Friday, May 30, 2008

The Front and Back End of a Two Year Wireless Subscription

In the United States just about everyone trades off typical consumer rights and handset freedoms in exchange for “ownership” of a subsidized handset. Of course the handset is neither free, nor fully owned. In exchange for the a subsidy cellphone service subscribers agree to an intricate installment sales contract that limits what they can do with the handset.

But what happens after the two years run? Well the typical subscriber renews service and gets a new handset installment sales contract. He or she has no real alternative, because the cellphone oligopoly in lock step have foreclosed a market for used handsets and by offering no savings to subscribers who make do with their existing handset.

FCC Chairman Martin wants to show what a consumer advocate he is by tackling financial penalties for early termination. He wants consumers to have an opportunity to opt out of a contract within the first billing cycle. Fine. But the real consumer affront is the tacit collusion among cellphone companies not to compete on price, particularly for low end subscribers who do not want or need a subsidized handset and a two year service commitment.

Unlike just about everywhere else the United States does not have a robust and competitive wireless prepaid, calling card marketplace. The handful of Mobile Virtual Network Operators offer similar and not terribly attractive rates, primarily for youth and ethnic markets. I do not fit those demographics, but no carrier wants to offer lower rates to subscribers more than likely to accept a two year lock in.

Am I some kind marketplace orphan, or have the wireless carriers engaged in anticompetitive conduct?

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