Cellular Prices Rise, With A Boost From Washington

If you need cell service on a budget and you don’t operate a small fleet of wireless devices, your options are about to get considerably narrower – and you can thank your guardians in the Obama administration for it.

Back in December, the Justice Department and the Federal Communications Commission thought they were protecting consumer choice by stopping AT&T from acquiring T-Mobile. Now, as a result, wireless carriers are raising their prices, requiring subscribers to pay more for less.

This outcome is no surprise. I predicted it back when the Justice Department and the FCC were still holding their victory parties, and I was not the only one to do so.

Fallout from the regulatory nuking of AT&T’s deal began raining down on us last month, when Verizon (VZ) announced an overhaul of its pricing structure. The new system will eliminate the cheapest data plans for new users and will pressure existing users to give up grandfathered unlimited data plans as they buy new devices. Under the new structure, unlimited voice and text services will be included with all plans, but subscribers will have to buy a set amount of data per month. New shared plans will allow multiple devices to draw from a joint pool of gigabytes.

Currently, Verizon’s cheapest plan gives customers 450 voice minutes, two gigabytes of data and no text messages for $70 a month. For new customers, who must pick from the recently introduced offerings, the cheapest plan will now be $90 a month and will include unlimited voice and text services but only one gigabyte of data. AT&T (T) has said it intends to follow suit with similar price changes in the near future.

Had the administration’s regulatory watchdogs not squelched the deal, AT&T’s acquisition of T-Mobile would have given it the broadband spectrum and beefed-up tower network to improve service for existing customers as well as new ones. This extra capacity would have been a strong incentive for AT&T to price its services aggressively so it could attract those new customers. Verizon subscribers would also have benefited, since AT&T is Verizon’s strongest competitor by far.

But without the extra capacity that the T-Mobile merger would have provided, AT&T has little incentive to add new subscribers in the short term. Verizon knows this, and its executives predictably took advantage of the opportunity to raise prices, knowing that it will be in AT&T’s interest to match the move rather than leave money on the table.

This pliancy on AT&T’s part was made even more likely because, as a consequence of the merger’s failure, AT&T had to pay $3 billion to T-Mobile’s parent, Deutsche Telekom (DTE), and provide additional spectrum and network resources to T-Mobile.

Washington’s anti-monopoly eagles must be gobsmacked by this turn of events. Their logic was simple. There were four national wireless carriers before the deal between AT&T and T-Mobile; after the combination, there would have been three. Four competitors have to be better than three, right? So if you protect the independence of the fourth competitor, no matter how feeble that competitor may be, you preserve consumer choice.

This is the kind of thinking you get in an administration that is stuffed with academics, labor activists and government lifers, and is almost bereft – by design – of anyone with actual experience in the business world.

As I wrote at the time, T-Mobile was never enough of a competitor to exert much influence over its bigger rivals’ prices. At the time of the failed merger, T-Mobile’s prices were already significantly lower than those of its would-be buyer but, because of its relatively limited service offerings, its base of traditional, non-prepaid subscribers was shrinking.

Since the collapse of the merger, T-Mobile has tried to reinvent itself, launching a $4 billion effort to build a long-term evolution (LTE) network and a rebranding campaign. The company has also positioned itself as an alternative to the two major carriers’ new pricing plans. Chief executive Philipp Humm said in May that he believed the rest of the industry was making “a mistake by trying to copy a very old fashioned voice model for data and now trying to pool data.” Humm’s recent defection to Vodafone (VOD), however, is a sign that all is not well at T-Mobile. Despite Deutsche Telekom’s statement that it is now looking for “somebody who can convert initiatives into market successes,” the company seems more likely to continue its march into obscurity.

Sprint (S), the nation’s third largest carrier, is also resisting Verizon’s new pricing structure. The company is holding onto its unlimited model, continuing to offer both new and existing customers a plan that includes unlimited data, calls and texts. However, despite recent attempts to upgrade its network, Sprint remains behind its two larger competitors in making the transition to faster LTE service. Sprint may be number three in the hierarchy of carriers, but its next-smallest rival, Verizon, still has about 37 million more subscribers – 93 million compared to Sprint’s 56 million. Verizon and AT&T’s new pricing may further marginalize Sprint by encouraging families and small businesses that have some devices already on one of the two larger networks to consolidate other devices on shared plans.

For better or worse, the wireless industry is headed toward a duopoly, and there is little that regulators or the two smaller carriers can do to stop this momentum. What regulators did have the chance to control was whether customers would have a choice between two well-priced sets of plans, produced by active and aggressive competition between the two major players, or a choice between two higher-priced offerings, produced by artificial suppression of that competition in the name of the smaller and less significant players. They picked the latter.

As an AT&T customer, I have no interest in the “choices” the Justice Department and the FCC protected on my behalf. If people like me had been interested in T-Mobile’s offerings, we would have switched on our own.

Someone once said “elections have consequences.” Those consequences have a way of turning up in the darndest places – like our wireless bills.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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