In Defense of $5,000/MB
“AT&T is dead.”
Well, it’s not dead, but the Wall Street Journal claims that we should be making plans for the funeral. According to the WSJ, AT&T is holding onto an obsolete, monolithic business model that is neither supportive of their customer nor fostering of technological advances. The chief complaint: the extremely high cost of wireless data transmissions.
As an iPhone user, I know how much AT&T is charging. And while my service uptime is pretty good, the cost is the same as my home internet plan, which is faster and not capped.
What if, however, those costs are not too high after all. Wireless data does not fall under public utilities per se, but it does represent the fastest growing segment of both internet access and mobile communications traffic. Both the lack of competition and consolidation of the market have attracted the attention of the Congress and antitrust regulators. For regulators and consumers alike, the question becomes, “are we getting what we pay for?”
The costs associated with wireless data are extraordinary, especially in comparison to traditional broadband access and to the cost of wireless voice traffic. Wireless data networks are still relatively young compared to the more developed infrastructure that supports other forms of broadband access, such as DSL and Cable. As the networks improve, so must the equipment. The upcoming LTE rollout is going to be very expensive for all parties involved, and those costs must be borne by someone.
Of course, it’s hard to defend the 20¢/SMS charge, especially given that the SMS gets a free ride in the carrier packet anyway. Charging high rates for wireless data overall, is rational given the costs involved.
Economics being what it is, though, those costs should be coming down. As the user base expands, wireless carriers should be able to . I do not have data to back this claim, but I suspect that the marginal costs of adding additional users is very low. This should drive down average costs and, in theory, allow prices to fall.
Instead of responding to market forces, however, AT&T may be approaching the problem another way. If, as the WSJ seems to suggest, AT&T is subsidizing their other networks through their wireless carrier fees, then the end is indeed nigh for Ma Bell.
