Crush the Carriers!

[Commentary] Since it doesn’t cost Verizon anything to let me upgrade my phone—it involves literally no action of any kind on their part—both fairness and marginal cost theory agree that I should be able to upgrade for free. But real businesses don’t care about fairness, and relatively few real businesses operate in the kind of highly competitive markets that introductory textbooks deal with.

You can’t just wake up one morning and decide to start a new nationwide mobile phone operator. And if you did, AT&T and Verizon could just take an 18-month break from being jerks, drive you out of business, and then go back to their old ways. So even if you wanted to build a competitor, nobody would give you the money to do it. You’re just screwed. And in fact, you’re more screwed than you realize. Consumers have been trained to think that benevolent mobile phone operators “subsidize” biannual phone purchases. These subsidies are actually loans offered at a crazy-high interest rate. Now that T-Mobile is offering “unsubsidized” iPhones and cheaper data plans, we can calculate the real price of the subsidy fairly precisely. Given the formidable barriers to competition in this industry, carrier malfeasance is a problem that’s genuinely hard to solve. But if the mobile phone industry is to advance, this is where most of today’s big gains are to be had. Faster processors and better cameras will keep coming, to be sure. But whoever takes the next great leap forward in mobile will have to bring the carriers to heel.