Blog Post

Thanks to telecom oligopolies, it’s always raining in the cloud

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

There are plenty of ways to become outraged about the state of affairs in global communications, but one of the easiest is to travel to a foreign country and try to use your smartphone like a normal person — in other words, check your location on a map, get your email, send text messages, take photos and upload them, check into location apps, and so on. Depending on your carrier, the penalty for doing so ranges from serious inconvenience to something that resembles being mugged in a dark alley. In order to avoid this, you have to act like a criminal yourself by hacking your phone, or pay even more fees so you can get around using your carrier’s network. Welcome to the telecom industry’s version of the cloud, where it’s always raining.

Traveling to the United States from Canada (where I live) is bad enough, unless you have a special plan from your carrier that charges you only slightly more than the usual excessive rates. But going to Europe — which I did for GigaOM’s recent Structure: Europe conference in Amsterdam — makes even that look like a day at the beach. The typical carrier plan for international travel is almost ridiculously expensive for even trivial behavior, and if you want to make use of virtually any cloud-based services, even long-established ones like email or messaging, you will pay rates that make the old days of feudal servitude to the king seem like a vacation.

A monthly data package lasted less than an hour

To give just one example, I did what I thought I was supposed to do when I landed in Amsterdam: I bought a $50 “international data pack” from my carrier on my phone, a package that was supposed to include enough bandwidth to last me a month. I assumed this would be more than enough, because I was only going to be in Amsterdam for a week. In reality, I used the entire package in less than an hour — in fact, it wasn’t even enough to get me from the airport to my hotel, which is a half-hour trip. In that time, I checked email several times, looked at Google Maps to check my location (and find the hotel) and checked Twitter once.

In other words, I did things that any traveler might do. I didn’t download any HD movies or use my phone as a wireless hotspot or anything out of the ordinary. Based on that estimate, my week in Amsterdam could easily have cost me thousands of dollars, for something approaching my natural usage of cloud services. In fact, I actually wound up getting lost trying to find the hotel, in part because I was afraid to check Google Maps again. And so, telecom companies have succeeded in the kind of behavior modification usually done with animals: an electric shock is applied for any unwanted activity, to the point where you simply choose not do it.

In the end, I borrowed an unlocked phone from a friend (since my carrier doesn’t let me unlock my phone before the end of my contract without a penalty) and bought a local SIM card. That card gave me 15 times as much data as my own carrier did, for less than half the price. I should note that this is a provider I have been with for more than a decade, whom I pay monthly for a range of services including cable TV, broadband internet, five cellphones and a home VOIP service — and a complete stranger in an airport halfway around the world gave me 15 times the data for half the price my provider was prepared to.

And it’s not just me and my Canadian phone company. While at Structure, I spoke with a man who has been an advisor to some of the largest phone companies in the world, and he admitted that after his last trip abroad, he got a bill for more than 3,000 Euros — and he confessed that he had absolutely no idea what those charges were for. He had turned off all of his data-using apps, the ones which upload user information automatically to the cloud (Runkeeper, Apple’s Photostream, etc.) and tried to avoid doing anything like using maps. And yet, he was being asked to pay 20 times what a normal monthly cellphone plan would cost.

Market control results in economic rent

Why do we put up with this kind of thing? The simple answer is that we have no choice. In most cases, users get to choose between one or two — or possibly three — carriers, all of whom charge roughly the same for their services, especially for things like data roaming and text messaging. This is what is known as a cartel, or at the very least an oligopoly. And the reason why these companies charge thousands of times as much as it actually costs to transmit a megabyte of data is also simple: because they can.

Telecom carriers have lots of easy explanations for this kind of thing: foreign roaming agreements are expensive, they have to offset their investment in new technology, they need to subsidize handsets, and so on. But the reality is that they have virtually zero incentive to charge lower prices — they already control enough of the market to dictate terms. In order to provide cable and telephone service early on, many governments essentially gave carriers the future on a silver platter, and now there is no way around them. Like a feudal lord, the carriers served the king faithfully and now get to reap the benefits in perpetuity.

This is known as “economic rent” — meaning he who controls the market gets to set the rent. And in an age when web-based services have become such a huge part of our lives, there is an inevitable clash between our desire to use things like maps, email, text messaging and social networks and the carriers’ desire to continue making the kind of profit margins they have grown used to. And consumers are trapped in the middle.

Post and thumbnail images courtesy of Flickr user Alexander Vaughan

14 Responses to “Thanks to telecom oligopolies, it’s always raining in the cloud”

  1. For travel, buy a Samsung Duos unlocked Android phone on eBay. A choice of two models: one touchscreen, one keyboard (BB clone). Two SIM slots, one for your home SIM, one for the local SIM which in many countries receives free incoming calls. Forward your home SIM to a VOIP provider that can forward to your local SIM. You’ll pay “normal” LD costs for the call to the foreign SIM. Many VOIP providers provide callback services, which allow you to place a call from the foreign SIM while using it in receive-only mode.

    For countries that block VOIP (e.g. Middle East), use a UMA WiFi phone which includes native IPSEC encryption, e.g. old UMA-capable Blackberries. A T-mobile USA prepaid SIM costs $2/day for unlimited talk via UMA wifi.

  2. Matt, I went the other way – US to Canada – this summer and also went over the 250MB data limit (allegedly) – in 5 days. I called and complained and asked for a listing of the sites I’d hit and amount of data up/down-loaded from each. My provider couldn’t come up with a detailed list so that, coupled with the fact that I’m a longstanding customer, got me out of paying that. Then there was the ‘$12 ‘fee’ for signing up in the middle of a billing cycle’ – got out of that because it wasn’t divulged when I ordered. A miserable experience. On my Oct trip to Shanghai, just used wi-fi – and there’s not a lot, especially as you get away from the center of the city. Ridiculous.

  3. Rich Osman

    Roaming rates are nuts. Prepaid is better, and usually they will take the hotel address on the application. On a trip to Germany a few months ago I grabbed a prepaid card at an Aldi Grocery store. About 35€ for 3 gig of data and a few hours of calls. Prepaid is usually a much better deal for travelers, especially in country. The advance purchase SIMs are usually a poor deal.

  4. As others mention here, the subsidized phone is a convenience for the carrier, not for the consumer. An unlocked phone, or even better an unlocked dual-sim phone is much better for the frequent traveler. Knowing in advance that roaming rates are ridiculous will make the decision of what you will do and how you will do it easier.

  5. Christopher William Crawley

    WE are the only solution,and we push towards a 2013 launch date, remember market competition will lower products and services prices and then after the dog eat dog scenario plays out we will all win ,they wont have a choice,it will happen ALL OVER ALL markets with our revolutionary business model soon,what then hehe~CWC

  6. People who travel don’t buy locked subsidized phones from their carriers. They buy phones in stores for the full price. It pays for itself in days on the first trip. Then get to the habit of buying a local SIM card as soon as you collect your luggage at the airport. Sorted. And yes, get a cheapo phone on eBay, to which you stick you home SIM card, so that you could see that somebody called you and could get back to them from the the primary phone via, say, Skype-to-phone.

    • sanjivkh

      Fair warning though, if you put your home sim in a phone and register it to the international roaming carrier, then some carriers will charge you roaming, even if you dont answer the call or let it go to voice mail. In “theory” they signaled the international call to you and probably the voicemail indication too…

      I would recommend using a cheap or free voip number as your permanent main number and then forward to whatever device you want to receive calls on… Google voice is great if you live in the US or can use a proxy for the signup…

  7. Thanks for the heads up. In my next visit to Europe I’ll do things the old fashion way and turn of my smartphone and use a print out in case wi-fi isn’t available.

  8. Brian. Sharwood

    I recently moved over to one of our new providers and with that got about unlocked Android phone. I have recently been on a few foreign trip and just bought sim cards while there. I was in Spain about 8 months ago and paid about $30 for and entire week of unlimited data. Right now I am in China and have had exceptional and inexpensive service. In Hong Kong I paid about $10 for a week of service including the sim card. In Mainland china I bought a card through china unicom for about $30. I am not exactly sure how much I bought because of the language barrier but it’s been 12 days of heavy use and still hasn’t run out.

    That’s really the solution to extortionate local pricing. You need your own device, and just buy on your own. In most countries there are lots of folks who are happy to sell more service than we get in a month for a fraction of the price we pay.

  9. Karl Snow

    It is possible to “use your number abroad” and be possible for others to reach you through your number and not get “robbed” at the same time.
    Forward your real number to a VOIP number which is cheap to call international. Then forward that number to a prepaid SIM card you buy in the country you are staying. Yes it is complicated for just a short trip, but for longer stays or frequent flyers it really pays.

    Telecoms should be sued by their customers, or best move your money from them overt to the VOIP companies.

  10. Karl Snow

    Buy a preepaid datacard and use MiFi (Novatelwireless). Connect your locked phone to it by WiFi and use VOIP for calling.
    We who travel a lot between different countries us unlocked phones and use local prepaid SIM cards for calling and data, f ex I would never use my countries SIM card in the USA, that’s would be total robbery in daylight. Like having holes in your wallet for the telecoms to suck from it whatever they want.

  11. The last few times I went to Europe I simply turned of the mobile and relied on WiFi; it’s quite pervasive in hotels, airports, etc. (even if you have to pay a “daily” rate for some locations it’s a lot cheaper). Or you can find a service like Truphone who offers SIM’s for international roaming. But then again, your phone was locked from using other SIM’s.

    But roaming is the last bastion of the wireless carriers; because it involves international transactions there really is no regulatory authority. However, the EU recently put some form of limitations on roaming charges – at least within the EU.

  12. Captain BT

    Sadly the “roaming ripoff” provides most of the profits for each operator. If roaming charges were at the same level as domestic usage, then domestic usage would need to be priced much higher to compensate and provide the same level of profits. Thank goodness that the EU is driving for competition in the roaming space, unfortunately the ripoff for non-european roamers will likely continue… Its not going to help all the time but using wi-fi hotspots can sometimes ease the pain… especially the free hotspots.