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  • The U.S. Cell Phone Industry is Stuck in the 1950s

    December 26th, 2007

    Do you remember how it was back in those quieter times? You could have any telephone you wanted, so long as it came from Ma Bell, and, aside from some local carriers in smaller communities, they also provided your telephone connection.

    You also paid an arm and a leg in terms of the percentage of your income that was devoted to phone service. If you wanted to call someone long distance, the price could be in the dollars-per-minute range. Yes, having one source for your service may have delivered great reliability, but at what cost?

    When they finally allowed you to buy your phone from another company, rather than rent it at some insanely-high price, you still had to provide the carrier appropriate information from the handset so they knew what you had and how it would impact their network.

    Today, of course, you have loads of options for basic phone service, and some of them use the Internet for most or all of their connections. A decent wired handset can be had for less than $10 and you can save money if you choose the same provider for telephone, Internet and TV. Such a deal!

    Yes, it’s true that if you’re in a decidedly rural section of the U.S., your options are not nearly as wide. You may be tethered to a single provider for landlines and the Internet. Yes, you may be able to use a satellite dish for the latter, but that is a poor solution for Internet phone service.

    The wireless carriers, however, each consider themselves the equivalent of Ma Bell. One of them, of course, AT&T Wireless, is the direct descendant of that original telephone company that spread through the length and breadth of the country.

    Although the wireless companies have been dragged kicking and screaming into loosening their stiff account requirements, the basic package is still the same. You buy both the service and the handset from a single carrier, and moving to another carrier generally entails a complicated configuration process, or just buying a new phone.

    Now Apple and AT&T have gotten some pretty bad press about tying your iPhone to the latter. Maybe it’s the straw that broke the camel’s back, because the setup is no different than the one you’d encounter if you bought a Motorola RAZR or a BlackBerry from AT&T. You might regard this attitude as hypocritical, but you also have to respect the fact that the complainants are absolutely right on.

    Indeed, you should be able to buy the phone you want, and then choose the carrier you want, just the way it’s done in Europe. To make matters all the more complicated, there are two competing wireless systems in the U.S. One, GSM, is mostly compatible with the rest of the world. It’s used by AT&T and T-Mobile. The other system, CDMA, is embraced by Alltel, Sprint and Verizon Wireless.

    It really doesn’t matter which protocol is superior. But it does put your phone into two distinctly separate and incompatible camps. Within those camps, there is movement to allow you to move from one carrier to another, but you are still locked into a service contract of one or two years. If you break that contract after the initial 15-day or 30-day trial period, you are legally obligated to pay an early termination fee.

    Now the logic behind the fee is questionable, but at least the carriers are starting to pro-rate the charges, so if you’re near the end of the deal, you might be able to get out from under this arrangement for a smaller ransom. Usually it’s $175 at the beginning, but it is approximately $60 just before your contract ends, according to the latest terms of service from Verizon.

    There are, however, sites that allow you to sell or pass off your contract to someone else for a modest fee, but that is surely a clumsy workaround for a process that makes little sense, other than to enrich the carrier.

    Yes, all these companies claim they are losing money on a customer as the result of early termination, since they usually subsidize the purchase of the phone, and there are other fees that are allegedly associated with configuring a new account. In practice, a company that can’t deliver a level of service that you find acceptable deserves to lose your business and take their losses.

    I mean, I pay a monthly fee to my local cable TV service for my landline phone, Internet and cable TV. If I decide to go to another company — and there are options here — I just cancel and all I have to do is return the cable TV set top boxes and we’re done. No extra fees involved. The only way they can retain my business is to earn it. Period.

    If the growing complaints about the iPhone’s lock-in with AT&T bear fruit, maybe the wireless carriers will at last enter the 21st century. Maybe there will even be a widespread development of low-cost phones that support both CDMA and GSM, so you will, at last, have the cell phone freedom you deserve.



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    2 Responses to “The U.S. Cell Phone Industry is Stuck in the 1950s”

    1. Dana Sutton says:

      “Yes, all these companies claim they are losing money on a customer as the result of early termination, since they usually subsidize the purchase of the phone…” Yeah, this is certainly part of the problem, and the solution might be to decouple the purchase of cell phones and similar devices from the purchase of service contracts. In fact, try buying a cell phone pure and simple without purchasing a contract. It can be done, but it’s not all that easy.

    2. Andy Carolan says:

      I think from what you say Gene, the UK cell industry appears to be somewhat more liberal than its US counterpart. Most phones here are available on all carrier providers each offering comparable tarrifs with the excpetion being “exclusives”. It allows the opportunity to choose the carrier depending on network coverage and features while still being able to have the phone you want. Aside from the normal pay-monthly tariffs, we also have pay-as-you-go where the phone is purchased up front and the calls are paid for either by topping up to maintain an account balance to cover calls or by monthly bank transfer for the calls made. Im not sure if the US has anything like that, but it is more practical for “light” users who still need a phone but without the tariffs that normally come with them.

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