September 13, 2009

Urban iPhone users protest that network prices aren't high enough

Just kidding -- that's what would happen if AT&T didn't have to deal with clueless brats for customers. (But even without this problem, they'd still be crippled by the threat of antitrust lawsuits -- more about that below.)

The background: users in San Francisco and Manhattan are so concentrated and use up so much of the network's capacity in these cities that running their sexy iPhone apps plods along more slowly than installing a 10-diskette computer game circa 1989. (Here is a follow-up by the author stressing that it's just in high-concentration areas that service is abysmal.)

So, the problem is that there is a shortage -- too much usage of the network, and not nearly enough to supply it. In other words, network capacity is a scarce resource. Therefore, AT&T needs to jack up its prices so that the market clears -- higher prices will cause users to demand less network usage, so AT&T should hike its prices until the total usage can be met by the available supply and in a way that the quality level of the service is great rather than garbage.

Of course, over the longer-term, AT&T should improve its service by building new towers, designing new software that will allow greater network capacity, and so on, so that network capacity won't be such a scarce resource as it is right now. And it is committing $18 billion this year to doing just that, not to mention introducing new technology that will allow faster speeds. However, the new technology will not immediately cover New York and San Francisco -- presumably because AT&T knows that simply allowing greater usage will not solve the scarcity problem, as iPhone users will merely re-calibrate what they perceive as normal and continue to hog and clog the network.

And at any rate, it will take awhile for all of these improvements to ameliorate the scarcity problem.

Right here and now, the real problem is that users don't understand that network capacity is scarce, or perhaps they do but have little incentive to curb their personal usage -- after all, how much difference would one person's restraint make? Prices are what convey the facts of scarcity to consumers, so if iPhone users currently spend all day following some retarded indie rock band on Twitter -- and howl when they are unable to do so because the network is so clogged -- clearly they are not getting the picture. Just shoot prices through the roof, and they'll get it.

Spending all their free time on Facebook, YouTube, and the NYT's website has made these losers accustomed to abundance, so admittedly AT&T will have a tough time explaining to them what happens when a resource is incredibly scarce and the amount of it demanded so high. "But I should be entitled to unlimited use of that scarce resource!" -- yeah, you and every other iPhone user in Manhattan. So either write a letter to Santa Claus or get a clue.

By the way, notice that none of the three technology articles / blog posts in The Newspaper of Record even noticed that this was a shortage problem, and thus whose solution is to raise prices high enough to clear the market. I have accepted that journalists will never understand numbers or math, but the problems and their solutions here are so simple that just words will do. Instead, the writers imply that it's a failure of AT&T to meet demand. Granted, AT&T didn't forecast demand well enough, and it should introduce new technology that over the next few years will boost capacity of the networks.

However, in the here and now, that isn't the problem at all -- it's their failure to raise prices and thereby convey how scarce the network capacity is, so that users will curb their usage. And in fairness, other telecom companies wouldn't have forecast demand any better, and probably wouldn't be able to sidestep regulations for building new towers, etc., any better. They were simply caught off-guard by how much data the iPhone customers felt comfortable using up, which is understandable given how strange and new the situation is compared to earlier periods of cell phone usage.

Still, you can understand AT&T's reluctance to raise prices -- not just because of having to deal with consumer psychology that will take offense at higher prices, even when you spell out the logic of doing so to solve the shortage. No, the greater fear they have is of antitrust lawsuits -- recall that the antitrust division of the DoJ recently said it wanted to kill its useless time by putting telecoms under a microscope because of increasing prices related to cell phone usage. At least for iPhone users in high-concentration areas -- and perhaps for other areas too, if others adopt the iPhone or similar "data guzzler" faster than network improvements can be made -- network prices are not high enough. As usual, behind this shortage there lies an attempt by the government to keep prices artificially low.


  1. The people with iphones have signed contracts to get unlimited data service. I don't think ATT can implement data price rationing on these users even if they wanted to. And, ATT doesn't want to because complicated plans confuse people and make them less likely to buy.

  2. Cell phone towers and honeybees?

    Ive actually wondered if there might be something to that.

    BTW----Eric Holder seems to be Obama's legal consigliere to me. Basically threatening to sue into submission trends his superior doesn't like. "Disparate impact" can be interpreted so many different ways.


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