By contributor
updated 8/27/2009 8:57:44 AM ET 2009-08-27T12:57:44

Do Americans overpay for cellular service?

Six consumer-oriented organizations answered a forceful "yes" in a July federal filing with the Federal Communications Commission. Backing their assertions is an international study concluding Americans pay the world's highest cell phone rates. And a U.S. senator is examining whether text messaging is priced out of line.

The cellular industry is vigorously refuting assertions it's anticompetitive, in pricing or other respects.

"It's not business as usual for the cellular industry," said Charles Golvin, a principal analyst for Forrester Research. "A number of vocal inquiries are being raised these days about many issues: handset exclusivity, phone applications, messaging prices and pricing in general."

Paul Orchard, 33, a self-described "cellular power-user" living in Seattle, said he sees American cellular service as reasonably priced overall, but limited.

"I've researched it thoroughly, and even though good prices can be found, some aspects of our service aren't as good as elsewhere in the world," he said. "Most countries charge only for outgoing calls, not incoming calls, and some allow minutes to be bought and sold by individuals. Our service is less flexible, which makes it not as good a deal."

So far, dueling statistics yield no clear answer on whether Americans pay too much for their beloved cellular service, though an upcoming FCC inquiry may provide insight.

Costliest service?
U.S. residents pay the world's highest rate — about $53.30 per month — for a "medium-use package" including 780 minutes of outgoing voice calls, 600 text messages and eight multi-media messages per year, says an August report by the Paris-based Organization for Economic Cooperation and Development.

In contrast, Finns, Swedes and the Dutch pay $11 to $12 per month for the same plan, according to the report, which covers 26 countries.

Americans also pay the most — about $22.50 a month — for what the group termed a "low-use package" including 360 minutes of outgoing voice calls, 396 text messages and eight multimedia messages per year. That compares with $4.16 a month in the least expensive country, Denmark, with Finland, Sweden and Norway just slightly more expensive.

But the OECD's data is misleading, said the Cellular Telephone Industry Association, the official voice of the cellular-service companies.

Not an accurate reflection
For one thing, Americans use far more minutes than those in other countries: an annual average of 9,600 minutes, according to the OECD. It also said the average U.S. wireless consumer sends or receives more than 400 text messages each month.

"What the OECD did doesn't even remotely reflect the state of pricing here," said CTIA vice president Chris Guttman-McCabe. "They picked a customer who doesn't exist in the U.S., and then gave him a plan that makes no sense for him."

The OECD used a single AT&T plan, offering a 450-minute-per-month bucket, for its study.

"We don't know why they chose that and ignored lower-priced packages," he said.

The more appropriate comparison, he said, would have been something like T-Mobile's "Pay As You Go" offering of $100 per year for a monthly cap of 1,000 minutes, text messages at 10 cents each and multimedia messages at 25 cents each.

At about $13.25 per month, that plan would rank the U.S. among those countries with the lowest cellular-service costs. And, he said, prepaid plans such as BoostMobile's would easily have competed with the lowest-cost OECD offerings.

Both plans were available in 2008 when the OECD made its study, and both offer totals close to or below the least expensive plans in the other OECD countries.

In any case, the CTIA said, the proper way to view cellular costs is by minute, not in bundles. By that measure, the U.S. is among the cheapest in the world.

June figures from Bank of America/Merrill Lynch show Americans on average pay 5 cents per minute for cellular service, compared with an international high of 28 cents per minute in Switzerland.

The U.S. figure is tied for cheapest with Colombia and Russia but is more expensive than nine other countries, including Bangladesh, Pakistan and the Ukraine.

Other studies vary in their findings about Americans' happiness with their cellular service costs.

A first-quarter 2009 survey by the University of Michigan showed satisfaction grew from the prior year, up 1.5 percent to 69 points out of 100 — a new all-time high for the category.

Cost of service and perceived value were part of the satisfaction measure. The survey, referred to as the American Customer Satisfaction Index, included 25,000 subjects and had a 1 percent margin of error.

But a late 2008 study of 51,700 callers by Consumers Union, which publishes Consumer Reports, showed cost was the top complaint about cellular service for 14 percent of respondents.

FCC may focus on cellular
The FCC, charged with regulating the cellular industry, is expected to weigh in on cell-service costs in its annual report to Congress, due in January. The agency, reconstituted by the Obama administration, appears to be taking a special interest in that industry, several observers said.

In July, six consumer-oriented organizations — the Consumer Federation of America, Consumers Union, Free Press, the Media Access Project, the New America Foundation and Public Knowledge — told the FCC that the industry is overcharging.

In a 30-page filing, the organizations dinged providers for charging customers for both sending and receiving calls and text messages, unlike in most other countries. Most countries charge only the calling party.

The groups also criticized carriers for charging high rates for messages not bought as part of a plan, alleging that arrangement drives consumers to buy more expensive plans than they need and resulting in "pure profit" for the carriers.

The CTIA refuted all those allegations in writing, asserting that "U.S. consumers pay the least per minute of use of any OECD country."

The commission has prepared reports to Congress for 13 years in a row, and to some extent, the wrangling between consumer organizations and the cellular industry is mere background noise — advocacy as usual between natural antagonists.

This time may be different
But this year may be different. The commission is staffed with all new members and has been headed since late June by chairman Julius Genachowski. Those changes could make it more receptive to anticompetitive complaints than it was during the Bush administration, some say.

"Genachowski is definitely pro consumer," said Tim Doyle, senior industry analyst with news and data service SNL Kagan. "He also has some pretty serious business experience, so I think he'll approach it from a balanced perspective. It's fair to say he's interested in knowing whether Americans are paying too much, and I think the industry is worried with him, because he's an unknown quantity."

Pricing is more of an issue now than in years past because there's been so much consolidation in the industry lately, said Joel Kelsey, a policy analyst with Consumers Union. As the market consolidates, price competition tends to diminish, Kelsey said.

In recent years, AT&T Wireless and Cingular merged to form AT&T, which then acquired Dobson Communications and Edge Wireless. T-Mobile bought SunCom. Verizon bought Rural Cellular, SureWest, West Virginia Wireless and, most significantly, Alltel.

Text messaging costs
In June, Sen. Herb Kohl, D-Wis., convened a hearing of the Judiciary Committee's Antitrust Subcommittee to examine rising text message prices and the state of competition in the cellular industry.

He said the nation's four leading carriers all doubled per-message prices between 2006 and 2008, to 20 cents per message. Yet, he said, the carriers' cost to deliver each message — about 0.3 cents — hadn't increased.

In a letter after the hearing, Kohl called on the Justice Department's antitrust division to "take all actions necessary to ensure that the market remain (sic) open to competition." Noting that no evidence pointed to collusion among cellular carriers, he still asked the FCC to examine "parallel pricing and parallel conduct from providers."

So far, neither agency had taken any action in response to the hearing or the letter.

Meanwhile, the CTIA remains confident Americans are satisfied with the pricing of their cellular service.

"In a debate over wireless prices, I'm perfectly comfortable that the overwhelming majority of Americans would think they're pretty well positioned compared to the rest of the world," said Guttman-McCabe of CTIA.

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