Dubious competition in the cell phone market

Back when I worked for Industry Canada in the mid-1990s, I sat on an internal panel that reviewed the applications for digital cellular telephony (what was then called PCS, or Personal Communications Systems). It was an interesting experience, including getting fingerprinted by the RCMP to get Secret security clearance. We basically chose to license a number of new carriers to add competition to a market that was then just a two big corporations using analog technology.

All these years later, I still do not have a cell phone, though I just spent some of my lunch hour comparison shopping for one. Up to now, I have not taken the plunge because I am usually at home or work, or simply do not want to be contacted when out and about. But I would like something simple, a pay-as-you-go plan for those occasional times when I need to make or receive a call, without all of the crap that generally comes with have a service plan.

Alas, this dream of cell phone simplicity still does not exist. All four providers in Vancouver essentially offer the same two options: (1) a contract for up to three years, minimally at $25 per month but with extra charges and taxes figure closer to $40 (but with the phone at a discount); or (2) a pay-go plan where the purchased minutes disappear at month’s end if not used (there are provisions for rolling over minutes, but there is a minimum that must be purchased), for about $20 per month (and full cost on the phone itself). No matter who I sign up with, I can pretty much be guaranteed crappy customer service.

These options basically mean it is uneconomic for me to buy a cell phone and get service. This is strange because some company should be able to make money off of me and the countless others in the same boat. In the UK, you can get a pay-go plan that does not expire each month. All over Europe and the US, there is more competition and prices are lower, so there is a higher penetration rate for cell phones. But here it is the same old oligopoly that controls almost all of the local service, long distance and internet access markets.

In spite of the advent of number portability this year, and huge cellular margins (like 50%, though I need to go and look up the reference), this does not seem to have sparked a round of price cutting, or revised service plans. In imperfectly competitive markets, this is known as a Nash equilibrium (as in John Nash of A Beautiful Mind fame) – there need not be any overt collusion among the players, but having settled into a profitable equilibrium, there is not much incentive to change, or all (companies) will be worse off. And extremely high costs of entry pretty much guarantee this is not going to change, unless the government creates a Crown corporation to compete in this market on a not-for-profit basis (and that is not going to happen any time soon).

This article from the Globe, Dial W for a wireless clash, from last November, that adds some interesting background to the issue.

UPDATE: November 2007 (six months later). I am now among the cell phoned masses after a long hold out. Got the Rogers pay-as-you-go plan for $10 minimum a month and about $150 including taxes for a sweet Motorola Razr phone.


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