Spectrum Fees May Preclude US Low-Cost Cellular 246
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."
Stimulate economy? (Score:5, Insightful)
Simply pass the fees? (Score:2, Insightful)
They'd be insane not to.
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.
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.
Taxes or fees (Score:1, Insightful)
Since almost everyone got a cell phone, it's essentially raising taxes on everyone, but it's worse, because the poor and the rich will pay the same amount.
Re:Stimulate economy? (Score:2, Insightful)
Re:Cirtics say... (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.
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:Actual Cost (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 reaching $550 million per carrier per year". At that time, since there are more than one carrier, it's safe to assume we're talking, say, $1.65 billion per year. Which still isn't bad, I know.
But have you ever known a stealth tax to go down? Once people are used to it, they'll adjust the fit to get a few more billions out of it....
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?
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?
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?
Never Happen (Score:3, Insightful)
Re:tax in disguise (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 lowered their SMS rates to make up for the revenue they'd lose? If lower SMS rates were all it took to attract customers then Sprint and T-Mobile would be #1 and #2 instead of #3 and #4. Apparently there are other factors at play though.
Re:Little Wonder (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.
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.
I somewhat disagree with the critics (Score:2, Insightful)
So right now, they hold and auction, big companies with deep pockets buy up everything they can, and then leave a huge chunk of it poorly utilized. They drive the price up because they have money to burn, but then keep the price high because they have no inclination to let anyone else in. It's a self perpetuating system which limits access to the few companies that have cash to buy in in the first place.
If you add a cost you drive them to be more efficient about what spectrum they do use, and lower the costs of entry for the 'little guy'. It's not in AT&Ts interest to buy 5 billion dollars in spectrum, and then spend 500 million a year on space they only really need 10% of. That drives down demand for spectrum space amongst rich companies, since they need way less and have no incentive to buy more than they need, and opens it up to smaller players to buy small pieces.
More efficient spectrum utilization is nothing but good. It's one of the few resources there is no possible way to get more of, no recycling as such etc. All you can do is increase the usable spectrum by high and low bandwidth research and fancy encoding schemes at a particular frequency. Forcing companies to pay for what they have will make them much more efficient about using it.
Yes, they will pass on costs to consumers, but if they're buying less spectrum, and only using exactly what they need then the cost is only going to be for the spectrum they need to provide you service, and not for spectrum they're holding for the sake of holding.
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...........
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.
Re:Stimulate economy? (Score:2, Insightful)
Repeat after me: deadweight loss [wikipedia.org]. Taxes are useful to run a government and supply needed services, but they can never stimulate an economy. Deadweight loss is also one of the reasons that monopolies depress an economy.
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:tax in disguise (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."
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.
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.
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! :)
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.
Re:Stimulate economy? (Score:2, Insightful)
Exactly. It's called an indirect tax.
Plus, you let the consumers get angry at the corporation while the government is left "innocent."
Re:Stimulate economy? (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.
We all expect services from government and we all have to pay taxes to pay for these. I value health care, education in addition to roads, police, fire, etc. You may have different priorities but you do need government unless you live in a cave with no possibility of an external threat.