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Spectrum Fees May Preclude US Low-Cost Cellular
Posted by
kdawson
on Sat Feb 28, 2009 11:29 PM
from the no-free-lunch-or-breakfast-or-even-tea dept.
from the no-free-lunch-or-breakfast-or-even-tea dept.
theodp writes "Not to apologize for an industry that charges $27,000 to catch a Chicago Bears game, but will the huge spectrum fees charged by the government block the emergence of low-cost cellular service? In the most recent FCC spectrum auction, carriers paid nearly $20 billion to grab a swath of the 700MHz spectrum. And now under President Obama's proposed budget, wireless carriers would be hit with huge annual fees — eventually reaching $550 million per carrier per year — for the right to hold a spectrum license. Critics say the carriers will simply pass these fees through to consumers."
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Idle: How To Rack Up $28,000 In Roaming Without Leaving the US 410 comments
pmbasehore writes "While waiting for his cruise ship to depart, a man decided to use his AT&T wireless card and Slingbox account to watch the Bears vs. Lions football game. When he got his bill, he was slammed with $28,067.31 in 'International Roaming' charges, even though he never left American soil. The bill was finally dropped to $290.65, but only after the media got involved." He might have left the soil (the story says he was already aboard the ship), but shouldn't the dock count?
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Stimulate economy? (Score:5, Insightful)
Re: (Score:2, Insightful)
Re:Stimulate economy? (Score:5, Insightful)
Of course they're going to pass the fees on to customers. What else are they going to do, hold a bake sale?
Right.
I think it's a fine idea. the spectrum is public land. You rent it you don't give it away. This is a point that both conservatives and socialists totally agree upon. It's the bought off congressmen who were out to sell it.
There have been exceptions to this of course. When you want a resource exploited you do sell it. For example, getting railroads built wiht land grants. Or the 1872 mining law.
But now a century later the 1872 mining law seems like a huge mistake to continue. And yet that's pretty much exactly what the "drill now" folks want to do.
The secret is to lease it and price it right. It's not that hard to do.
Parent
Re:Stimulate economy? (Score:5, Insightful)
No, spectrum is not "public land". It's just there. Next the government will ban the sun because it's infringing on the visible spectrum that it rented/sold/leased to someone else.
All you are renting/selling is a monopoly to use said spectrum. In fact, it's an active deprivation of others who could put that spectrum in within their private lands.
Now, I know the practical reality and the reasons for it. But it would seem to me when the government uses eminent domain of something, to grant someone a monopoly on said resource, it should be for the public good. The public good does not mean filling government coffers. This is the heart of the dispute of the Kelo decision, where local governments took it to heart that anything that bought them more tax money was for the "public good", and thus the logic that farmers could be deprived of their farms simply because a developer swooped in and his construction would bring in more property taxes. It used to mean land was taken for a road or utility.
The same thing is happening here: filling government coffers is equated with "for the public good." This is not the case, because America was built on the principle of limited Government, not more of it. Filling public coffers only supports bureacracies the same way the PA Turnpike (now being given I-80 even though that was built with Federal Funds, pushed by the crook Rendell) monopolizes it's route, and the only thing is does (given the crappy generally 2 lane roads) is become a bigger and bigger bureacracy. You should see the public administration building dedicated to this one highway.
Monopolizing a section bandwidth in exchange of free national wireless internet would be for the public good. Monopolizing a section of bandwidth in exchange for money grows this insatiable government, just makes the system the domain of the highest bidder, raises the costs to the end consumers, and is not for the public good.
Parent
Re: (Score:2)
Just another hidden tax (Score:5, Insightful)
(sigh) so much of the President's economic program is based on taxation of corporations and "the rich" that it seems bound to fail. While these policies have a populist ring to them that is currently rather popular after years of a Republican pro-business slant, ultimately the citizenry will come to realize that they are simply being taxed indirectly. Or, if they do not, then they are stupid and deserve what they get.
To prevent this, I think mobile phone operators should make it clear to consumers what percentage of their bill is directly tied to government corporate tax levies, just as the airlines do--when you look for a ticket, some of the airline websites like Southwest Airlines don't actually add in the taxes until the end, so that you get to watch that nice, cheap ticket suddenly get a lot more expensive thanks to Uncle Sam.
I suspect that in the end, the Dems will be forced to scale back their ambitious taxation program and the tax structure will be reshaped to resemble the Republican approach. Industry lobbyists will flock to Washington DC and make their case to members of Congress in terms of how it affects their constituencies (and chances for re-election), Congress will begin amending Obama's budget to alleviate the burden on constituency businesses, and we'll basically be back at square one. That, or we're probably going to have quite a prolonged recession as it gets even more expensive to start and operate a business in this country.
On the bright side, as cellular charges rise, wifi becomes a compelling alternative. We are seeing a lot of Skype-capable handhelds coming on the market, notably Android-powered phones, and one can foresee the day (hopefully soon) when dozens of generic Android handsets are available for cheap, that can make Skype calls at any hotspot. That may spell the end of the cellular industry's dominance in this country. If I were AT&T, Verizon, Sprint, or T-Mobile, I would be investing in wi-fi so as to be on the winning side of that game.
Parent
Re:Stimulate economy? (Score:5, Insightful)
Maybe Obama is banking on them passing it on to the customers. It means more money into the economy through increased charges.
I certainly hope Obama's grand plan for the economy doesn't whittle down to a governmental implementation of the broken window fallacy [wikipedia.org].
Increased customer fees will hurt the economy, not help it. By increasing fees, it means more money going to the government not out into the economy where it might help smaller businesses from shutting down. It also means more people might cancel their service, or opt not to sign up in the first place, both of which hurt the cell providers.
They could just put th [CARRIER LOST]
Oh, the irony! :)
Parent
Re: (Score:3, Insightful)
The original post was referring to the macroeconomic effect of government fees and as long as the fees are spent on goods and services they are a boost to the economy
Simply pass the fees? (Score:2, Insightful)
They'd be insane not to.
Do the math... (Score:5, Informative)
$10/user/year for the proposed fees.
$40/user/life for the license.
Drop in the bucket compared to the initial infrastructure deployment. In an efficient business, service would be almost free after 12 months.
Re:Do the math... (Score:5, Interesting)
> In an efficient business, service would be almost free after 12 months.
Perhaps in something like water or sewer where nothing changes.
But would you be happy with the cell phone service and coverage you had in the past? We demand new technology, better connections, faster data, unlimited calling, etc, etc, etc.
It seems the industry is in a constant state of rolling out new services.
Parent
Re: (Score:3, Interesting)
Actually, one reason I *don't* have a cellphone is because rather than basic service getting cheap, they keep adding useless shit (at least to me). Give me a $5/month phone (so it's competitive with the poverty rate) that's *nothing but a phone* and I'd be happy.
Re:Do the math... (Score:4, Funny)
Perhaps in something like water or sewer where nothing changes.
The work crews digging up the road by my house would beg to differ.
Same with the work crews fixing the cellular spectrum outside my window. Oh, wait ...
Parent
tax in disguise (Score:4, Insightful)
"Critics say the carriers will simply pass these fees through to consumers."
What we have here is a stealth tax. There is absolutely no way these costs will not be born by the consumer. This is the nature of business. If your costs rise, you need more revenue to cover them. Revenue does not come from fairies but from customers. In this way, Obama gains credibility only from those who want to stick it to the "big companies" and don't think deep enough to realize where this money actually has to come from. *sarcastically* Thank you President Obama for increasing my contribution to the federal budget. I was looking for another way to funnel you my money.
Re:tax in disguise (Score:5, Funny)
No, the big company executives are all going to go get a second job delivering pizzas in the evenings in order to pay for this. They wont pass it to the consumers that would be an excessive tax on the lower class and a drop in the bucket on the rich and upper middle.
Parent
Re:tax in disguise (Score:4, Funny)
No, the big company executives are all going to go get a second job delivering pizzas in the evenings in order to pay for this
How do you deliver pizzas in a Gulfstream IV? ;)
Really, really fast.
Parent
Re:tax in disguise (Score:4, Insightful)
Your need for increased revenue presumes, of course, that you *need* all the profit you were originally making. What is the margin on cell phone services? I have no idea.
How about, specifically, the margin on texting? http://www.nytimes.com/2008/12/28/business/28digi.html [nytimes.com]
Hmm. yeah, that invisible hand does a really great job eh? So I guess if a text tax were in place, they would *have* to raise their prices. of course!
I don't know what the margins are on the overall business model. But it's simply not ture that there is "no way" these costs will not be born by the consumer: that is, if those "costs" are already born by the consumer, and the company is simply profiteering on OUR wireless spectrum. If that is not happening, of course, then I fully agree with your point.
But what do you think is a fair price for using our wireless spectrum then? by your argument, it should be free, so the service can be given at minimal cost to the consumer, or it's a 'stealth tax'. Is that really what you advocate? How about logging national forests for free to get the price of lumber down?
Parent
Re: (Score:2, Insightful)
How about, specifically, the margin on texting? http://www.nytimes.com/2008/12/28/business/28digi.html [nytimes.com] [nytimes.com]
Hmm. yeah, that invisible hand does a really great job eh?
The invisible hand is working just fine. If people weren't willing to pay that much for texting then the cost would come down. Nobody needs texting. People want texting but few people can make the argument that they need it.
In a free market a company will charge what the market will bear. Their competitors will lower their price if they think they will make more money by doing so, otherwise they have no incentive. Do you think Verizon/AT&T would steal enough customers from the competition if they
Re: (Score:3, Informative)
Re:tax in disguise (Score:4, Funny)
Verizon's 2008 operating margin was 17.34%, their return on average equity was 13.93%, neither are particularly stellar or out of line. Exxon and GE are similar, Walmart is lower for margin and higher for return. Basically they are an average Bluechip stock.
Your silly little "facts" and "numbers" have no place in the effort to make excuses for Obama's enlightened budget, please keep them to yourself. Obama says that if we make less than $250k then we won't pay another dime! So we need to make sure these big bad companies pay a fair price for their use of our spectrum...
Parent
Re: (Score:3, Informative)
Here is a different analysis of the facts from me. From the SEC 10-K form Verizon filed for the fiscal year ending 12/31/2008, submitted 2/24/2009 and can be found here:
http://idea.sec.gov/Archives/edgar/data/732712/000119312509036349/dex13.htm [sec.gov]
About a quarter of the way down the page is the Income and Expenses breakdown for the Wireless division. Keep in mind that 45% Verizon Wireless is owned by Vodafone and 55% is owned by Verizon proper. So Vodafone and Verizon most likely have some sort profit/loss s
Re:tax in disguise (Score:4, Insightful)
However, from the point of view of fairness.. it makes sense.
Currently carriers pay a one-time fee for a bit of spectrum and get it for life, that isn't in the public interest.
Ongoing use of spectrum should require ongoing fees, to discourage waste, or carriers buying excessive spectrum they don't need.
The recurring fees ought to be based on how much spectrum they've bought instead of being a per-carrier fee, however...........
Parent
Re:tax in disguise (Score:4, Informative)
You are basically arguing the same old tired right wing arguement
Pointing out that the carriers will pass any increased costs onto consumers is "the same old tired right wing argument"? Ya know, you guys don't get to automatically dismiss any and all criticism of Obama using that line, right?
Parent
Re: (Score:3, Informative)
Oh, leave him alone.
He needs to prove to himself that you can Tax your way out of a depression.
When is shining dream lies shattered in the dust in four years he will be a right winger too.
Re: (Score:3, Insightful)
As the old saw goes, "If you're not a liberal at 20, you have no heart. If you're not a conservative at 40, you have no brain."
Actual Cost (Score:5, Insightful)
"According to the OMB (Office of Management and Budget), the fees would generate $4.8 billion over the next 10 years."
So, that's (on average) 480 million dollars per year for all carriers in the US. Assuming there are 180 million active cell phones in the US (accurate as of 2005), this is $2.70 per phone per year, or 23 cents a month. I think the total of hidden (read: fake) subcharges added to my bill are well over 23 cents a month. In other words, this charge really isn't noteworthy.
I don't know the specifics, but my only concern is that it will prevent small carrier from entering the market.
Re: (Score:2, Insightful)
That might be true over the next ten years. When they're still phasing in this new tax.
At some point, it's going to reach that "eventually
Re: (Score:2)
But have you ever known a stealth tax to go down?
Well, they did get rid of the Federal excise tax on long distance that funded the Spanish-American war. It only took them 104 years but hey, that's Government for you. If Obama's new taxes are repealed that fast they'll go away in 2110, so I really don't see what the big deal is -- James T. Kirk won't be paying this tax on his communicator ;)
Cirtics say... (Score:3, Interesting)
> Critics say the carriers will simply pass these fees through to consumers."
Not only critics say that, anyone who has ever run a business will tell you that ALL costs are passed on to the customers in one way or another.
The only difference here, is that the carriers may be able to write these fees off of their taxes,
which is just that much less tax revenue, making the government's share zilch.
Re: (Score:3, Insightful)
Exactly, good capitalism in action!
A business bids to get exclusive access to a public good (a band) and pays us all in exchange. Then it provides a service to paying customers and recoups its costs.
The whole thing seems so sensible that we need some republicans to swoop in and explain why it's unfair to businesses.
Re:Cirtics say... (uhh exactly) (Score:2)
The "critics" seem to know that customers are where businesses get their $$ from. Who knew?
Re:Cirtics say... (Score:5, Insightful)
Not only critics say that, anyone who has ever run a business will tell you that ALL costs are passed on to the customers in one way or another.
Well that's definitely true in that eventually all costs must be paid, and businesses get their money from customers, and therefore all costs are in some way paid by customers. However, it's not true that all cost increases to a business result in cost increases to the customer, nor do cost decreases for the company necessarily lead to cost decreases for the consumer.
I find it almost funny how when you talk about customers getting overcharged-- "overcharged" in the sense that they're paying far most than something costs to produce-- everyone comes out of the woodwork to say, "Of course! This is capitalism! It's about supply and demand, and charging what the market will bear. Even if it costs $0.02 to product, they'll charge $100 for as long as people are willing to pay that price." Then these same people, when you mention that some regulation will increase the cost of production, they complain, "Well that cost is just going to get passed along to consumers!" Well you can't have it both ways.
There's some truth to it, but it's also true that companies do a lot of research to determine an optimal price for their product. If they charge too little, they sell lots of units but don't make as much per unit and they don't make as much money. If they charge too much, then they make more per unit but there volume is so low that they don't make as much money. There is often some kind of optimal point where they make the most money, and that's the price they charge.
Same thing with cell phone companies. The prices we're being charged per month is based on what will make the carriers the most money. Not cost. If you raise the costs sufficiently to "diminish supply", then you'll see an increase in price. But costs at this scale don't simply get "passed along to consumers" in the way people talk about it.
Parent
Little Wonder (Score:5, Insightful)
If you look at the FCC frequency allocations chart [doc.gov] (warning: PDF), you'll notice how many different industries and applications that are trying to use the wireless spectrum. And this chart is deceiving because much of the spectrum isn't usable for modern applications. Lower frequencies don't provide enough bandwidth, and high frequencies require very rare materials for the electronic components, so they are too expensive for most purposes.
There has been an explosion in research for wireless communication over the last several years because the demand for more capabilities has increased. This has led to incredibly complex encoding schemes and manipulation of the physical radio waves, and is now leading into cognitive radio.
The sad part is that most of the usable spectrum, even though allocated, remains underutilized. I am a researcher studying the spectral usage in Chicago, and we have calculated that the most heavily used parts of the spectrum are still only occupied about 11% of the time. There are also many parts of the spectrum that have been allocated, but are only used in certain geographical locations. The big TV Whitespace movement promises to introduce technologies that can potentially help us better utilize unused parts of the spectrum where available.
Am I surprised that the cellphone carriers paid $20 billion for the license? No. The survival of their company depends on them being able to transmit wireless signals. Just like an airline has to pay fees at an airport in order to be able to land their planes. There is no other option.
Re: (Score:3, Insightful)
But it won't be, it will be swept into some welfare pot to buy condoms for crack addicts or something
I had a fun experience at the grocery store the other day. Witnessed a woman using a WIC [usda.gov] card to buy half of her groceries. The other half (approximately $80 worth of junk food, beer and cigarettes) she paid for with cash. She had a iPhone too.
Aren't you glad your tax dollars are financing her iPhone, junk food and controlled substances? Imagine if she didn't have that wic card -- she might actually have had to settle for a candybar phone or something.
Of course the carriers won't pass the fees on (Score:3, Informative)
Of course the carriers won't pass the fees on! How could they? The government won't let them. Just like the government doesn't let landlords pass on property taxes, or hotels tourism taxes, or airports landing fees.
No, the carriers will simply absorb the fees and lose money.
(sheesh)
How? (Score:3, Insightful)
Perhaps someone with a better understanding of economics can explain where I go wrong.
It seems to me that the cellular companies already charge so as to result in the maximum profit. They would be fools not to. Thus either increasing or decreasing their prices would result in lower profits for them---the former as customers leave, and the later as not enough customers join to make up for the lower price. If this is so, then how is it possible for them to pass the costs on to customers?
Re: (Score:3, Informative)
It depends on how competitive the market is, how profitable the cellular companies currently are, and probably a few other things.
If the market is not competitive at all (perfect monopoly), the price is probably fixed at whatever generates the most revenue and won't change.
If the cellular companies aren't making enough profit (result of perfect competition), they'll need to raise prices to cover the fees or go bust.
Reality is somewhere in the middle, I'd personally guess somewhat closer to the "monopoly" en
Never Happen (Score:3, Insightful)
Not A Free Lunch! (Score:4, Insightful)
Using the 700Mhz spectrum for cell phones means it can't be used for other purposes. If we hadn't used this spectrum for cell service we could have used it to provide faster WiFi or for all sorts of other uses.
Now the net effect of auctioning off the spectrum rather than giving it away is (assuming an efficent market) just to transfer money from the users of cellphones to those who don't use cellphones. That seems only fair. The people who benefit from exclusive use of a public resource should compensate those who are denied benefits as a result.
When developers want to build houses on federal land we expect them to pay for the land even though it means the cost of the houses they sell will be higher. This is no different.
Of course if you accept the evidence that the cellphone market is not really competitive (high barriers to entry make it more like a monopoly) then this cost won't be all passed on to consumers so it's even more justified.
current spectrum auctions are stupid (Score:4, Insightful)
The carriers spend tons of money on buying spectrum. All this money goes to the government and is spent on who-knows-what. The owners of the spectrum then have much less money to invest in actually using the spectrum.
Don't get me wrong. I am all in favor of spectrum auctions. However, the bids should not be money. A bid should consist of what service will be provided, how much consumers will be charged for the service, and what areas the service will be provided in. The FCC can then pick winners based on who will provide the most efficient service. If a company doesn't live up to their bid, they lose their spectrum. This bidding process should be automatically repeated every 20 years. There's no reason an incumbent service should be able to hog spectrum that would be better used by a new service, or maybe even an entirely new technology.
Who pays for which fees? (Score:4, Insightful)
Quote: "Critics say the carriers will simply pass these fees through to consumers."
Critics, you say?
Customers pay all fees, expenses, taxes, and other costs related to wireless services. That is fundamentally how all businesses work.
Pointing out the basics of business is hardly being a critic.
Re: (Score:3, Interesting)
> Carriers cannot pass on ad valorem taxes like this
On what do you base that?
They pass on the cost of their own regulation, you can be sure they will pass this tax on to their customers.
Re: (Score:3, Funny)
> Carriers cannot pass on ad valorem taxes like this
On what do you base that?
On the fact that he used a Latin phrase so he must know what he's talking about...
Re:Taxes or fees (Score:5, Insightful)
but it's worse, because the poor and the rich will pay the same amount.
Please explain to me why that's "worse". Do you honestly believe that the rich should pay more for cellular phone service just because they can? Do you also think that your phone company should get a copy of your W-2 so they can implement a progressive sliding scale of E-911 fees? Maybe SMS charges should be based on your income as well?
Parent
Re: (Score:2)
I believe the argument is that it's worse than increasing income taxes (which are progressive) by a similar amount.
Re: (Score:2)
I believe the argument is that it's worse than increasing income taxes (which are progressive) by a similar amount.
See, that's where your wrong. You aren't thinking like a politician. If you raise income taxes then you have to get it through Congress and expend political capital. If you raise it through the FCC nobody outside of the technical community is likely to notice until it's too late.
Re: (Score:3, Informative)
Re: (Score:2)
Listen at the end of the day, where do you expect the government to make more revenue? Taxes are it, and it's better they raise taxes on cell phone service, which an average plan costs between 20-100/mo than slap it on say health benefits.
Personally, I think this is pretty damned smart, you do this in a couple other industries and you start having consistent revenue at relatively low cost to consumers. It's what every business has done for decades.
"Sharing" isn't just for content. (Score:2)
Who else can pay?
Other nations? Foreign companies?
Re: (Score:3, Informative)
These fees are being sold as a fee on the carrier, but that fee will be applied as a new surcharge on everyone's phone bill. The interesting thing about fees is that they do not operate as the progressive tax that Democrats typically favor. They operate as a fair tax -- applied uniformly based on consumption. The only way they get away with it is that people don't think it through, so they think someone else is getting the tax.
I agree with the point of the article that applying huge fees to the wireless