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Need to Know U.S. Wireless: The Leaky Cartel
Written by Dave Burstein   
Monday, 27 August 2012 23:01

Leaky CauldronVerizon and AT&T dominate postpaid, but prepaid is taking a share. VZ & T effectively manage a cartel, threatened only at the edges by prepaid carriers. Sprint and T-Mobile are falling further behind by about 1m subs per quarter, but rarely break cartel pricing. Verizon punished Sprint the last time they tried.
   Despite continually falling costs as wireless technologies improve, the advertised package price remained about $40 from 2007 until 2012. Prices had been coming down for a decade, bringing the U.S. to some of the best pricing in the developed world. Then Newtel and the old AT&T Wireless were swallowed up, reducing competition at a cost to consumers of billions each year. Extra fees - especially ever increasing text charges - mount up. Verizon’s 2012 pricing, followed closely by AT&T, raises the prices to an effective minimum of over $80, with minimum data. Verizon’s CFO Fran Shammo has told the street he intends to continue raising prices. Almost all choices lock you in for two years, although not long ago one year contracts were common.
      Prepaid alternatives are 30-75% cheaper in a much more competitive market. iPhones are finally available - at $650 - and the LG and Huawei smartphones for $100-200 are getting better. The price difference is so large that postpaid growth turned negative in Q1 as smart consumers move to prepaid. While some of the prepaid are smaller carriers (Leap/Cricket, MetroPCS) most are MVNO resellers of the big four. Sprint is using their Virgin and Boost Mobile prepaid brands in attack mode, and T-Mobile after the sale fell through is developing similar.
      Q2 2012 saw zero growth in postpaid smartphone sales over the prior year, but 91 percent growth in prepaid smartphones.  Verizon and AT&T have numerous strategies to hold back competitive prepaid growth deployed both in their offerings and allies like Tracfone. I carry a $12/month Tracfone (Telmex), a nice feature phone with about 100 minutes. it runs on the verizon network and has been just as reliable as the $50 service. People are starting to realize that if you don’t need a smartphone, it’s totally dumb to go the expensive route. The smartphones are coming along.
   The great fear in policy circles - including the FCC Chairman - is that VZ and AT&T pull away so far they can charge whatever they want and set almost any rules they like. That’s been at least partially true, evidenced by the high prices. The U.S. in 2004 had some of the best prices in the developed world. Since Nextel, AT&T Wireless, and Alltel were bought out, the competition weakened and U.S. prices are now higher than many.
   It’s too early to tell whether they have gone too far with price increases.