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Spectrum Fees May Preclude US Low-Cost Cellular

kdawson posted more than 5 years ago | from the no-free-lunch-or-breakfast-or-even-tea dept.

Cellphones 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."

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246 comments

Stimulate economy? (4, Insightful)

eggman9713 (714915) | more than 5 years ago | (#27027315)

Maybe Obama is banking on them passing it on to the customers. It means more money into the economy through increased charges. They could just put th

Re:Stimulate economy? (1, Insightful)

omeomi (675045) | more than 5 years ago | (#27027401)

Of course they're going to pass the fees on to customers. What else are they going to do, hold a bake sale?

Re:Stimulate economy? (1)

eggman9713 (714915) | more than 5 years ago | (#27027475)

No idea why my previous comment got cut off, but what I meant to say is that the government could put this "fee" into the federal reserve so they can give more bailouts to the cellular industry.

Re:Stimulate economy? (2, Insightful)

Anonymous Coward | more than 5 years ago | (#27027647)

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.

Just another hidden tax (4, Insightful)

yog (19073) | more than 5 years ago | (#27027901)

(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.

Simply pass the fees? (2, Insightful)

iminplaya (723125) | more than 5 years ago | (#27027321)

They'd be insane not to.

Re:Simply pass the fees? (-1, Flamebait)

Anonymous Coward | more than 5 years ago | (#27027329)

But Obamaman's not going to increase taxes on you. Except for new energy taxes ... and FCC fees ... you get my drift. We're not fucked. Our children are fucked.

Re:Simply pass the fees? (1)

iminplaya (723125) | more than 5 years ago | (#27027367)

Look, it doesn't matter who you got up there on camera. The army of bureaucrats must be fed. They are the people who run your government. They make the rules. You answer to them.

Re:Simply pass the fees? (1, Informative)

Anonymous Coward | more than 5 years ago | (#27027481)

You've seen the many-digit number they call the National Debt right? A few fees in order to support the budget now are going to be among the least of the children's worries.

Re:Simply pass the fees? (-1, Troll)

pallmall1 (882819) | more than 5 years ago | (#27027831)

You've seen the many-digit number they call the National Debt right?

I've seen the many-digit number they call the Porkulus [wizbangblog.com] plan.

The only thing that bill stimulates is government spending. Now the democrats want to follow it up with the "taxulus" plan.

Re:Simply pass the fees? (1, Interesting)

Anonymous Coward | more than 5 years ago | (#27027573)

I work for a small business owner who's cheering Obama on. He wants gubermint paying for his kids college. He wants 'free' healthcare. He wants this stuff so bad that he is willing to accept whatever 'hidden' taxes appear; he won't have a word of complaint about those.

This country has crossed a threshold; there are enough voters that either currently depend or are are willing to become dependent on government that no other position politically viable. You either buy your voters or you don't get elected.

So, keep your criticism anonymous and steal what you can. Everyone else is.

Do the math... (4, Informative)

aaarrrgggh (9205) | more than 5 years ago | (#27027337)

$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... (4, Interesting)

icebike (68054) | more than 5 years ago | (#27027381)

> 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.

Re:Do the math... (1)

Puffy Director Pants (1242492) | more than 5 years ago | (#27027463)

Perhaps in something like water or sewer where nothing changes.

The work crews digging up the road by my house would beg to differ.

Re:Do the math... (3, Funny)

plover (150551) | more than 5 years ago | (#27027687)

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 ...

Re:Do the math... (2, Interesting)

Reziac (43301) | more than 5 years ago | (#27027829)

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.

tax in disguise (4, Insightful)

token_username (1415329) | more than 5 years ago | (#27027341)

"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 (4, Funny)

ArsonSmith (13997) | more than 5 years ago | (#27027393)

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.

Re:tax in disguise (1)

Shakrai (717556) | more than 5 years ago | (#27027643)

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? ;)

Re:tax in disguise (3, Funny)

plover (150551) | more than 5 years ago | (#27027695)

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.

Re:tax in disguise (1)

pcolaman (1208838) | more than 5 years ago | (#27027861)

With fucking parachutes, man. With fucking parachutes... *insert joke about bailed out companies having to deliver pizzas via Delta or American Airlines*

Re:tax in disguise (0, Troll)

Anonymous Coward | more than 5 years ago | (#27027413)

Right! Corporations should have everything for free. We should do everything they want. And I suppose you want to polish Bill Gates' balls too.

You are basically arguing the same old tired right wing arguement. Spectrum is a resource. How do we sell it and get the fair market value? Well you auction it off dumbass!

If these companies are dumb enough to pay too much then they go out of business and the spectrum goes right back to the American People. And another company picks up the infrustructure for a bargain. THAT'S HOW CAPITALISM IS SUPPOSED TO WORK!! ITS SUPPOSED TO BE MESSY.

You idiots are arguing for a perfect world where the government decides who to *give* away resources too. YOU DUMBASSES are COMMUNIST acting like capitalist.

Re:tax in disguise (3, Informative)

Shakrai (717556) | more than 5 years ago | (#27027435)

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?

Re:tax in disguise (2, Informative)

icebike (68054) | more than 5 years ago | (#27027621)

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:tax in disguise (2, Insightful)

Reziac (43301) | more than 5 years ago | (#27027811)

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."

Re:tax in disguise (1)

pcolaman (1208838) | more than 5 years ago | (#27027875)

That "same old tired right wing argument" is going to land a bunch of Democrats out of jobs in two years if the spending spree fails. Then they can say that the "same old tired right wing argument" caused more unemployment...theirs.

Re:tax in disguise (0)

Anonymous Coward | more than 5 years ago | (#27027487)

Corporations don't pay taxes. People pay taxes.

Lrn 2 economics n00b.

Re:tax in disguise (3, Insightful)

rhakka (224319) | more than 5 years ago | (#27027433)

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?

Re:tax in disguise (1, Insightful)

Shakrai (717556) | more than 5 years ago | (#27027471)

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:tax in disguise (2, Informative)

afidel (530433) | more than 5 years ago | (#27027543)

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.

Re:tax in disguise (0)

Anonymous Coward | more than 5 years ago | (#27027879)

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.

Looking at my current portfolio, I'd kill for 13% returns....

Re:tax in disguise (3, Funny)

tobiasly (524456) | more than 5 years ago | (#27027903)

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...

Re:tax in disguise (4, Insightful)

mysidia (191772) | more than 5 years ago | (#27027619)

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:tax in disguise (1)

icebike (68054) | more than 5 years ago | (#27027693)

> Currently carriers pay a one-time fee for a bit of spectrum and get it for life, that isn't in the public interest.

Its an asset. They can't make money on it unless they put it to use.

If they had any unused spectrum your argument would make more sense.

Its in the public interest to use our (Yes, OUR) radio spectrum. Allocating it to companies who will put it to the use that WE WANT, is in our interests. Turning around and taxing them on their "use" is just so much self flagellation. Tax their profits and let it go at that.

Space for Freeways is scarce.
We need Freeways
Government allocates space for freeways. (Buying it if necessary).
Private contractors build Freeways.
States maintain them.
Should we tax these contractors and States every year for the land allocated to roads?

What we have here is a stealth libertarian (1)

cybrthng (22291) | more than 5 years ago | (#27027783)

Who are you trying to fool here? You honestly think if the government even offered these for pennies on the dollar that it would translate to lower fees for the consumer?

In our "Free market" private investment firms would snatch these up and re-market them for a profit. Why is the government exclusive of selling a spectrum for what its worth?

Why can't the free markets come up with new technologies that don't depend on the government subsidizing them?

Re:tax in disguise (1)

Reziac (43301) | more than 5 years ago | (#27027799)

Since Mr.Obama is so good at fundraising, he's just putting his best skills to work -- separating citizens from their wallets.

How about the gov't stops spending so much?? Then it wouldn't NEED new stealth taxes..... and citizens don't get to go out and rob someone every time WE get strapped.

Hmm.... there's a thought. Next time you overspend your credit limit -- rob the government!!!

Re:tax in disguise (1)

fishbowl (7759) | more than 5 years ago | (#27027817)

Either the market can bear the higher cost, or it cannot. And if it can, and if that helps alleviate the shortfall government's budget deficit, then so be it. If the market *can't* bear the higher cost, then the companies *can't* "pass the costs on to the consumer", since that's the definition of the price level the consumer won't pay.

Actual Cost (5, Insightful)

rm999 (775449) | more than 5 years ago | (#27027343)

"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:Actual Cost (1, Insightful)

CrimsonAvenger (580665) | more than 5 years ago | (#27027411)

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.

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:Actual Cost (1)

Shakrai (717556) | more than 5 years ago | (#27027447)

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 ;)

Makes absolutely no sense (1)

cybrthng (22291) | more than 5 years ago | (#27027797)

The government is selling a managed spectrum for what its worth. Period.

Why is it a tax if the government provides a service (which it is) but if a business provides a service its called a service?

Re:Actual Cost (1)

pcolaman (1208838) | more than 5 years ago | (#27027885)

You are assuming the companies will do the right thing and tax a percent per customer that will add up to just that tax. I predict that they will tell their customers that new $4.50 added fee per month is due to the new imposed tariff by Obama, and laugh as they find yet a new way to make money off of suckers (see also: US Consumers).

Georgism 101 (0)

Anonymous Coward | more than 5 years ago | (#27027349)

Carriers cannot pass on ad valorem taxes like this; they will charge what the traffic will bear, no less & no more.

Taxes might force companies to give up the spectrum rights as uneconomic holdings, however.

Re:Georgism 101 (2, Interesting)

icebike (68054) | more than 5 years ago | (#27027423)

> 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:Georgism 101 (2, Funny)

tobiasly (524456) | more than 5 years ago | (#27027921)

> 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:Georgism 101 (0)

Anonymous Coward | more than 5 years ago | (#27027801)

Uh YES they do. They can not just call it out as a separate 'fee'.

Where do you think the money for those taxes (lets call them what the are not, fees) comes from? It comes from the customers. It is not magically made up somewhere else. The customer PAYS it.

Taxes or fees (1, Insightful)

microbee (682094) | more than 5 years ago | (#27027355)

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:Taxes or fees (4, Insightful)

Shakrai (717556) | more than 5 years ago | (#27027427)

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:Taxes or fees (1)

jesser (77961) | more than 5 years ago | (#27027465)

I believe the argument is that it's worse than increasing income taxes (which are progressive) by a similar amount.

Re:Taxes or fees (1)

Shakrai (717556) | more than 5 years ago | (#27027485)

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:Taxes or fees (2, Informative)

afidel (530433) | more than 5 years ago | (#27027571)

I'm pretty sure he's referring to the fact that this type of flat use tax is regressive which is generally considered to be bad since it has a much higher marginal rate on those least able to afford it. Basically if the government wants more funding they should come up with a more progressive tax system to grow the overall economy (regressive taxes reduce the rate of currency flow through the market).

Re:Taxes or fees (1)

Shakrai (717556) | more than 5 years ago | (#27027579)

taxes reduce the rate of currency flow through the market

Fixed that for you. You had an extra word in there.

Re:Taxes or fees (1)

afidel (530433) | more than 5 years ago | (#27027607)

True, but regressive taxes do so to a larger extent.

Re:Taxes or fees (0)

Anonymous Coward | more than 5 years ago | (#27027791)

Being able to define "flat" as "regressive" and not be challenged on it is a wonderful victory for the "success must be punished" crowd.

Re:Taxes or fees (1)

BradleyUffner (103496) | more than 5 years ago | (#27027745)

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?

Nope, I believe the "poor" should pay less because the price impacts them more.

Re:Taxes or fees (1)

Shakrai (717556) | more than 5 years ago | (#27027761)

Nope, I believe the "poor" should pay less because the price impacts them more.

For cellular service? Really? What other critical life necessities should be subsidized? Cable TV? Internet access? Gasoline? Why should the poor pay the real cost of anything when we can just steal it from the rich?

Re:Taxes or fees (1)

jonaskoelker (922170) | more than 5 years ago | (#27027895)

E-911 fees

My head just asploded right there.

So let me get this straight: if your house is on fire and you have a phone and no money left on your prepaid card, you can't call the fire department?

You gotta' be fucking frigging kidding me. You Americans have to put up with that shit?

- Jonas

(Oh, well I'm from China^W Denmark, so I have to put up with all ISPs censoring TPB. Thanks, censoring dumbasses of the IFPI.)

Re:Taxes or fees (1)

jarrettwold2002 (601633) | more than 5 years ago | (#27027453)

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.

Re:Taxes or fees (1)

Shakrai (717556) | more than 5 years ago | (#27027549)

Listen at the end of the day, where do you expect the government to make more revenue?

Why does the Government need more revenue? Oh, that's right, people want stuff for "free"......

Re:Taxes or fees (0)

Anonymous Coward | more than 5 years ago | (#27027913)

It isn't actually, the most successful companies will be those who pass the least of the cost onto their customers.

Besides, I don't see why the government should give away a valuable, limited, public asset to private companies. Let them pay market price, the last thing the providers need is corporate welfare.

It makes a lot of sense economically - free radio spectrum is pretty limited and highly in demand, so putting a price that reflects it's (huge) value encourages companies to actually make efficient use of it.

Cirtics say... (2, Interesting)

icebike (68054) | more than 5 years ago | (#27027365)

> 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:Cirtics say... (1)

mbratton (1489367) | more than 5 years ago | (#27027385)

exactly. critics aren't saying this -- everyone with a cell phone bill is. I already get charged for "FEDERAL UNIVERSAL SERVICE CHARGE" and "REGULATORY COST RECOVERY CHARGE". how long before I see "SPECTRUM LICENSING CHARGE"?

Re:Cirtics say... (1)

techno-vampire (666512) | more than 5 years ago | (#27027711)

how long before I see "SPECTRUM LICENSING CHARGE"?

That all depends on how fast BO can push this through Congress, doesn't it?

Re:Cirtics say... (2, Insightful)

Gorobei (127755) | more than 5 years ago | (#27027403)

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) (1)

CupBeEmpty (720791) | more than 5 years ago | (#27027469)

The "critics" seem to know that customers are where businesses get their $$ from. Who knew?

Re:Cirtics say... (4, Insightful)

nine-times (778537) | more than 5 years ago | (#27027625)

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:Cirtics say... (1)

icebike (68054) | more than 5 years ago | (#27027735)

> Well you can't have it both ways.

Can't have WHAT both ways?

Its true that the system of capitalism allows for a profit.
Its true that all taxes are paid by the customers.

Those two facts are in no way in disagreement, and not at odds with one another.

Its perfectly rational to allow a profit and oppose a tax.

The profit pays pack loans, funds development (GSM, 3G, 4G, 5G), buys groceries, yachts, hires maids, and pays taxes.
Does the tax do any of that?

Re:Cirtics say... (0)

Anonymous Coward | more than 5 years ago | (#27027639)

No. The only costs that are passed on to consumers are those that affect an entire industry; if the cost does not affect the entire industry and a business affected by it can get away with raising the price to compensate, they'd have raised the price already. Competition prevents costs from being passed on.

Except in cases like this where, as mentioned, everyone's costs are going up by the same amount.

haha (0)

Anonymous Coward | more than 5 years ago | (#27027371)

and i still don't own a cell phone, suck on that bitches!

I just keep mine in a drawer in my desk.. (0)

Anonymous Coward | more than 5 years ago | (#27027387)

People still use cell phones?
Ha, suckers.

Little Wonder (5, Insightful)

Programmerangel (882072) | more than 5 years ago | (#27027405)

It is not surprising that the carriers are paying so much for a license. People that have studied wireless technologies know that the wireless spectrum is arguably one of the most valuable resources on earth. There is simply not enough space in the spectrum for us to do everything that we want to do.

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:Little Wonder (1)

icebike (68054) | more than 5 years ago | (#27027513)

The shortage you perceive is fiction.

The lower frequencies still provide plenty of bandwidth for the task at hand, and even better building penetration than the cell frequencies.

The real problem of the imaginary shortage is the obsolete method of allocation for point to point radio with ever little agency of government using discrete frequencies. The NET effect over all such frequencies is that the entire chunk of the spectrum is idle 99.999 percent of the time. Its way worse than 11% you quote.

If this traffic were packetized, spred-spectrumized, time-divided, code-divided, etc, like cell traffic, you could serve an every agency in an entire state with the same bandwidth reserved for a small town sheriff's office. You touch on this later in your post, but you still fall prey to the shortage fallacy.

If the 20 billion were fed back into re-equipping radio coms for every street sweeper, fire truck, and utility agency in 3 years we would have an excess of bandwidth an frequency space sufficient for 100 years of growth. But it won't be, it will be swept into some welfare pot to buy condoms for crack addicts or something.

Re:Little Wonder (2, Insightful)

Shakrai (717556) | more than 5 years ago | (#27027537)

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.

Re:Little Wonder (1)

afidel (530433) | more than 5 years ago | (#27027601)

Do you have a link to your research? I'd love to see what bands are most heavily utilized.

Of course the carriers won't pass the fees on (2, Informative)

Russ Nelson (33911) | more than 5 years ago | (#27027431)

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? (2, Insightful)

Pinckney (1098477) | more than 5 years ago | (#27027459)

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:How? (1, Informative)

Anonymous Coward | more than 5 years ago | (#27027551)

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?

You're basically saying, "The price is already set at the point where the supply and demand curves meet, so wouldn't raising prices result in lower revenues?"

If supply and demand curves were fixed, you would be absolutely correct: changing the price in either direction would result in a loss of revenues. However, the price and demand curves are not fixed: when the seller faces new or higher expenses, the supply curve shifts along the price axis in the positive direction. This means that the supply and demand curves now meet in a new (more expensive) place, which means that the supplier must increase prices to maximize revenues.

In this case, you may see the shift in the supply curve offset by a shift in the demand curve: many people will have less money to spend on cell phones, which means that the demand curve will shift in the direction of lower prices. Whether one or both of these shifts occur, the effect on volume will be the same: fewer people will buy mobile phone service (more specifically, the rate of new adoption will decline and existing users will cut back on their talk times).

Re:How? (1)

icebike (68054) | more than 5 years ago | (#27027613)

When ALL carriers pass on these taxes, where are customers going to go to avoid them?

Why drop Sprint when ATT will charge you the same?

Further, there is no reason to believe they charge "so as to result in the maximum profit."
There is a strong tendency in any business NOT to test LOWER rates, if you are comfortable
with the profit you get now.

The best that can be said is that they don't RAISE their rate much ahead of the competition.

Thus, rates ratchet up. This is also why all carriers are
within a few pennies of each other when you compare equivalent plans.

But when the feds tack on new taxes and fees, soon all carriers will ratchet up again.

Re:How? (1)

johnsonav (1098915) | more than 5 years ago | (#27027671)

When ALL carriers pass on these taxes, where are customers going to go to avoid them?

Why drop Sprint when ATT will charge you the same?

People won't switch carriers. But some, who were previously able to afford a cell phone, won't be able to pay the increased cost. They'll simply not have a cell.

Re:How? (2, Informative)

Timothy Brownawell (627747) | more than 5 years ago | (#27027617)

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" end due to needing to buy spectrum and such. So the prices will go up some, and profits will go down some (probably slightly more, because of limited competition).

Re:How? (0)

Anonymous Coward | more than 5 years ago | (#27027763)

Your assumption that it is in the 'up front cost'.

My 'cost per month' is 69.95. After all of the fees, taxes, extra line charges, etc, it ends up being ~92 a month. It also seems to vary by 1-2 dollars.

That ladies and gentlemen will be how this fee is passed on. No one will notice it. They only care about the advertised price. All carriers will have the same fee so there will be no change in the market.

The companies are using a bit of subterfuge to 'hide' the rate. Thus artificially depressing where the marginal rev = marginal cost is. Long term people figure it out. Short term they only care about the 'big number' that is advertised. It the same reason why sales tax is not included on the tag in stores. To make the price *look* like it is cheaper than it is.

Now what will happen also is a 'few' people will fall out long term. As there will be a few who switch back to land line only.

But remember to give your change (hehe) to the government they need it so they can give it to citibank, aig, gm, and Chrysler, and whoever else wants to feed at the trough of the inflation flowing out of the government.

Never Happen (2, Insightful)

DaMattster (977781) | more than 5 years ago | (#27027467)

This will never happen because the low cost cellular market is starting to heat up. Take a look at Boost Mobile, http://www.boostmobile.com/ [boostmobile.com] which offers a $50 a month unlimited plan as an example. T-Mobile will soon be following suit. There will be consumer back lash against exhorbitant cellular service costs. For years now, cellular service has been way overpriced and I am thankful for Boost dropping the boom on it. While I do not use Boost, I am a T-Mobile customer and T-Mobile is already in serious consideration of matching Boost's service. When this happens, I will pretty much be a T-Mobile customer for life. While their coverage might not be as good as other GSM carriers, their customer service is outstanding.

Re:Never Happen (1)

Shakrai (717556) | more than 5 years ago | (#27027519)

While I do not use Boost, I am a T-Mobile customer and T-Mobile is already in serious consideration of matching Boost's service. When this happens, I will pretty much be a T-Mobile customer for life. While their coverage might not be as good as other GSM carriers, their customer service is outstanding.

I love T-Mobile but there's a reason why their rates are so much cheaper: Their network sucks donkey balls. They have to compete on price and customer service because there's no way in hell they can match Verizon or AT&T on coverage. They are fine and dandy if you live in a major city and rarely venture outside of it -- if you don't though they aren't really an option. Here in Upstate NY they cease functioning (if you are lucky you can roam on AT&T but half the time you can't) the minute you leave the city/expressway.

Verizon are an arrogant bunch of SOBs but they do actually have the network to back it up. What are you going to do, leave? Go ahead -- you'll be back. That's their attitude and until their competitors invest in the same type of network it isn't likely to change. AT&T might be able to do it but it will take decades for T-Mobile to -- if they are even interested in doing so.

You voted for the nigger . . . (-1, Flamebait)

Anonymous Coward | more than 5 years ago | (#27027499)

Now live with your mistake you filthy whiggers.

Bonus: Obama's Heritage. [resist.com]

OH the poor telcos (0)

Anonymous Coward | more than 5 years ago | (#27027521)

Do I detect some hand wringing for the telcos bottom line here? Do you feel that you have been taking advantage of them? Maybe a donation is in order. WTF! this is public property, leased through an AUCTION, nobody twisted anyone's arm here. Whats more this property was kidnapped from the public and replaced by an inferior slice of bandwidth for HDTV. It was the telcos that have been lusting for this property since day one.

Not A Free Lunch! (3, Insightful)

logicnazi (169418) | more than 5 years ago | (#27027547)

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.

But Fees Are Awful (1)

logicnazi (169418) | more than 5 years ago | (#27027557)

To clarify I'm defending the initial auction which the summary seemed to lump in with the fees.

I think the fees are abominable. From an economic perspective all they are doing is penalizing use of cellphones. There is no justification for not simply raising taxes more generally and avoiding this skewing effect.

These are TV frequencies (1, Interesting)

Anonymous Coward | more than 5 years ago | (#27027559)

Remember that these are analog TV frequencies, which the Obama administration has now kept from the cellular use longer than promised. The purchasers are not being allowed to use their new equipment when scheduled.

And Obama's adviser who promoted the delay is involved with several wireless companies who are already offering services similar to what the competitors will offer on 700MHz. Obama's advisor profits from the delay. Tsk.

current spectrum auctions are stupid (3, Insightful)

j0nb0y (107699) | more than 5 years ago | (#27027561)

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.

Re:current spectrum auctions are stupid (1)

Reziac (43301) | more than 5 years ago | (#27027849)

Interesting concept. And it would probably prove to be the companies that would do the most to enhance the GNP, thus benefiting the economy and the average citizen.

I somewhat disagree with the critics (2, Insightful)

Sir_Sri (199544) | more than 5 years ago | (#27027609)

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:I somewhat disagree with the critics (0)

Anonymous Coward | more than 5 years ago | (#27027717)

What's to stop them from picking up all the spectrum they can and still charging the customer to hold onto it? Sure you're thoughts are great in theory, but if they can pass all the costs onto the customer, why not grab up all the spectrum you can in order to keep others out?

Who pays for which fees? (3, Insightful)

jgarzik (11218) | more than 5 years ago | (#27027655)

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.

So the government isn't allowed to play? (1)

cybrthng (22291) | more than 5 years ago | (#27027767)

I mean, get real. If the spectrum went cheap private investors would buy it out and lease it to the highest bidder and "lil guys" would still be screwed.

"A corporation big enough to give you everything you want, is big enough to take away everything you have." -- Someone who knows the world isn't black and white.

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