost more in the United States.

    Posted by on Thursday, June 1, 2017 at 10:02 AM in Economics, Market Failure | Permalink  Comments (21)


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