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Why cell phone plans are so expensive

By Tristan Rayner

Espenservik

Cell phone plans are a constant payment we make each and every month. But have you ever thought about exactly what you are paying for? Of course, we pay to be connected, talk whenever we want, send texts, and stream music as we ride the bus. That’s the end result. But what’s the cost for all this? One problem here is that plan costs haven’t changed significantly across the decades, even as technology has rapidly advanced. We keep paying, each and every month.

Why do we pay so much?

First, let’s look at what Americans get in their plans to understand the grand scheme of the market.

What’s in a bill

Comparing cell phone plans is not easy. It’s intentionally hard to prevent fast comparisons to stop churn. There’s always a monthly cost, but add in pre-paid vs post-paid, upfront fees, extra lines, extra taxes, bonus extras you may or may not use, capping vs throttling, limited “unlimited plans” … the list goes on.

At just a high-level, here’s the big four carriers and their unlimited minutes/texts plans, both pre-paid and post-paid:

Carrier Price Data Minutes/Texts
AT&T (Unlimited Choice Plan) $60 Unlimited Unlimited
AT&T (Prepaid) $30 1GB Unlimited
Verizon (S Plan) $35 2GB Unlimited
Verizon (Prepaid) $40 3GB Unlimited
Sprint (Unlimited Freedom Plan) $50 Unlimited Unlimited
Sprint (Prepaid) $40 2GB Unlimited
T-Mobile (One Unlimited Plan) $70 Unlimited Unlimited
T-Mobile (Prepaid) $45 4GB Unlimited

A broad average cost here is around $45 a month, which gives around 4GB of high-speed LTE data. Now let’s take a look internationally.

International rates

The USA is one of the more expensive countries for cell phone services. In a double blow, US carriers also rate poorly based on availability and speed when compared internationally.

Finland is at the top of the tree: cheap, fast, and service everywhere. 30 Euro or $35 gets you unlimited data, minutes and texts with more than three separate carriers, along with texts and minutes on high-quality, 4G LTE networks that cover 98 per cent of the nation.

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Brief background
Unless you’ve been living …

It’s impressive, especially for Finland, one of Europe’s least populated and lowest density countries with about 5.5 million inhabitants, or 16 inhabitants per square kilometer. The USA stands at around double that, with 35 inhabitants per square kilometer.

The UK is much closer to the US, where Vodafone (UK) costs around $37 for 4GB of high-speed data with unlimited calls and texts. In France expect to pay a carrier like Orange around $28 for 2GB of data, with unlimited minutes and texts for good speeds and availability. Japan is quality but more restrictive – signing you up for 24-month contracts. $55 with Softbank will get you unlimited data.

All in all, despite the USA’s giant market and what is being paid, it compares poorly on the international scene.

USA: Market size

Remember, the average is around $45 per month per person. A single big city – say, Los Angeles, with just under four million people – has a wireless cellular market alone worth more than $3.5 billion annually.

At the scale of a country like the United States, where the number of cellphones easily exceeds the population, those numbers start to get significant. The wireless market nationwide is more than $265 billion per year, and expected to clear $300 billion by 2021.

Where does all the money go? What are the major costs we’re paying?

Where does all the money go?

Spectrum licenses

Broadcasting out and receiving radio wave transmissions is highly regulated across the globe, and the USA is no different. The spectrum is finite. It’s also the lifeblood of the wireless industry, and hugely valuable.

Since 1994, the Federal Communications Commission (FCC) has conducted 87 auctions of licenses for electromagnetic spectrum which raised over $60 billion for US Treasury. The auctions are a mix of new spectrum being opened and repurposing existing licenses – such as in 2007, when the FCC killed off analog TV broadcasting to open up the 700MHz spectrum for sale.

Rights can be traded and companies that hold valuable rights are often acquired – Verizon recently beat out AT&T to buy Straight Path, a company that owned high-frequency radio waves, useful for the future 5G network. There are companies devoted to tracking spectrum movements and ownership, with more than 1900 individual licensees.

Scratch the surface and things get complicated, so let’s take a quick look at what goes on.
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The spectrum auction

Competition for spectrum is fierce, yet it doesn’t always sell – the FCC can impose tough restrictions or conditions on its use.

The spectrum on offer in any auction is sold in blocks, or chunks of the spectrum, city-by-city or nationwide. In the 2007 700 MHz auction for instance, the FCC gave out a helpful map of the spectrum for sale. The yellow blocks were already sold, with the white blocks for sale in this round:

Daily Wireless

The FCC required the winning bidder of the ‘C’ Block, which had the most bandwidth on two nationwide 11 MHz chunks, to comply with ‘open platform’ conditions. It was eventually purchased by Verizon, with Google understood to have been participating in the auction as well. Verizon later re-sold this to T-Mobile. ‘D’ Block, which offered two 5 MHz sections, required public safety priority access and failed to sell.

In 2017, the 600 MHz spectrum was auctioned, a particularly valuable part of the spectrum for cell carriers, as the frequency of the waves can penetrate walls. In April, the FCC released results of that 600 MHz auction, with T-Mobile the largest bidder for nationwide low-band spectrum, with other …read more

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