Verizon-4G-LTE

Are We Paying What We Should For 4G Data?

May 11, 2014 - Written By Ray Greer

When dealing with electronics, it is very common to hear the saying “you get what you pay for.” That saying rings true the majority of the time. You pay a very small amount for an electronic and within a very short amount of time you start to experience issues. When you pay a high amount for an electronic, it is sure to last you a while. How does this saying translate into wireless service? It doesn’t, at least not when you are talking about data. To better understand how this works, we need to explain 4G and 3G data options. The common consumer is unaware as to what 3G and 4G really means. What they do know is that the wireless carrier they are shopping at has told them that 4G is better than 3G-which is true. That is usually enough for the common consumer to want 4G rather than 3G. It is also enough to get the common consumer to be content with paying more for 4G data service.Though the details suggest that for the wireless company, it is cheaper to offer 4g over 3g services. The wireless companies are not forced to explain the difference in detail by the International Telecommunications Union(ITU) either. The ITU is a branch of the United Nations whose duty is to uphold a certain standard within the wireless carrier community. They allow wireless carriers to omit the information behind 4G and 3G.

The omitted information is that 4G (in real definition) is download speeds of 1 gigabit per second in a fixed location and 100 megabits per second while moving. Part of the problem is that wireless carriers have not yet reached that real definition of 4G. Still the issue here isn’t exactly the service-it’s the price. As speeds are getting faster, they are also getting easier and cheaper for the wireless companies that provide them. Data speeds are controlled by how much data can be transferred per second. Wireless companies have been using LTE or Long Term Evolution which allows them to move more bits per second at a cheaper cost to them. Though consumers are unaware of the pricing margins. Instead all consumers see is that they are getting a better service at a higher price-not too out of the ordinary. Another way to think about it is pretend you have a block of clay, and a tiny hole in the wall the width of a number two pencil. The clay is your data and the hole in the wall is the way your data that will be transferred. Shoving a block of clay through the hole will take time, but if you widen the hole, you can push the entire block right through. As carriers get better data speeds, they are essentially just using a bigger hole. This hole may take some time to build, but once it’s done, there is a minimal effort in pushing your data through.

That description is defining data in a very minimal perspective, and it is actually way more complicated than that. For another way to look at it, we look to Steven Stravitz, who is founder of Spectrum Management Consulting. Stravitz says, “Let’s say a cell site operator allocates a 10 megabyte channel of wireless spectrum in a 3G network, you should be able to download 10 megabits per second. In a 4G network, since it’s more efficient, you should be able to get 15, which is a 50 percent increase in efficiency.” The spectrum aspect of data speeds is where things get a bit more complicated. LTE speeds depend on the spectrum they are being transferred through. Some carriers may have better spectrum than others namely Verizon and AT&T. Though data speeds will also vary based on how the carrier is utilizing their spectrum. Most of this information is not openly given to the common consumers; there is also no need to share the pricing margins with consumers either. The lack of consumer knowledge in this area of wireless services allows for carriers to make a bigger profit. Consumers go into a wireless store and see the number 4 and automatically assume that version is better and more expensive. Which means when they see a device that is 4G capable, they are willing to spend the extra cash to get it, and per month for the service. Though most carriers in the US have switched to charging you by the amount of data you use there are still some carriers that charge on what type of data you use.

Republic Wireless is a carrier in the US that can mostly be compared to Virgin Mobile or Metro PCS. Republic Wireless offers a few different plans ranging from $5 to $40/month. When you get the most expensive plan they have-$40/month- you get 4G data included. One step down from there you get all the same features except 3G data instead of 4G- and it costs $25. Essentially, customers are paying $15 more for 4G data even though it is cheaper for Republic Wireless to offer 4G data over 3G. Having lower margins on data service allows carriers to report more profits every quarter. The biggest surprise may not be the wool that has been pulled over consumers eyes. Instead the biggest surprise is how little the competition has taken advantage of this option to offer cheaper data. Say there is a store that has an orange for sale that another store has as well. Both stores got the orange for the same low price of 5 cents. Yet one store is selling the orange for $1, and the other for 75 cents. More than likely, the store selling the orange for 75 cents will get more sales and make more at the end of each day. Though for some reason, consumers aren’t seeing wireless carriers compete in this way when it comes to data, which is just keeping the prices high. The reason carriers have for charging more for the data that they are getting for less is simply infrastructure.

Carriers claim that (for the time being) they are having to build up the infrastructure to support these high data speeds. This is why they are charging us more for something they are getting for less. The idea makes sense, but what is unclear is when they have finished building the infrastructure throughout the US, will we be seeing cheaper prices for data? According to Stravitz it is highly unlikely that we will see any change in the near future. “I think something that doesn’t get discussed much is the elasticity curve,” Stravitz continued to say, “What price points people pay dictate the usage, so there’s a tie between the two. They haven’t dropped it down because they really don’t need to. The tie between how people react and what they pay is extremely strong, so operators can meter usage in essence, by the rate plans they offer.” This means that wireless carriers charge what they charge because consumers don’t know better. Therefore, consumers aren’t complaining about the prices, they just assume it’s a better service so we should be paying more. Not paying any attention to the fact that the carriers are selling us a better cheaper product for a higher price.