Cell phone bills are getting cheaper. If this is news to you, take advantage of the fierce competition happening in the wireless industry.
Everyone’s got one
According to the 2017 report from the Cellular Telecommunications Industry Association, or CTIA, around 95 percent of adults in the U.S. own a cell phone. What’s more, according to the wireless penetration statistic, there are more mobile phones than Americans, with 1.2 mobile devices for every person in the country. Eighty percent of those owning cell phones own smartphones.
Smartphones are being used to stream, surf, stalk and snap more than ever before. It’s safe to say Americans have added wireless connectivity to the bottom rung of the Maslow’s hierarchy of needs. What’s more, more than 10 percent of smartphone owners use their phones as their primary Internet source.
That said, the cost of owning a smartphone device with these necessary features has creeped substantially. American households paid close to $1,100 per year on cellular services in June of 2016. This expense is up 77 percent since 2006, while total household spending only increased 13 percent.
The economics behind our phone bills
Things are on the up and up for us. Despite our dependency on these devices — or in economic terms, our increasingly inelastic demand — the price tag on wireless services are declining.
The competition in the wireless industry is fierce as ever. On top of that, revenues for the first quarter of 2017 decreased by 0.33 percent for the first time in 17 years. In an effort to retain subscribers, the four major companies — Verizon, AT&T, Sprint and T-Mobile — have been dishing out sweet deals and promotions for their services.
Let’s get nerdy. In economics, this type of price war between a few major companies is called the Bertrand model of oligopolistic competition. Yeah, it’s a mouthful.
Contrary to the Cournot model where the big companies try to set prices based on the quantity of goods and services provided in the market, the Bertrand model just cuts prices until it cuts too deep into their underlying costs. Since almost every American already has a phone and wireless access, these companies can’t really compete on quantity. They have no choice but to compete on prices. Heck yeah!
To merge or not to merge, that is the question
As a result, these companies are looking to join forces to simmer down the price war and bring in the revenue that helps invest into the wireless infrastructure. T-Mobile and Sprint seem to be entertaining the idea of negotiating a deal in which the two will become one.
Some say a merger of this kind would hurt consumers, because it would reduce the very competition that is helping consumers save some extra cheddar. On the other hand, scaling up will help expand and update the technology for the new generation.
The Obama administration prevented AT&T from merging with T-Mobile. But the Trump administration seems to be more sympathetic to the idea. To be sure, there is merit to both sides of the argument. However, if T-Mobile and Sprint were to merge, they would still only take up about 31 percent of the market. They would still have to compete with Verizon, who had 34.9 percent, and AT&T, with 32.38 percent of the market at the end of 2016.
Takeaway: Take advantage
In the meantime, make yourself a little less FKD and see about taking advantage of these deals. “Saving 15 percent or more” isn’t just for car insurance anymore. Even by just threatening to change providers, the customer service agent will most likely find an even better deal for you, just to keep you from leaving.
Clark Howard, a consumer advocate, has already done some of the preliminary research for you. All you have to do is make a call and save some cheddar. You better believe I’m dialing the phone right now.
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