I spent a good 4 hours yesterday watching my favorite football team, the Minnesota Vikings, self destruct as only they can. During the frequent commercial breaks, I noticed the over abundance of ads for mobile carriers. There were the usual pudgy Owen Wilson AT&T ads dueling with the Verizon map commercials, along with a few Sprint and Metro PCS spots mixed in. This flurry of activity sparked me to wonder aloud, “How competitive is this market?”

The perception given by all the commercials is that the market is very competitive. Each firm is making its case for why it is the best choice- largest 3G network, fastest downloads, widest selection of phones, least restrictive calling plans, etc- and furiously trying to attract as many customers away from the other providers. Yet, I couldn’t help but think that, while they have offered more services, each successive cell phone plan I have purchased over the last 8 years has only been more expensive than the previous. If this market is that competitive, shouldn’t prices be falling?

If you believe the commercials, it appears as if they are. Verizon and AT&T announced reduced rates for their voice plans. Interestingly enough, they both settled at $69.99 a month, behavior which seems remarkably coordinated. However, as Marguerite Reardon pointed out for CNET, these new plans may actually be more expensive for many users, as they impose higher fees for web and data usage for owners of mid-range phones. 

This is an incredibly complex topic, which we have touched on in the past, but it seems like, at least until now, most carriers have tried to use subsidized phones as their main differentiator. By signing exclusive deals with manufacturers, and then offering phones for reduced upfront fees, operators are able to lure customers based on those phones’ features.  What many consumers may not realize, however, is that they are probably paying more in the long run than users of the same phones in other countries. Telecommunications tends to be a naturally oligopolistic market, and the U.S. mobile market is no exception. The high barrier to entry associated with owning large networks leads to only a small number of firms owning virtually the whole market. But what is most important (and what the FCC will probably be looking into) is if this arrangement is beneficial to consumers. I don’t have an answer to this question, but I do have a nagging feeling that I should be getting more for less.