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It Isn’t Your Imagination: Competition is Driving Down the Cost of Wireless Phone Service

american institute for economic researchCompetition among wireless phone providers, which has long been shallow and sluggish, is heating up, helping drive down consumer bills in recent months, and quantifiably putting more money in peoples’ pockets to spend on other things, the American Institute for Economic Research is reporting.

That’s a finding from AIER’s newly released Everyday Price Index for October, typically released just after the Consumer Price Index comes out. The EPI is designed to measure the price of day to day living, such as food, gas, and prescription drugs. Unlike the CPI, the EPI leaves out such fixed expenses as home mortgage and car payments.

The EPI dropped in October by 1 percent, as energy prices dropped considerably, and increases in food prices slowed. But one remarkable finding was that wireless telephone service prices fell 1.9 percent in October, and have dropped in five of the last six months, according to Theodore Cangero, senior research analyst at AIER. Wireless costs are one of the major costs of living, and it’s becoming harder to buy a cell phone that isn’t a smartphone, he said.

“Life doesn’t run without your phone today,” Cangero said.

Over the past two years, there have been a host of low-cost small cell phone services created, and there are 16 carriers in all, Cangero said. They have leased bandwidth from the major carriers, and now that they have worked out kinks in their systems, are able to challenge the big carriers on price, he said. Consumer Reports said this week that Americans are far more satisfied with smaller carriers, and two carriers, Ting and Republic Wireless, beat out the big three – Verizon, AT&T and Sprint – on customer satisfaction. With this report, more people are expected to switch to smaller carriers, Cangero said.

There are other factors that are holding back wireless price increases, he said. Large mergers are on hold, including Sprint ending a proposed merger with T-Mobile in the face of regulatory resistance. And in August, President Obama signed the Unlocking Consumer Choice and Wireless Competition Act, allowing consumers to unlock their phones for use on another carrier, he said.

“Competition is good for the economy. Consumers pay lower prices for better service and new innovations,” Cangero said.

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