Wednesday, July 07, 2010


Competition in mobile phone service

We’ve had a long-standing problem in the U.S., wherein several incompatible mobile networks developed in parallel. The direct result of that was that phones designed for use on AT&T’s network, which used a technology called TDMA, would not work on Sprint’s CDMA network. Neither would work with Nextel’s iDEN network, nor would any of those work with GSM, which T-Mobile used.[1]

The technology issue has eased, with the merging of companies and the development and deployment of 3G networks, and with the ability to pack more radios into a single phone and still have reasonable cost and battery life. It’s possible, now, to have a phone that will function with any U.S. provider.

The providers, though, generally block that, through a locking process, an indirect result of the original situation. When you set yourself up with a Verizon or Sprint or AT&T or T-Mobile phone in the U.S., that phone is generally digitally locked, using cryptographic keys, to the provider you got it from. The carriers use this as a mechanism to keep customers: if you leave, you can’t take your phone with you. Along with the service contract termination fees, the cost of changing phones — in terms of the money you have to spend, but also in terms of loss of features and favourite applications, and the hassle of getting used to using a new phone — deters users from switching.

None of this applies to Europe, which settled on the GSM technology early on. The European Union doesn’t allow locking, and providers have to keep their customers and differentiate their service in other ways. The nice thing, then, is that your European phone will work anywhere in Europe, on any provider. And mobile towers don’t need to be set up with different technologies, supporting different frequencies, and so on.

But there’s still a barrier, one which exists in both the U.S. and Europe: roaming charges. Those are per-minute fees that your provider charges when you use another provider’s network. In the U.S., you pay those fees if you have, say, T-Mobile service, and you go to an area that’s served by AT&T but not by T-Mobile. Use your phone there, on the AT&T network, and you pay a high charge for every minute you use, even though you thought you were making one of your unlimited weekends calls, or were well within the minutes per month that are included in your plan.

In Europe, the roaming charges generally hit when you go from one country to another, even when you stay on the same provider, because the companies are legally separate. And because going from one EU country to another is often rather like going from one U.S. state to another, the charges can sneak up, if one isn’t careful. Imagine being in New York, and having to pay 40 cents a minute to make a call when you go into New Jersey, Connecticut, Massachusetts, or Pennsylvania.

In an attempt to mitigate this to some extent, at least, the EU has regulations that put limits on how much the companies are allowed to charge for roaming. The caps are still pretty high — 43 cents per minute, in euros (about 54 cents U.S.), for outgoing calls, for example — but at least they’re something. And, of course, the companies don’t need to charge the full legal maximum.

Well, the European Commission, the EU’s legislative body, has just released a report on the rates the companies are actually charging. Surprise! It turns out that they are charging close to the legal limit:

Three years since the rules came in, most operators propose retail prices that hover around the maximum legal caps, the Union’s commissioner for telecommunications, Neelie Kroes, said in a statement. More competition on the E.U. roaming market would provide better choice and even better rates to consumers.

When you tell a company how much it may charge, it will often wind up charging as much as it may. And the problem is that most customers won’t choose their provider based on the roaming charges. Customers who frequently make calls from countries other than their home one will, but the great majority select on other factors. And even those who frequently travel have workarounds they can put in place, such as using pre-paid local service while they’re in the other country.

More competition isn’t sufficient to fix this, unless Ms Kroes has some plan for assuring that the competition addresses the roaming issue, specifically.

We’re quite spoiled in the U.S., in this regard. Many of us are used to service plans that cover our usage with no extra fees. We’re used to travelling over an enormous area without worrying about charges. On the other hand, our providers’ abuses come in terms of locked phones, multi-year service contracts, and insane early-termination fees. If you move into an area that’s poorly served by your old provider, with a year left on your contract, it may cost you hundreds of dollars extra to switch to a service that works well in your new area.

It just goes to show you: it’s always something.

[1] This is a bit of an oversimplification: iDEN and GSM use TDMA underneath, but in ways incompatible with each other and with AT&T’s use of it. The network details are beyond the scope of this post, and their mutual incompatibility is the salient point here.

1 comment:

HRH said...

>We’re quite spoiled in the U.S., in this regard….

Speaking of being spoiled, where I live, the government offers many subsidies, one being the cost of mobile network usage. Of course there are limits, there are people who have a $200 cell phone bill monthly, however if one limits the usage to a reasonable extent, it barley cost anything. My usage of a cell phone, on average, is limited to 7 minutes daily and my bill comes to $3.50 to $5 per month, including all taxes and surcharges charges. The incoming calls are Free and there are no phone locking. The government is the only mobile network provider in the country, but the astonishing point about it, is the (next to nothing) roaming charges, if one place a call away from the home base? Is not like other networks are involved to make the call to happen!