Cellphone, Telephone, And Cable Costs Versus Inflation '96-'05

We made a graph comparing the rate of change in price of cable, telephone, and wireless service to inflation rate from 1996-2005.

We expected cable to be far worse, but it’s really wireless whose cost grew at the fastest relative rate . Wonder why this is.

Does it reflect the cost of upgrading and expanding cellphone networks, while the infrastructure for cable and telephones has remained much the same? Or is it simply the price elasticity of demand (more popular = able to charge more)? — BEN POPKEN AND THOMAS MOORE

References:
Raw Data (updated)
Cable Pricing (PDF) [FCC]
Telephone and Wireless Pricing (PDF) [FCC]
Inflation Calculator [Bureau of Labor Statistics]

Comments

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  1. CharlieFogg says:

    I’ve noticed the price for Verizon Wireless’s plans have gone up alot of the last few years. I paid full price for a phone when they told me my plan was no longer offered and the new plan was substantially more expensive. In the long run, it was cheaper than getting a free phone but having a more expensive monthly bill.

  2. Lewis says:

    Depends upon what goes in to the calculation. If the mobile numbers are “all in,” then the $ increase can be attributed to value-added services – particularly text messages and ringtones.

    It is unlikely that the numbers factor in only monthly voice plans, as the average cost per minute (even when indexed for inflation) has been declining since the 1980s.

  3. Bay State Darren says:

    What the hell happened to cell prices in ’97? (Unfortunately they “fixed” it in ’98). BTW, I have no clue how inflation works.

  4. Hedgy2136 says:

    That dip in ’97 has to be an anomoly of some sort. I don’t believe it is accurate.

  5. FLConsumer says:

    You need to compare apples to apples (ie: equivalent rate plans). I know for a fact that US mobile phone calls were more expensive in ’97 than in ’05. I think LewisNYC is correct in saying it’s added services which have driven bills up. Even at that, I’m paying far less for data services on my mobile bill than I did in ’97, and they’re actually usable now.

  6. OnceWasCool says:

    I just love charts like this and I really don’t know why. :)

  7. lhutz34 says:

    The data makes much more sense when you adjust the raw cost numbers for inflation. Landline service dropped 30%, and at the same time, mobile service shot up by about 25%. This makes sense: more and more people are using their mobile phones for long distance and landline replacements, and data plans were nonexistent until recently. What’s interesting is that the typical combined mobile + landline bill is basically flat in real, inflation adjusted dollars, and has actually dropped 4.7% since 1995. So in exchange for spottier service and call quality, we have greater portability overall at slightly less total cost.

    Cable, on the other hand, even adjusted for inflation, is 50% more expensive now than it was in 1995, and grows in a straight line, outpacing inflation every year. Granted, digital cable and HD has something to do with this, but come on. This also confirms the original posters’ gut feeling that cable is a bigger rip off.

    1995 (in 2005 dollars)
    Cable 28.64
    Phone 69.20
    Mobile 58.95
    Phone + Mobile 128.15

    2005
    Cable 43.04
    Phone 48.00
    Mobile 74.00
    Phone + Mobile 122.00

  8. mac-phisto says:

    @LewisNYC: the cost per minute may have declined, but the price of plans has gone up. users used to be able to buy into an “emergency use” contract with 50 minutes or so for $19.99. almost all the carriers have since increased their base plan to $39.99. for those who only use the phone occasionally, their cost per minute has actually increased. i rarely use the phone, so my cost per minute is roughly $1.

  9. Lewis says:

    @mac-phisto: Excellent point. Thus the key question is whether the graph is representative of effective cost-per-minute on the average, or of actual bills.

  10. sr105 says:

    “…a graph charting [services] against the rate of inflation from 1996-2005.”

    This is simply semantic, but no, you didn’t. You compared them. It seems that adjusting each services numbers relative to inflation and then plotting that (sans inflation numbers which would now be a flat line) would be what you described and perhaps a more descriptive graph.

  11. Lebo (in exile) says:

    My wife and I switched to T-Mobile To-Go. Minutes are about $.10 each. We bought our phones out-right for $130, then we put on about $100 worth of minutes on each. It’s been nearly a year and my wife just bought new minutes and I’m about to run out. So it looks like for 2006 our cellphone bill was $420. In 2007, we’ll pay $200. Compare to our old Verizon plan, $100 A MONTH. Cha-ching.

    BONUS: T-Mobile is a GSM carrier. To swich phones we simply have to buy an unlocked or retail T-Mobile phone and drop in our SIM card. And we can do this whenever we want.

  12. Hoss says:

    @lhutz34: Thanks for the data — I was confused by the chart, expecting all the lines to start at zero — good work

  13. KithKanan says:

    @mac-phisto: To some extent, pre-paid wireless has replaced those “light usage” or “emergency” plans.

    I’m using T-Mobile’s prepaid, and so far I’ve spent $250 since Nov of ’05, counting refills, my original phone, and the somewhat better phone I just replaced it with, or about $14.70 a month so far. I’ve used about 60 minutes a month, and I’ve still got 600 minutes that expire in late December unless I refill again.

    If I keep up my current usage, that brings my overall cost down to $9.62 a month including the phones by the time the minutes expire. It’s more flexible than an “emergency” plan, since if I have a month I make a lot of calls I’m still paying the same $.10 a minute and just have to refill earlier.

    Most $20 plans that I remember didn’t come with unlimited nights + weekends or free in-network calling, so the comparison is fairly direct. I do have to budget though, since the per-minute rate is only a good deal if I refill at $100 initially and at least $50 later while I have over 50 minutes remaining (how they figure out your cost per minute after a refill is a little complicated, people have reverse-engineered a formula that seems to work).

  14. FLConsumer says:

    @mac-phisto: That’s what the pre-paid plans are best used for — limited use. It’s still cheaper than the old emergency use/lifeline plans of old.

  15. scottso says:

    If you index all the values vs. their 1995 values, you end up with 2005 indices looking like this:

    Cable: 193
    Telephone: 89
    Mobile: 161
    Inflation: 128

    Not sure that simply plotting year-over-year changes really nail the impact of the increases in the costs of these services.

    Looking at it this way, cable wins!

    (I have the raw data transformed if anyone really, really wants it.)

  16. mrmysterious says:

    @FLConsumer: Hey, the chart is % of increase/decrease per year not the overall cost.

  17. crayonshinobi says:

    Just a point about cable, as lhutz34 mentioned.

    Analog cable prices may have increased as the chart suggests, but analog cable service has also consistently degraded over the past 3-5 years. This has forced customers to buy into more expensive digital bundles in order to maintain the same services they used to get at cheaper rates with analog.

    For example, maybe you could get expanded cable with HBO, and Cinemax for $50 1997 dollars, but now that same package would cost you over $100 2007 dollars not including digital receiver rental fees, etc.

  18. adamwade says:

    This has become an increasingly more common discussion among just about everyone I know, across demographics. My 90-year old neighbor who only has basic-basic (i.e. just broadcast channels) has a bill that rises every month, I have analog cable with Internet, and I have friends that have the whole “digital package” and the story is the same : they’ve got us by the balls, and for many of us the sad choice is that cable is often the best option.

    For instance, I’m a TiVo user. I don’t have an HDTV, and it will be awhile before I upgrade to that and a Series 3 HDTV TiVo. So for right now analog cable is the best choice for me, and the only way to take full advantage of my dual-tuner TiVo. I simply have no interest in what digital cable offers, yet up to 2-3 times in the same WEEK I receive a solicitation in the mail for super-cala-fraga-listic-digi-tainment crap that I just don’t want. I’m happy with my internet, happy with my TiVo, and my analog cable. Yet the cable company seemingly won’t stop harassing me until they’ve upped the price analog cable to the same as digital and force me out. (BTW, the broadcast turnover happening in 2009 will not change analog cable at all, it only affects broadcast signals, so unless you want HDTV quality you will not “need” digital, but they want you to think that.)

    The problem is that the only way out of it is to get a sattilite and DSL. You save a few bucks, but seperate the services and both can be pains in the butt. So that’s why it feels so helpless when the only way to get the same quality of services is to stay with the company with the monopoly. I tell you, I’m starting to think when I get an HDTV I’m just going to get a series 3 TiVo and watch OTA HDTV broadcasts only, and catch everything else on DVD (anything that’s worth watching eventually comes out). I honestly feel violated when I fork over my $100/month, but then again I don’t see a way out of it without making things more difficult than the savings would be worth.

  19. roysim says:

    Slightly off topic:

    That’s a really nice looking graph. Was that made in Office 2007?

  20. tazewell78 says:

    You are playing a bit fast and loose with price elasticity of demand when you break it down to popularity=ability to charge more. Scarcity and substitutability are the key factors, not popularity. Gas prices are inelastic (in the short run) because there are no substitutes if you want to drive your car. The price of coke is relatively elastic because of the presence of pepsi, et al, to swipe your business (unless you are a brand slave).

    The major carriers have similar products (they are mostly substitutable) and similar prices (long term competition reduces margins). Popularity (increased demand) would not necessarily impact profit margin, and would likely cause more entrants into the market. While that may be difficult due to startup costs, etc, someone is always willing to start an MVNO if the price is right. There, my undergraduate degree in economics has been utilized.

  21. anotheranon says:

    Although I’m pretty late to this thread, I’ll add a third possibility to Ben’s suggestions for why the cost of cell phone use has outpaced inflation – a shift in the demand curve. What people get out of their cellphones has improved much more in the time period referenced than the general basket of goods that the CPI is based on. It doesn’t surprise me that the “market” is willing to pay 25% more (in real terms) for modern cellphone capabilities like customizable ringtones, photo and video recording and sharing, games, and text-messaging.