Award Winning Blog

Wednesday, December 10, 2014

7+ Examples Where Consumers Don’t Call the Shots

            There are plenty of examples where the marketplace’s invisible hand does not seem to favor consumers.  As much as I want to believe unconditionally in the power of the marketplace, there are too many powerful examples where consumers lack sovereignty.  Here are 7+ examples in the information, communications and entertainment marketplace:

1)         Take it or Leave It Contracts that Include Binding Arbitration Clauses 

            Perhaps you can show me a wireless contract that does not require subscribers to give up their day in court if a carrier cheats them.  There are too many instances where a wireless carrier imposes an unjustified charge, or demands payments for one.  Where is the marketplace punishment when this occurs?  There is none, because consumers cannot vote with their feet and migrate to an alternative service provider that allows subscribers a judicial forum.  Every major carrier in the U.S. has received a sizeable fine from the FCC for unlawful and bogus charges, but I don’t want to rely on a regulatory remedy that could evaporate, or apply only if the politics are right.

2)         The Supreme Court’s Aversion to Class Action Law Suits

                I support tort reform that seeks to eliminate frivolous law suits, but another powerful remedy has evaporated when telecom ventures cheat.  Class action law suits make it possible to remedy a problem that collectively add up to millions of dollars, are not worth the bother for any one victim to sue—assuming they still have that option.

            For example, Verizon collected a cool $52 million in unauthorized data access charges in $1.99 increments.  An individual subscriber could not recover the overcharges given the cost of litigation, or even arbitration.  Verizon continued the practice for over four years, before the FCC made the company stop.

3)         Walled Gardens

            I appreciate that most of us are content to treat the millions of wireless apps as more than enough options.  However, compare what Apple allows versus what the complete and unwalled Internet has to offer.  With the rising importance of wireless data access, some content and app creators already have opted to concentrate on App Store availability in lieu of plain old web access.  A lot of time, money and effort goes in creating different versions of the same content accessible by handsets using different operating systems.

4)         Internet Access From a 7 Inch Screen

            Consumers readily accept an inferior web experience for the opportunity to access it via a mobile device.  Okay, the market has functioned and allocated resources accordingly.  In some places in the world, wireless constitutes the first and only medium that offers an affordable and available option.  Still I lament that consumers may have access to fewer and fewer options via 20 inch, fixed screens.

5)         Throttling

            I find it hard to understand why a wireless carrier would deliberately degrade service to a “power user.”  Why not send them a fruit basket and new service options?  Carriers want the option of upselling, but also to punish users, even ones who have acquired so-called unlimited service.

6)         Tiering When Extra Usage Costs Little

            Unmetered, All You Can Eat (“AYCE”) service is economically inefficient when it stimulates “excessive” consumption and triggers cross-subsidies from low volume users to high volume users.  This can occur when everyone pays the same price, or there are negative consequences resulting from excess use, e.g., the need to build more electric power plants.

            Internet access may have different characteristics, particularly if carriers can provide additional units of service without significant additional cost.  Absent congestion, a broadband service provider incurs little cost if it allows subscribers to binge watch Netflix.  That’s why fixed, wireline broadband consumers have AYCE access, or sizeable monthly data allowances in the 100s of Gigabyte range.

            It probably makes economic sense for wired broadband carriers to tier service based on bit transmission speed, but perhaps not on the basis of download volumes.

7)         Video Access Constraints

            Yes the marketplace has made significant accommodations of consumers’ impatience with access constraints.  Video on demand and television everywhere provides alternatives to “appointment television.”   However do not fool yourself into thinking the consumer can demand unlimited access, anytime, anywhere, via any device and in any presentation format.  There are legitimate copyright and content windowing constraints, and there are plenty of questionable ones.

            Why can’t cable subscribers select content on an a la carte basis?  It surely is technically feasible and while the savings depend on the 10-15 channels most consumers would choose, the absence of this options is telling.  ESPN and other very high cost networks understand that they and their cable partners can generate far more revenues by forcing every subscriber to pay for a bundle of channels than by charging even higher rates (above the $6-$7 a month for ESPN) from the smaller base of voluntary subscribers.

            Why can’t consumers access ESPN, HBO and other premium content sources without also subscribing to cable or satellite television?  This access pre-condition constitutes what antirust experts call a tying arrangement. HBO has begun to experiment with alternatives, but until direct access becomes an option, legacy ventures can close ranks and add to consumers’ costs.

            Speaking of costs, how can both content and broadband access providers treat the monthly consumer subscription as just one revenue center?  Does one’s broadband subscription contract contain language allowing the carrier to degrade service to particular upstream content sources unless they agree to pay a surcharge?  Put differently does a broadband carrier have a duty to provide adequate service to its subscribers even if it fails to receive surcharge payments?

            Comcast officials recently claimed that Netflix deliberately caused their content downloads to degrade as a way to improve the odds that the FCC would reject the merger with Time Warner, or impose more burdensome conditions.  I know that Comcast on occasion has intentionally degraded its service, but why would Netflix, particularly given low consumers’ pain thresholds for inferior video?

            Lastly, why do subscribers have to pay the full monthly rate when compensation disputes temporarily block access to “must see” channels?  Where’s my refund?


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