Blog Post

Even without AT&T-Mo, we still have no competition

SIM cards galoreWith AT&T’s(s t) proposed deal to purchase T-Mobile now effectively dead, consumers have won, right? T-Mobile customers that enjoy lower rates have no cause to worry a new owner will raise their monthly bill. AT&T still has plenty of spectrum to roll out its LTE network, so most of the country will have speedy mobile broadband access. And existing T-Mobile subscribers won’t have to buy new phones that work on AT&T’s network.

We still have a pro-carrier situation

However, consumers are no better off than before. I realize that’s a bit of an obvious statement, but the end of the AT&T-Mo situation looks like a potential missed opportunity for consumers to benefit from more carrier competition. Let’s face it: We have four major networks in the U.S. providing voice and data — plus a number of smaller, regional carriers — but unlike most other consumers around the world, we can’t move our phones amongst these networks.

Here’s the problem

Our two GSM networks — AT&T and T-Mobile — use the same network technology and share one of two frequencies for voice, but use completely different frequencies for mobile broadband data services. That’s why the more than one million T-Mobile customers who bought iPhones only get slow Internet speeds on their devices: The iPhone’s radio doesn’t support the 1700 MHz frequency used by T-Mobile. Sprint(s s) and Verizon(s vz) have built CDMA networks that actually use similar frequencies, but the phones are generally locked down for use on one network or the other.

Essentially, we don’t have true competition in the U.S. cellular market. This differs, for example, from Europe where GSM networks are prevalent. Instead of GSM carriers that use different frequencies, they all use the same ones. And there are multiple GSM operators to choose from. This means you can buy a handset from any retail outlet — not just a carrier affiliated store — and buy a SIM card from the operator who has the best price at the moment.

Roadblocks and solutions

I won’t go as far to suggest we need government intervention here. I’d rather see carriers simply stand behind their words and allow for true competition. Perhaps that means AT&T and T-Mobile start offering phones that support data frequencies for both high-speed mobile broadband networks. The Galaxy Nexus I just bought from the U.K., for example, does exactly that. I put a T-Mobile SIM in it yesterday to test their network — quite fast at nearly 9.5 Mbps down — and will swap in an AT&T SIM this weekend. I was able to choose my device first and the carrier second in this case.

Unfortunately, even if all of the GSM phones sold in the U.S. did support both major networks, there’s still the problem of the handsets being locked to one network or the other and how that relates to contracts. Because the carriers often subsidize the price of a smartphone to keep the up-front costs low, it’s not in their interest to pay for part of the hardware only to have the buyer move that hardware to a competitors network.

Talk about bad timing

At this point, both the networks and the technology cycle are changing too quickly for carrier contracts to be 24 months long. T-Mobile doubled its network speeds in 2010 and then again in 2011, for example. In the past 24 months, smartphone processors have jumped from 1 GHz single core processors to 1.2 GHz dual core chips, and we’re on the cusp of seeing quad-core phones. The contract cycle is out of whack with the technology cycle.

I don’t know what the answer is, and to be honest, as I said in the beginning, the situation hasn’t changed for better or for worse, even after the AT&T-Mo deal falling apart. The problem is: I don’t see this issue going away anytime soon. And I don’t believe this market can continue with long-term carrier contracts and phones that can’t be moved from one network to another. My hope is that LTE — which will eventually support voice and data — will help solve the problem, but early indicators signal that even then we won’t see true carrier competition in the U.S.

12 Responses to “Even without AT&T-Mo, we still have no competition”

  1. After reading the headline I thought that you would talk about how T-Mobile’s policies are tightening to converge with AT&T’s, diminishing their position as a low-cost provider.

    I had the unlimited data plan with them, then they made it “Unlimited” with a 10GB threshold for throttling data, then they lowered the threshold to 5GB, and then they offered a new 10GB “Unlimited” plan at a higher price. Sleazy.

    They just cut off the data to my wife’s Android phone a few months after she’d put her SIM into an Android device. Apparently they screen for type of device, and they’re asking her to commit to a year or pay much more for the same plan even though her commitment was up. Kind of undermines the promise of GSM.

    Last year they screwed up my account, then pulled the Verizon trick of secretly adding services I did not request (loss/damage, and another $5/month extra) when I asked them to restore the plan I had.

    I’m a long-time T-Mo customer, have put up with their poor coverage in part because of their integrity and good support, but they’re no longer living up to their reputation, and they’re no longer the honest alternative to the big boys.

  2. As a European moving to America, I’ve experienced all of what Kevin wrote – it was really mind-boggling at first to find out how things work over here. And every time I show my Samsung Captivate (AT&T branded) to someone and the person asks why in the world I’m on AT&T, I explain that I’m using it on T-Mobile, which then leads into a longer discussion, and the person usually perplexed.

  3. What we need to get real competition in wireless service is for the FCC or the DoJ to force carriers to unbundle service and equipment, like they did with wireline phones in the 1980s. There is no reason why manufacturers cannot sell phones that work on all networks, they just don’t have an incentive to do that now, as their phones are mostly tied to a specific network.

    Right now, T-Mobile will charge a lower monthly fee for service if you provide your own phone. This has to happen on all four carriers for real competition to occur, as the subsidy masks the true cost of the equipment. The subsidy is liked by carriers, because it locks in subscribers, and they get back far more than the cost of the subsidy over the life of the 2-year contract; and it’s liked by manufacturers, because most people don’t see the real cost of phones. Please tell me why a phone, with a dual core 1.2 GHz SoC and a 4″ screen, with maybe 1 GB of DRAM and 32 GB of flash, has to cost twice as much as a dual core laptop, with 4 GB of DRAM, a $40 HDD, a 15″ LCD, and much bigger battery? If people knew they were paying $650 for a phone (not to mention an extra $20/month for service after the subsidy has been paid for), they might think twice. Or at least, there would be better deals offered.

    If customers had to buy phones, they would shop around for service, and the prices would drop for both. Why does the FCC allow bundling in wireless service, when it has outlawed it for landlines?

  4. Brian Ward

    Carriers should be out of the phone business altogether. The electric company doesn’t sell appliances, the water company doesn’t sell faucets – and yes, the mobile carriers are equivalent to a utility.

    The phones are high priced because of the fake subsidized prices, which are a marketing tool. If the phones were not ‘subsidized’ then phone makers would have to sell the phones at market prices which would be close to the subsidized prices. Could you imaging anyone spending $600 on a mobile phone with any sort of regularity? Apple phones notwithstanding, eBay and Craigslist are the true measures of market value for these phones and they indicate prices near the ‘subsidized’ prices. Its similar to how mortgages for homes and loans for cars drive up prices for those items. If people had to pay cash for a house or car and loans were not available, the prices for those items would go down significantly because the demand at higher prices would be significantly less.

    Ug – so aggravating in the mobile technology space.

    I really REALLY wish all of the blogs and other mobile technology websites would quit listing the ‘subsidized’ prices and list only the list prices – and quit doing the marketing for the carriers.

    • So is there room for a company that finances pentaband phones for consumers? It would operate like the aircraft leasing companies – buy the phones, then lease them to people for monthly amounts they can handle. It could offer damage/loss insurance, maybe even negotiate app bundles for extra revenue.

    • brown_te

      Kudos to Brian for summarizing the root problem so well. Too bad the carriers couldn’t modularize the radios for the phone. Pick the one you want, and then buy the carrier specific radio.

    • I agree with Brian on many points. If the tech blogs would list the no-contract price of the phones as the price instead of listing the subsidized price, people would have a true cost of the phone. Pentaband 3G, unlocked phones are really worth it when you consider that besides postpaid plans you can also use them with prepaid plans which might save even more.

  5. Kevin – I don’t disagree with your overall premise, but I think your solutions are wanting when you state that the two GSM carriers should offer “phones that support data frequencies for both” without some sort of outside influence. I hate the idea of the government getting involved, but what impetus exists for AT&T (for example) to tell Samsung/HTC/LG etc. that they want their phones to be pentaband? Unless they start building a network that requires the AWS bands, there isn’t a reason for them to make that request.

    As for the contract lengths (and I think an argument can be made about pace of innovation vs. contract term and who that really means something to. Likely a different discussions for a different post though), I would love to see them shorter, but in order to do that, you would have to convince a populace conditioned by decades of subsidized handsets that they need to start spending $400+ on their Androids and iPhones. Tall order, that.