TMobile Sprint Merger: why are US mobile plans so expensive

We’re going to explain why data and phone
services in the US are expensive, compared to the rest of the world. Yeah, they are costly, in case you didn't
know that or live elsewhere. The US, the average price per 1GB of data,
costs $12.37, but in Sweden, a country widely known as expensive, the average price is of
$3.66, Australia $2.47, in Italy is seven times lower than the US, only $1.73! And in Israel is $0.93, almost as cheap as
India, not for nothing, it’s the country with more tech startups per capita in the
world. But why? Let me explain to you that, then subscribe,
or you can subscribe right now and then watch! First, companies composition and antitrust
laws, in the US, the enforcement of laws made to protect consumers and guarantee fair competition
in an open-market economy is less strict than the rest of the world. For that reason, companies use to buy each
other or merge between them to get bigger, size brings money, and money brings power
to raise prices, set wages to employees and influence the government. Telecommunication companies are involved in
that, also to get into other services. AT&T for example, buying Time Warner in 2018
and DirecTV in 2015. T-Mobile and Sprint, the third and fourth
biggest wireless communications providers in the US, are in the middle of a merging
process. If that merging happens, the new company will
be covering a market of 133.5 million of subscribers. And Verizon, the second biggest monster of
the market, has a section in their website only to inform about the mergers and acquisitions
they’re doing around the world. All that has driven the market in the US is
mostly covered by four companies, that’s a small number for one of the world’s biggest
markets. The UK, for example, has eight major telecommunication
providers, being a much smaller market. For the second factor, we have to check is
the bill. Where does the money you pay go? Well, there is a bunch of operation costs
companies need to cover. First, to spectrum licenses, the electromagnetic
area where the radio waves go through means lifeblood for tech companies to work, and
get access to it is tricky and expensive. The US government sell the spectrum by chunks,
using a auctions system to sell permissions to use pieces of the spectrum to the companies. The rights to use the spectrum has an expiration
date, and they can be traded between companies, creating here another reason for companies
to acquire one to another, in 2017 for example, Verizon bought a company called Straight Path,
it owned high-frequencies radio waves, useful for the upcoming 5G network. The spectrum is extremely valuable that in
2007 T-Mobile paid $8 billion for the 45% of low band spectrum, and bought more of to
Verizon for around $3 billion in 2014. Companies like Google have participated in
those auctions. After the spectrum issue, the infrastructure
issue comes, companies spend millions of dollars in building and updating their equipment along
the country, which is not immune to obsolescence, same as the rest of tech industry, for that
reason, an equipment upgrading can end up in an infrastructure replacement at all, like
in the case of the equipment needed for the upcoming 5G technologies. In the case of the cellphone towers, crucial
to provide cellphone services, phone carrier companies opt for lease or sell the operation
to specialized companies for them focus on their primary goal: an excellent service. T-Mobile and AT&T leased their towers operation
to a company called Crown Castle, and Verizon rents more than 11 000 towers to American
Towers by $258 million yearly. T-Mobile reported in 2016 this costs along
with transport costs, roaming fees paid to other carriers, long distance costs, customer
services and more, ended up in $5.7 billion expended covering the company’s operating
costs. Also, AT&T has reported costs of $361 million
from devices that they were not allowed to sell and are obsolete now, so they lost the
projected revenue, of course, they want to recover the investment in those devices. And then, taxes time! In the US, tax rates have increased 4% in
the past 11 years, but in the phone carriers industry, the growth has been of 27%, and
in 2018, wireless consumers paid $16.1 billion on taxes, and the growth don’t seem to stop,
California regulators proposed a fee for any text message sent, with the goal to get $44
million yearly from that. Illinois state charges the most significant
cell phone taxes, with a 20.91%, while Oregon has the lowest, with 2.10%. Most of those taxes go to 9-1-1 services and
to fund telecommunication services in schools, libraries, and hospitals. It is interesting to realize that phone plans
prices have been going down in the last years in the US in 23%, that has not been more,
thanks for taxes growth. For that reason, big companies have been using
their influence in the government to decrease them. Verizon, for example, got a $7.3 billion tax
subsidy from 2008 to 2012. By the way, they take advantage of that influence
to sell their services to the government too, Verizon got $6 billion of revenue from long-term
federal contracts. Phone services companies also have influenced
to establish optic-fiber cables as “common carriers”, getting the same status as services
like gas, power or water, so the price to access them is federally controlled, that
makes running new optic-fiber cables far more cost-effective. As you can see, it won’t be easy for companies
to cut costs to make bills cheaper, the spectrum fee will remain high, land for place towers
and always grows in price, and it is impossible to generate more. The development of the smartphone industry,
the constant equipment upgrading will be boosting the operation costs, for that reason, we don’t
expect a significant change in our bills soon, at least that new whole technology arrives,
like telepathy or something like that. The only real option is new competition; a
new company has the muscle to compete against the big four of the industry in the country,
like the case of Google Fi, a phone carrier service developed by Google, we made a video
about it, by the way, feel free to check it out. We are just getting this channel started,
but we are having a lot of fun and intend to continue making more videos. Your support, supports is. A comment or a like goes a long way, and even
more, a subscription. It’s so free and easy to click that red
button, why don’t you do it? Come on, do it! Done, right? Well, that’s all, see you next time. Stay Fresh

4 Replies to “TMobile Sprint Merger: why are US mobile plans so expensive

  1. Thanks for watching guys! I appreciate your support sharing this video somewhere in social media, that is one of the most powerful things you can do to help us grow and continue making videos like this!

    All the best,
    – Esteban.

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