Last year, a new company called Lightsquared promised an innovative business model that would dramatically lower cell phone costs and improve the quality of service, threatening the incumbent phone operators like AT&T and Verizon. Lightsquared used a new technology involving satellites and spectrum, and was a textbook example of how markets can benefit the public through competition. The phone industry swung into motion, not by offering better products and services, but by going to Washington to ensure that its new competitor could be killed by its political friends. And sure enough, through three Congressmen that AT&T and Verizon had funded (Fred Upton (R-MI), Greg Walden (R-OR), and Cliff Stearns (R-FL)), Congress began demanding an investigation into this new company. Pretty soon, the Federal Communications Commission got into the game, revoking a critical waiver that had allowed it to proceed with its business plan.
And so Americans continue to have a small number of expensive, poor quality cell phone providers. And how much does this cost you? Take your phone bill, and cut it by 80%. That’s how much you should be paying. You see, according to the Organization for Economic Cooperation and Development, people in Sweden, the Netherlands, and Finland pay on average less than $130 a year for cell phone service. Americans pay $635.85 a year. That $500 a year difference, from most consumers with a cell phone, goes straight to AT&T and Verizon (and to a much lesser extent Sprint and T-Mobile). It’s the cost of corruption. It’s also, from the perspective of these companies, the return on their campaign contributions and lobbying expenditures. Every penny they spend in DC and in state capitols ensures that you pay high bills, to them.
This isn’t obvious, because much of how they do this has to do with the structure of the industry. Telecommunications isn’t like selling apples, where you have a lot of buyers and sellers. In a business like buying or selling apples, all you need is an apple tree to get into the business. Cell phones aren’t like that. It’s a business where you sell services on top of a network of cell phone towers that can transmit phone calls and data, and these networks cost tens of billions of dollars to build. But even if you have the money to build one, you still might not be able to, as the Lightsquared example shows. These networks all use public airwaves, or “spectrum”, and you need government permission to use it. Remember the electromagnetic spectrum you learned about in school? The government literally leases that out to companies, and they make radios, microphones, wifi routers, and cell phones that use it.
The GOP — especially it’s Tea Party advocated — like to call themselves “libertarian.” It’s a lie of course. The GOP has its nose buried in the butts of established big businesses that have no tolerance for the free market. That’s why they gin up the rules to force companies like Lightsquared out of business. And the Democrats are of little help.