Verizon, AT&T, and their regulated cohorts love to blab how the “free market” and “competition” will keep prices low for consumers. According to California, it’s a big fat expensive lie. The cost of basic phone service has soared since the Public Utilities Commission lifted price controls in 2006, leading the agency to conclude:
“There is no indication of any change in the near future regarding the current state of competition. Market forces have not yet met the challenge of controlling price increases.”
Here are just a few of the ways competition has benefited consumers:
- AT&T no longer lets you make five free 411 calls per month. Now it costs $1.50 for local numbers and $1.99 for all others.
- Verizon won’t let you make four free 411 inquiries anymore. Now they charge $0.95 for local listings and $1.50 for all others.
- AT&T boosted the price of daytime calls by 34%, evening calls by 93%, and nights and weekend calls by 233%
- Call waiting is now 86% more expensive.
- Keeping your name out of the phonebook now costs 346% more.
AT&T defended their thievery by cryptically uttering: “The marketplace changes and you have to change your offerings.” Ohhhh, sure, we see. These “marketplace changes” must really be hurting the poor telecoms.
In a recent briefing for investors, AT&T boasted that its average monthly revenue per primary household line “ramped steadily over the past several quarters,” to $60.16 in the first quarter of 2008 from $57.08 a year earlier.
So much for all that competition between Verizon, AT&T, Frontier, SureWest, Vonage, Skype, and others.
The telecoms have repeatedly proven that their version of the “free market” is a scam that harms consumers and enriches shareholders. California’s Public Utilities Commission has recommended the only reasonable measure: reinstating price controls.
Getting the 411 on phone charges [The Los Angeles Times]
(Photo: Getty)
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Yeah, telecoms make tons of money. It’s hard for competition to enter this market, because you have to build all of those phone lines. But price controls? Over here in New York price controls on milk and rent-stabilization are just fabulous! Aren’t there applicable antitrust lawsuits and oligarch fines for this?
…so what happens when all of the telcos decide that it is no longer worth their while to do business in California?
I would like corporations – without fraudulent accounting – to show *one* case anywhere that “free markets” meant lower prices for consumers.
In every case where there is/was a government monopoly and the prices were high, the price would have been, or became, higher upon “deregulation”.
Decriminalization is a more apt word than deregulation, because it allows companies to act like thieves. Think of California’s ridiculous and unregulated energy prices, even without the disaster that was En-wrong (a/k/a End-Run-Around-The-Law).
Problem with telephone service is, the cost is all in delivering the line to the customer. Incremental cost is minimal. The natural pricing structure (i.e. pricing that relates to what things cost) is a substantial monthly fee including unlimited calling. If you want a low monthly fee and per minute charges, though, those per minute charges are going to have to be awfully high if the customer is going to be a breakeven customer.
@P_Smith:
Airlines. Fares are about half (after adjusting for inflation) of what they were in 1978.
[www.usatoday.com]
@JustThatGuy3:
Really? THAT’s What you’re going with? The airline industry?
OK, then…since deregulation, the airline industry has cut back on services, cut back on leg room, are on-time less, have more complaints, and are currently having major inspection and safety issues.
It ain’t apples to apples — basic service in 1978 was far superior to what it is today.
@kc2idf: They leave and miss their quarterlies, and someone else comes in and provides the service.
@chuckv: Sad, but true…
@MyLud:
Prices are half as much. Safety is at least as good, if not improved (look at the accident rates, if you don’t believe me – about 70 fatalities, TOTAL, since the end of 2001, that’s ~10 per year out of 700MM).
In-cabin service is definitely lower. Your choice, though: double the fares, or the current level of service?
If you think that Americans would prefer 1976 levels of service at double the fare, go ahead and launch an airline offering that blend. I don’t think you’ll stay in business very long.
We can’t have our cake and eat it too – deregulation brought much lower fares, and opened air travel to a hugely expanded audience (passenger volumes have more than doubled since 1977). Americans have voted with their feet – they want their air travel cheap, and that’s what deregulation has given them.
@battra92: Please give me an example where thr free market truly works…
Those of you claiming that VoIP and Cell service are “competition” I would say that you are quite wrong. If you get VoIP odds are your internet connection you use your VoIP on is provided by AT&T. Sure the ISP you subscribe to isn’t AT&T but they don’t own any wires, AT&T does. Heck, alot of cable companies have only two options for backbone, L3 or AT&T. Cell towers often are hooked up to AT&T lines.
It’s not true competition because no matter who else you go through the incumbent providers STILL get a portion of your $. And frankly, that’s no competition at all.
@MitchV: goog411 is only for businesses…
i use goog 411 for businesses, ans free-411 for residential numbers (be forewarned that they play 2 10(ish) second ads while thay’re “processing your request”)
@kc2idf:
“..so what happens when all of the telcos decide that it is no longer worth their while to do business in California? “
Answer : California is the 7th or 8th largest economy in the WORLD. Too big to ignore. A lower cost competitor that is hungry for business will happily move in and serve the market. Happily.
The big ,bloated telcos would have you believe that their business model is the only one that works.
Another case of “clean up your act or the government will clean it up for you” Always with unhappy results.
There are a few people in here who’ve touched on the truth of the situation, but it’s a bit unnerving to see so many people trumpeting the “virtues” of state-run services.
The truth, as mentioned before in this discussion, is that telco is one of the highest-regulated industries in the country, and this won’t release much of it. And this regulation isn’t meant to protect the consumer, but rather the actual telcos themselves. State-sponsored, lobbyist-driven protectionism is still called regulation, and like chuckv stated, competition is next to zero.
So many people ask “how many times has the free market worked?” when there is no possible way to answer that question…there haven’t been any truly free markets in many, many years – probably since the days of true bartering. Government has had its hand in economies and markets for so long that a real example of a free market is too antiquated to be used in a contemporary discussion.
@Tyr_Anasazi: I think that is self evident. Give me an example where socialism ever worked.
There is no such thing as a free market going on anywhere here. Therefore the opposite of what we have going on here is not socialism. It mistifies me that any attempt to control corporate greed by trying to manage the tightly controlled markets (NOT FREE MARKETS!) that they control is viewed as socialism, when in fact is is truly trying to look out for the consumer. The last thing the AT&Ts of the world want is true competition.
@MitchV: give me some alternative for cellphone, it seems everyday, you read at least one article about cellphone company. while their price is high, nobody is providing customer service anymore. we would like this free market thing work, but there are no alternatives, there is no competition. everybody is the same, their plan cost the same, they all have crappy service, and anybody even try to compete, they’ll just get bought out because it is free market.
As soon as Telcos explain why they’re charging $1500/Megabyte for text messaging, then I’ll assume the market is working itself out.
I would argue the Telcos are in a silent type of collusion that keep their prices artificially high.
“If the free market was supposed to self-regulate its prices, why are they going up so drastically?”
ummm…maybe that’s what providing the service actually costs? Maybe government regulation was artificially keeping the price of the service low? Isn’t that the POINT of government regulation?
If government stepped in today and regulated the price of a gallon of gas to 50 cents, that doesn’t mean that when the regulation is lifted and prices rise to $3.50 that the free market doesn’t work.
@Daniels: Because the market is willing to bear the cost.
As an economist, I cringe when I hear that free markets are always going to provide lower prices than markets with regulated prices, because that’s usually not true. What free market pricing does is maximize the total benefit on both sides – and if the regulated market was keeping prices artificially low, thereby causing undue benefit on the consumer side, it’s entirely natural that the consumer would see prices rise.
In markets where a lack of competition due to regulation is the problem, though, it is not unusual to see prices go down.
@JustThatGuy3: The plane ticket is half of what it used to cost, but then there’s the fuel surcharge, the checked baggage fee, the price you pay for a meal, the blanket/pillow fee, the drink fee, etc etc etc. The ticket price isn’t what you pay anymore. And this is to say nothing in the drop off in service.
When the airline industry was regulated and price was fixed, the airlines had to compete on the merits of service. I’ll give you that it’s cheaper to fly now, but I’d hardly say that we’re much better off because of deregulation.
@Colage:
“When the airline industry was regulated and price was fixed, the airlines had to compete on the merits of service.”
The people have spoken, and they want the cheapest ticket possible, and clearly aren’t willing to pay for better service, except for the segment that is willing to pay for first, or for private aviation.
Again, if you think that we’re worse off now, you’re welcome to launch an airline with 1976 fares (adjusted for inflation) and service. See how that goes. I’d be willing to be that the number of people who, when given the choice between a $450 JFK-LAX ticket with a $50 fee for the bag, having to buy their own $10 lunch, and a $7 blanket feet ($517 total) and $900 ticket which included the bag fee, a blanket, and a free mystery meat lunch, decide that they’ll go with option B, is going to be very very small.
There’s one group that’s been tremendously hurt by deregulation, and that’s airline shareholders, who no longer own shares in companies that were essentially guaranteed profits (rates set by the gov’t, routes assigned by the gov’t so nobody could enter and undercut, etc.), but rather in companies with huge fixed costs in a brutally competitive business.
Competition generally creates better products and services at lower prices, but in this particular industry I don’t belive there is enough. Or maybe it’s just the way these companies generally operate. They are greedy and love to price gouge their customers and as long as all of them continue to do so it will stop. There just needs to be a system put in place for certain industries that make it very easy for new companies to start up. Just like new NFL franchises each team can protect a certain number of players (in this instance certain areas of infrastructure) and the new franchise (company) get’s to choose which areas of infrastructure it will purchase.
The problem is not that this is a free market, but that in this market (like the airlines and utilities markets) is an oligopoly. The infrastructure required to provide this service doesn’t allow for true competition between many companies. Even the phone companies competition has to run on the same lines that are built and maintained by the main phone company – whether it’s an online service like Skype or Vonage, or simply another landline competitor.
These kind of services, like utilities, almost need to be provided by the govt – but the concern there is that they would hose it up worse than it currently is. If the govt could run it competently, then the only price they should charge would be the price required to pay the cost (non-profit) and to put some aside for future and unplanned for work.
@Invective: Lots of good stuff here!
Stories like these are lessons to all the fools out there who think the government should stay out of business affairs.
Gasoline, energy, and telcom prices are all perfect examples of what happens when controls are lifted from a corporation’s greed: a clusterfuck of artificially inflated prices.
Everything needs control. Our government was designed to police itself. Current and prospective Presidents have (will?) tried to whittle away at the power-policing abilities of other organizations. Only the consumer and citizen is the one who hurts from deregulation.