September 21, 2014

SCHULMAN | Verizon’s Got Company

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By ERIC SCHULMAN

This week has been pretty emotional for me. I reluctantly switched from a Droid 4 to an iPhone 6. Don’t judge me, I’m only switching because I can’t use my Droid 4 with a cracked screen. I would’ve gotten another Droid if Verizon still carried it. I would’ve even gotten the Nexus 5, but in terms of high-end Android phones, Verizon only carries the Galaxy or the HTC One.

I put a lot of thought into getting the iPhone. I figure if I’m going to get a generic slab of gorilla glass manufactured by underprivileged children in China I should at least get the original one i.e. Steve Jobs’ compulsive vision of what a phone should be: the iPhone (really, Tim Cook’s changes to Steve Jobs’ vision to make it more like Android. Let’s be real the new iPhone is just a Galaxy running IOS). I’ve been ready for an upgrade for at least four months now and haven’t used it because Verizon makes a point of having the worst phone selection possible. It’s really frustrating that Verizon is too cheap to offer phones I want for its network.

Verizon doesn’t offer the phones you want because Verizon is a textbook monopoly — literally straight out of the Intro to Micro textbook — which kind of sucks. Like an econ textbook would tell you, Verizon’s marginal costs outweighs marginal revenue. In laymans terms, towers are expensive and the cost of supplying more service by building more of them doesn’t necessarily justify their benefits.

It may seem counter-intuitive, but Verizon can actually make more money selling less service. If they sell less, prices go up because supply falls (i.e. most people can’t drop the cash to build their own telephone network) and demand stays the same. As a result, Verizon overcharges you for less service. After all, if you don’t like their practices what are you going to do? Switch to AT&T? I couldn’t get the phone I wanted because Verizon’s costs to support unlocked data-guzzling phones wouldn’t outweigh the benefits.

Considering that a sophomore econ major shopping for a phone can tell you that Verizon is a monopoly and would make more money selling less data, I think its no surprise Lowell McAdam, chairman and CEO of Verizon started doing it. About three years ago, Verizon started capping its unlimited data plans. If you got a contract after 2011, you couldn’t get a unlimited plan. I’ve read articles saying that policy essentially hiked prices anywhere from 10 to 20 percent. I can tell you I personally pay 30 percent more for data than I did three years ago.

I’m not just whining about how Verizon overcharges me for a phone I only got because there wasn’t anything better, however. Verizon should be worried. Tom Wheeler, Chairman of the Federal Communication Commission, actually sent Lowell McAdam a nice letter expressing his concern after Verizon started capping the people grandfathered into unlimited data plans — even though Verizon let customers enrolled in unlimited data keep their plans, Verizon started capping their data too. Although I’m not sure if the FCC will intervene, it wouldn’t be the first time the FCC broke up a telecom monopoly.

Verizons has bigger fish to fry though. It needs to worry about its competitors. Verizon is becoming less and less of a monopoly because of technology. There are lots of pretty close substitutes for wireless these days. For one, when you live on a college campus, or a city where Wifi is free and abundant, you ration your data (not that I would know considering how Red Rover is). There are even some companies like Republic Wireless that offer plans at half the cost of Verizon by switching to Wifi whenever possible.

Verizon is also competing for loyalty with companies like Apple. When Verizon didn’t offer iPhones from the get-go, Verizon was competing with Apple. Verizon wants to hook you with a two year contracts and Apple wants to tangle you into their web of software for music, photos, documents and everything else in your life. Considering Verizon started offering iPhones, even at a loss, you can guess who is winning that battle — if that company hasn’t won it already.

Not offering the latest and greatest phones is not going to fly anymore. Consumers loyalties lie with their interconnected products, not their carrier — especially when there are substitutes available — which is how I’m justifying my iPhone 6. Although I have issues letting Steve Jobs’ army of i-devices conquer my life, at least I’m siding with team Jobs and not McAdam. As much as I loved it, the Droid 4 couldn’t really compete with Verizon for loyalty. On the other hand, the iPhone might have already won.

Eric Schulman is a sophomore in the College of Arts and Sciences. He may be reached at eschulman@cornellsun.com. Schulman’s Schtick appears alternate Mondays this semester.