It costs a lot to build and maintain a cellular network. First you have to build the towers. Then you've got to buy the airwave licenses that let you carry people's calls. Then you've got to strike deals with handset makers and lure customers with subsidies and other goodies.
All this makes it really hard for new players to enter the market — and even for established players to stay in it. Some people think that these trends naturally encourage industry consolidation, if not outright monopolies. (You may have heard about a rumored merger between Sprint and T-Mobile; that's a perfect example.) But there's a clear case for having more wireless companies rather than fewer of them, and this week demonstrates why.
On Monday, AT&T unveiled a new service plan called Sponsored Data, which allows companies to subsidize the data being used by smartphone subscribers. This would make it possible for, say, Netflix to cover the costs you might otherwise incur by streaming a TV show on your tablet. Now, your binge-watching "House of Cards" wouldn't count against your data cap. (Netflix is not, in fact, one of AT&T's sponsors — at least, not yet.)
While the program means more data in your monthly allotment for you to use as you wish, critics say it creates an uneven playing field for content providers who may simply pass on the extra costs of sponsorship to you anyway. In a monopoly situation, this would be pretty bad; consumers wouldn't have anywhere else to go. It doesn't get much better in a hypothetical duopoly, either. Verizon, the nation's second-largest carrier, hasn't announced anything in response to Sponsored Data, and it's unclear how it would react if it and AT&T were the only two carriers in America.
But barely a day after Sponsored Data was unveiled, Sprint has launched its own rate schedule meant to drive down costs for subscribers:
And today, T-Mobile is expected to publicize a plan to start covering the early termination fees of new subscribers. Both companies have proven very active in trying to find alternative business models that undercut the big incumbents.
The rumored offering from T-Mobile is especially instructive. AT&T is particularly vulnerable to the fee-subsidy promotion because its network technology is the same as T-Mobile's — making it relatively easy for people to jump from one carrier to the other. So, in the weeks after T-Mobile's apparent plan leaked, AT&T came up with a strategy to steal T-Mobile's customers first. It's now offering up to $450 to switchers, over the $350 that T-Mobile is reportedly preparing to offer.
If T-Mobile didn't exist, AT&T wouldn't have had any reason to start offering this credit.
Having T-Mobile around is good for another reason: It holds valuable infrastructure assets that can be bought and sold. Remember those airwaves I mentioned earlier? It just traded a bunch of what it had to Verizon in exchange for a part of the wireless spectrum it really coveted.
The competition in this part of the industry affects consumers only indirectly, but it's still important. It shapes what cellular companies can do, and at what expense. Now that Verizon and T-Mobile each have bigger chunks of the spectrum they want, they can smoosh their existing airwaves in with the new ones and give the rest of us more efficient service.
All of this could happen in a consolidated wireless industry. But it'd be a lot less likely. And as long as having four national carriers can produce these kinds of changes, regulators might want to think twice before smiling on any plan that reduces the field to three.